TEACHING NOTE Facebook, Inc. Structure of the Case The case opens with Sheryl Sa
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TEACHING NOTE
Facebook, Inc.
Structure of the Case
The case opens with Sheryl Sandberg reviewing the company’s 1Q2015 earning data in preparation for the ensuing earnings call. Notably, the company continued a strong run in the mobile ad space and subsequent revenue data that Facebook had generated. But as chief operating officer (COO), she is looking to take the company to the next level: not only to continued growth in mobile ads, but to dominance in the digital ad space. For this to occur, Facebook would somehow have to top Google in both display and search ads, despite only having nominal presence and expertise in display ads.
The case looks back at the history of Facebook, detailing its growth from Harvard’s campus to Silicon Valley. Facebook went from a Harvard online student directory to a social network that included 800 colleges and universities and a $12.7 million investment by 2005. Monthly active users (MAUs) continued to grow and a few more investors joined subsequent rounds of funding. In 2012, Facebook surpassed one billion MAUs, giving the company an enviable amount of reach as well as a massive collection of user information. Revenues reached $12.46 billion in 2014, with the majority of sales generated from ad revenues, and everything else coming from its gaming platform and platform developers. Still, Facebook was making an average revenue per user (ARPU) of $9 in North America, whereas Google was generating ARPU of $45.
Facebook’s founder/CEO, Mark Zuckerberg, continues to drive strategy around product development, although he no longer directly develops for the website. Zuckerberg received much criticism over his casual appearance and inexperience. In 2008, he recruited Sheryl Sandberg as his COO. He thought she would be comfortable as his number two. Sandberg’s recruitment has softened the criticism against the young CEO while bringing a sense of urgency to monetizing Facebook’s billion-user base of subscribers. Zuckerberg brings in the users while Sandberg brings in the money. Sandberg’s impressive background has brought greater credibility to Facebook’s future.
News Feed, Timeline, and Graph Search make up the three “pillars” of Facebook’s product offering. News Feed tells users what is going on in their part of the social graph that they’re a part of. Timeline provides a quick way to answer the question “who is this person?” because it provides a chronological ordering of a person’s life posts to the website. Graph Search is the latest pillar that allows users to query their connections for information unique to them. Zuckerberg also sees this search feature as a way for users to make new connections. In addition to the pillars, Facebook has various features that
users find useful: a messaging service, photo sharing and storage, calendar and event management, notifications, personalized pages, and a gifting service.
The Facebook IPO, which took place on May 18, 2012, was lackluster and proved to be a catalyst for a company-wide refocusing. For starters, Zuckerberg was forced to grow up as a business leader and dedicate attention to the company bottom line, whereas before it was less of a focus for the young CEO. Second, it highlighted how woefully unprepared the company was for the rise of mobile and the implications the shift in consumer habits had on its core products. As a result, the company evolved on its ad capabilities, focusing on a mobile-centric platform and placing ads in user News Feeds, selling ad space not tied to user “likes,” and sacrificing the traditionally sacred user experience in favor of higher ad revenue.
Facebook creates value for marketers and advertisers as well as for application developers. For marketers, Facebook touts four value propositions: reach, relevance, social context, and engagement. Online advertising continues to grow and so does the value of Facebook’s advertising business. Advertisements are not the only revenue source for Facebook; 8 percent of revenues come from its developer platform. Developers can use a variety of application programming interfaces (API) that allow them to connect their products to a user’s social network. Some examples include posting to a user’s news feed, logging in using Facebook credentials, and integrating Like and Subscribe buttons.
The company continues to develop new products that help nurture the meteoric growth in mobile and ad revenues. Key to new products is the company’s ability to leverage the “holy grail” of the user Facebook ID, which allows users to login across a number of devices and, in turn, enables marketers to better track consumer interactions and behavior.
Facebook competes in the advertising ecosystem with social networks like Twitter, and the photo-sharing service Instagram. Although Facebook acquired Instagram on April 19, 2012, for one billion dollars, Twitter remains an active competitor. As of December 2014, Twitter had 288 million MAUs. However, Facebook users spend more time on the website than Twitter users. Facebook ad revenues in 2014 were $11.4 billion compared to Twitter’s $830 million.
Technology giants Microsoft and Google are also competing with Facebook. Microsoft has a 10 per-cent stake in Facebook and a partnership that uses Skype for Facebook’s video chat service. There is tension in the online advertising space between Facebook and both Microsoft and Google. Google’s online advertising services are exhaustive and dominant compared to Facebook. Immense value for both online marketers stems from their extensive, intimate knowledge about users of their services. As of yet, Google’s social network, Google+, has not figured out how to acquire as large an installed base as Facebook.
Facebook’s network of over one billion monthly active users is an enviable number to other advertising agencies. Perhaps even more enviable was the company’s current ability to offer users connectivity across multiple mobile devices, something that was highly attractive to advertisers. Yet, mobile was where the company’s dominance ended. How could Sandberg and her team begin to challenge Google beyond the realm of mobile?
Suggested Questions
Analysis: Focus on External and/or Internal Environments
What are the vision, mission, and values of Facebook? Critically evaluate their usefulness to the company’s leaders in formulating strategic intent.
What “industry” is Facebook competing in, and how is this industry changing? Who are Facebook’s most important competitors? Why?
What are Facebook’s resources and capabilities? What is Facebook’s core competency? Can its resources and capabilities form the basis of a competitive advantage? Why or why not?
