facebook competitive advantage (social networking)
DESCRIPTION
A term paper for a strategy class at the Asian Institute of Management. It talks about the competitive advantages of Facebook and how presents an industry model for the social media space.(if you use this ppt - please give credit. thank you)TRANSCRIPT
Akash Senapaty@ the Asian Institute of Management, Manila
SECTION B
Facebooks belongs to the online social networking industry. Companies like Facebook and MySpace usually do not release official visitors or revenue numbers. But good estimates are available online. The stats for online usage are mainly provided by Comscore and Compete. However, due to the rapidly changing nature of this industry, this presentation will be outdated soon. Todays date: 10st April, 2009.
Company & Industry Background
Facebook.com•Facebook.com is a free social networking website operated by Facebook Inc.•Founded in 2004 by Mark Zucherberg as a network for Ivy League schools
Social Networking Industry•Websites focused on building online communities of people having shared interests. Social networks have common themes of information sharing, person-to-person interaction and creation of shared & collaborative content•The industry have been successful in getting a large number of people at one place, but not very successful in monetization.•Two-thirds of the world’s Internet population1 visit a social network or blogging site and the sector now accounts for almost 10% of all internet time. *
External
POLITICAL- Pressure to crack down on child predators
- Increased emphasis on privacy
ECONOMIC- Greater affluence, leading to more number of users online
SOCIAL- “Everyone’s on it” & there is a pressure to Belong
TECHNOLOGY- Increases in broadband speed and penetration- Decrease in bandwidth and data center costs
PEST
External Environment Analysis External
Threat of New Entrants (Medium)-Network effects have historically not helped retain market share (but only to grow it)- Specialty networks (eg. Last.fm) are still entering the online space
Buyer Power (High)
- Switching costs are minimal- Users maintain 1.6 accounts on social networking sites and check both accounts in transition periods
Threat of Substitutes (Medium)
- Internet sites with large user bases may create a social networking component (blockbuster, amazon)
Supplier Power (Low)
- Widgets and Appz providers are usually small developers with little bargaining power
Industry Rivalry (High)
- Intense competition between competing sites fueled by venture capital and speculative valuations
Porter ’s Five Forces External
OVERALL - MEDIUM
Competi ti ve Landscape : Worldwide
•Globally, the major players are
Facebook, MySpace, Orkut, Friendster.
• These global players face issues in
countries like China, Japan and
Germany (among others) where local
networks far outdo it in terms of
visitors & reach.
Key Takeaways
Top 3 social networks in significant markets
External
Comscore: Worldwide data
Competi ti ve Landscape – US Markets
• Facebook now leads in the US
market (in addition to worldwide)
• MySpace still leads in terms of
ad-revenue
Key Takeaways
External
Market Share: Worldwide
MySpac
e
Face
book
Classm
ates.c
om
Linke
dIn
0
100
200
Millions of Unique Vis-itors
• The “market size” is ambiguous.
However, listed here are the
biggest social networks and the
unique visitors (non-duplicated
traffic) that they receive.
Key Takeaways
• Worldwide social networking market size is 0.58 billion
• Asia markets are growing the fastest at 29% (American markets at 10%)
• Latest data suggests 222million unique hits for FB and about 130mn. for MySpace
ComScore Data
External
• Design – Ease of use, Attractiveness etc.
• Target Market – Some sites target niches, some target goegraphies
• Activity Focus – Target market can be connecting people over relationships, or over shared interests
• User Engagement – Site needs to retain user minutes
• Transactions– Innovative features like applications, people you may know, pokes, comments, likes etc., serve to increase user transactions.
• Privacy –privacy filters and controls
• Entry Barriers – Easy sign ups
• Trust – Different outlooks to Trust.
• Localization– Local content, languages etc.
Possible Success Factors for the industry External
But, what does success mean?
Answer:1) Increase
advertising revenue
2) Increase user engagement
Key Business Imperatives
Question: How do we measure success in Social media like Social networking sites?
External
Industry Strategy
In this industry a social network can cater to the masses (MySpace, Facebook) or to the niches (blackplanet.com, imeem.com, last.fm)
The key is to increase user engagement (time the user spends on the website). This is of interest of advertisers. The number of users is secondary.