Formulation: Focus on Business, Corporate, and/or Global Strategy
What is Facebook’s business model? How is it currently making money?
Given Facebook’s competitive advantage, core competency, and business model, is it possible to compete with Google’s dominance? How might it overcome the advantage Google has in the area of search advertising?
Implementation: Focus on Recommendations and How to Execute Them
Given the increasingly important role that mobile will play in the Facebook machine, what should Sheryl Sandberg prioritize as she seeks to organize to maintain and grow Facebook’s competitive advantage in the mobile space? How does this help Facebook in competing with Google?
Explanation / Answer
What are the vision, mission, and values of Facebook? Critically evaluate their usefulness to the company’s leaders in formulating strategic intent.
Vision of the facebook is to achieve supremacy to become a global one stop platform both for user in terms of social media interaction and online advertizer and marketer. Also to innovate at every step to never fade out.
Mission of the facebook is to become the best social media platform with all the functionalities which a person want. It wants to be a one stop place to access all the daily information required by an individual. Also achieving domination in both mobile and digital ad space. Achieving a signifant worldwide reach.
The values of the facebook are to reach, relevance, social context and engagement that forms the base of the organization. Facebook;s billion users creates values for both advertisers and its unique API offerings also gives preferences to the developers.
These three combined actually establishes the ground work for the leaders of the company to form a strategic intent to create a competitive advantage from their rivals and have a steeper growth trajectory along with step by step innovation at every step. It also establishes that this will prevent it from becoming dull and other players to enter the market defining its own supremacy across the globe. It will generate content to empower, engage and connect the world in one thread.
What “industry” is Facebook competing in, and how is this industry changing? Who are Facebook’s most important competitors? Why?
Facebook is competing in the online advertisement space both Search Ads and Display Ads. The advertisement industry is moving more towards Push type of advertisement where the products are pushed towards the customer based on their likings and the searches. The industry is moving more towards mobile ads rather than web i.e. Search Ads mostly. The steep rise in the usage of mobile in the past decade has changed the way to bring forward advertisements and Facebook is trying to increase its presence in both mobile and digital ad space. With the advent of mobiles, the mobile ads are started to surpass the revenue generated from TV ads etc.
Facebook is competing strongly with Google. Other good competitions to facebook are Microsoft and Twitter( wrt social media platform).
Google is one of the fierciest competitors for Facebook because of Google's dominant and exhaustive online advertisement capability. Specially in digital ad space, where the dominance of Google is very high as compared to search ad space. Even in terms of revenue generated Google stands at 5 times more revenue than that of facebook. The competitions both Microsoft and Google bring in forward because of the database of users that they source i.e extensive, intimate knowledge of users of their services.
Even though twitter is a strong competitor to Facebook wrt social media platform but both have different set of consumer base and a strong overlap of consumers using both. Especially when it comes to reach and relevance it is very hard to compare both the user segments.
What are Facebook’s resources and capabilities? What is Facebook’s core competency? Can its resources and capabilities form the basis of a competitive advantage? Why or why not?
Facebook's strongest resource is its more than billions MAUs apart from a well read personnel like the COO Sheryl Sandberg from Harvard Business School who is responsible for the bottom line of the company and brings in most of the revenue apart from the extra credibility that she brings with her name to the firm. The CEO himself Mark Zuckerberg who focusses on the product development making it more user centric is responsible for the addition of million users to facebook on a daily average.
The capabilities of Facebook are its various social features users find useful: a messaging service, photo sharing and storage, calendar and event management, notifications, personalized pages, and a gifting service. These are apart from the news feed, the timeline and the graph search which forms the integral part of the facebook platform. One of the strongest capability of facebook is the facebook user id that can be used across multiple devices and the various user interactions can be tracked generating copious amount of useful data for marketers and researchers. The API facility provided by facebook is also one of the strongest facebook capability in use.
Facebook's core competency is its more than a billion MAUs which generates a good sample data set for the marketing community to study, research and launch its product as per requirement. The customer centricity gets highlighted on the basis of usage of facebook and the pages searched and liked accordingly. This is enabled by the core features of facebook which is newsfeed, timeline and graph search that has made Facebook stand out in the online advertising space. One of the strongest capability is also the mobile ads space where facebook has made a significant mark.
Evaluating the competitive advantage of facebook using Porter's 5 forces.
1. Threat of new entrant - The billion MAUs makes new entry for a player quite difficult
2. Bargaining Power-Supplier - Facebook has no bargaining power over the users as it is as per their whims and fancies that the data is generated.
3. Substitute - Facebook has outgrown in the market and all the substitutes have been outplayed long back in this space of social media Platform. The resources and the capabilities are far superior that has been developed across the years and it is not imitable immediately.
4. Bargaining Power - Buyer - The online marketing agencies have less bargaining power since the resource and the capabilities that have been brought up across the decade of facebook being live.
5. Existing Rivalry - Google is one of the major players in the online advertisement space but both have different user space. Google is more broader whereas Facebook is more customer centric. Google focusses more on push & pull type of advertisement based on the requirement, however facebook uses mostly push type of online advertisement directly suggesting the possible requirements to the users.
Thus from the Porter's five forces we can conclude that Facebook has a strong competitive advantage and it cant be trodden down anytime soon or taken over because of lack of capability in digital ad space.
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