This presentation focuses on the non-niche social networks.
Mainstream and niche websites can have comparable user engagement
• It is interesting to note that even with much greater user engagement, FB cannot make as revenue much as MySpace• This graphic suggests that there is no link between both metrics, but I believe otherwise.• In time I believe the co-relation will be obvious. • This result could be because the social networking industry in a state of rapid flux right now.
Strategic Map #1
MySpace$750 mil.in sales
Facebook$300 mil.
User engagement
Estim
ated
reve
nue
Mapping user engagement to revenues
External
From comscore data
Interface
Facebook has had a new design every year since 2005.
Continuous improvement and innovation with site design has
helped Facebook Pace of innovation is important!
External
Strategic Map #2
MySpace130
Millionusers
Facebook200 million
users
People-to-people interaction
pace
of i
nnov
ation
, new
feat
ures
Mapping users to the pace of innovation
External
Strategic Map #3
MySpace7500 apps
available
Facebook52,000apps
available
apps available and their penetration
Supp
ort f
rom
the
web
site
• “Support from the website” - refers to how much the Application (App) can benefit off the website (MySpace/Facebook)
• This is clearly higher for facebook since it has sophisticated ways of spreading the word that an App has been installed. It informs your whole friend list & gets your friends to try it too. •Facebook is skilled at viral marketing•Also, Facebook allows developers to monetize without interference on their portion of the page.
External
Summary of Success Factors External
KSF Weights MySpace Facebook Orkut Twitter
People-to-People interaction 25% 4 9 5 7
Pace of Innovation (features, etc) 20% 7.5 9 7 7
Network effects 20% 6 7 5 9
Applications available 15% 6 9 6 3
User engagement 20% 7 8.5 7 7
TOTAL 100% 6 8.5 5.95 6.8
Internal AnalysisInternal
Mission, Vision, Culture Internal
Facebook Some of Facebook’s key personnelName Desig Priors
Mark Zucherberg CEO Founder of Facebook.com
Chamath Palihapitiya VP Product Marketing
AIM, ICQ, Spinner.com, Winamp.com
Gideon Yu VP Finance CFO of YouTube!
Sheryl Sandberg COO VP of Sales at Google
Dave Morin Sr. Platform ManagerApple, Director at several Startups
Facebook has a young and
innovative culture. It sources its people
from top silicon valley companies.
Mission: To connect people on an innovate platform that fosters increasing interaction. It should have an emotional connection.
Vision: To provide users with value beyond interaction. They should look to Facebook to find answers to questions like, “which car should I buy” – all this based on the
power of social recommendations.
Facebook is a social network for life
Positi oning and Segmentati on
• Facebook has expanded its target segment over the years
• It has done this without alienating its previous users
Key Takeaways
•Feb 2004 (Launch) – Open only to Ivy league students and alumni • Mar 2004 – Opened to other US and Canadian universities•2005 - Opened to top companies•2006 – Opened to anyone with an email address
Internal
Facebook traffi c break up
US Africa, Mid-east
Asia Europe Latin America
0102030405060
Facebook Users
Facebook Users
• Facebook’s user-base is international
• 29.3% of Facebook’s traffic is from the US (68.2% for MySpace).
Therefore, it is less dependent on US traffic
• They are well positioned to take advantage of the worldwide growth
in social networking users
Key Takeaways
Internal
• Design – Organized, simple to use interface
• Broad Target Market – Isn’t targeted to a specific demographic, but there is something for everyone (applications, musicians pages etc)
• Activity Focus – FB focuses on connecting and not on a certain activity like music, business networking etc. FB is the largest repository of pictures on the internet (bigger than Flickr)
• Transactions– Innovative features like applications, people you may know, pokes, comments, likes etc., serve to increase user transactions.
• Privacy – Advanced privacy filters and controls
• Entry Barriers – Easy sign ups
• Trust – When approving a friend request, FB shows you the number of friends you have in common
• Localization– Available in 40 languages (50 in development)
What is Facebook good at? Internal
Strengths
What is facebook NOT good at?
Threats and Weaknesses• Local Markets– Not the leader in key markets like China, Germany, Japan, India
• User Engagement – There are early reports of ‘Facebook fatigue’. Not everyone is a fan of their new design
• Applications – FB users frequently complain about the clutter brought about by applications
• Infrastructure Costs – FB has been EBIT positive for 5 quarters but is not turning a profit because of (theorized) huge depreciation expenses for data centers etc.
• It is not being able to monetize itself in keeping with the growth trajectory
• Keeping the user base intact – Much of the recent growth has come from older people (and not the early tech-savvy adopters like earlier). The challenge is to not alienate the original FB users.
•
Internal
Competency Ladder
Creating a platform for users to interact with each other, using applications &
other means
Not good at ensuring privacy from applications. Inadequate rules
The AJAX functionality, unlimited storage, easy to use interface – these will be copied with time
The combination of: 1) Innovation from the developers AND 2) the Facebook team’s efforts to retain user engagement
INCOMPETENCIES
PERIPHERAL
THRESHOLD
COMPETITIVE ADVANTAGE
COMPETENCIES
STRATEGIC
DISTINCTIVE
SUSTAINABLE COMPETITIVE ADVANTAGE
The facebook platform resulting in the Maximum user engagement in the industry
The strength lies in the platform & the way the user
interacts with it
The number of developers working on FB apps & their
collective innovation and energy
Constant creation of new gimmicks to retain user
attention (eg. The Like button)
Internal
STRENGTH1. Huge active user base. 2. Popular Platform for application
development3. Present in all geographies4. Translated in over 40 languages5. Email and Chat are integrated
WEAKNESSES1. Weak at monetizing the user
base and delivering a high number of ad’s per user
2. Inability to manage application feeds leading to clutter on the website & reactions from users
OPPORTUNITY1. Advertising is moving towards
Targeted ads and not blanked advertising. FB is perfectly positioned for this since it has a huge amt. of personal user information and preferences.
2. Improve Email and Chat
S - O1. Increase targeted
advertisements and develop “local ads” – A way of showing products relevant to the user’s location.
2. Improve quality of the integrated email and chat apps.
O - W1. Work on ways to reduce the
increasing amount of clutter on FB homepages
2. Create more monetization opportunities
THREATS1. Social networking audience is
fickle and thy frequently shift providers
2. People may grow tired of the highly structured FB and move to MySpace
3. People have privacy concern with Facebook
4. Risk of losing young, hip image
S - T1. Try to deliver localized content
and ads (i.e. move beyond the language translations)
2. Improve development platform on aspects like security, privacy, monetization and limit clutter.
T - W1. Always keep enhancing and
innovating features to keep users coming back to the website.
2. Increase opportunities to customize pages without ruining design
SWOT Analysis Internal
Long Term Objecti ves
To become part of daily life by becoming a complete communications tool
Bring people and businesses on the same page to deliver
services
Create an enjoyable and useful online experience so that user
engagement grows
Internal
Recommendati ons
• Focus on monetization to improve valuations when it needs to go in for further funding.
• Use the ‘Status Updates’ to deliver targeted advertisements
• Deliver “Local advertising” based on user locations.
Monetization
• The display of updates from applications annoys users & results in comparisons with MySpace. This should be controlled
• Privacy concerns from Apps to be addressed• Clutter forces users to miss out on news about the
people they are interested in
Applications (rules & controls)
• Improvement in storage, archival and search in the email and chat functions. (challenge is for FB to become the users primary email and chat client.)
• Solve the problem of how businesses can contact customer looking for services in a manner that does not infringe privacy
Communications
Internal
Industry Model for SOCIAL MEDIA
T-Factor Question to be asked Function of
Transactions Do the transactions on your site, make a difference to the users life? Are they repeated?
Repeat transactions
Targeting Can the site distinguish between the preferences, likes/dislikes of two users?
Targeted Advertisements
and ContentTime Do your users spend time on your site? Are
you an industry leader in user enagements?User Engagement
& Content
Transactions
TimeTargeting
3 T’s Framework
Social media can be broken down into the below 3 components to effectively analyze its competiveness.
It needs to be able to do all three with varying competencies.