Facebook was founded on February 4, 2004 by Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Chris Hughes, and Dustin Moskovitz. Initially, the only people allowed to use the website were Harvard students. However, membership was later expanded to Stanford University, the Ivy League, and the general Boston area. Since 2006, anyone who is above 13 years old could become a registered member of the website. The name of the company comes from the face book directories that American university students usually receive.
On the financial side, the company held its IPO in February 2012 and began selling stock to the public in May. The company attained a market capitalization of $104 billion after the IPO. In July 2015, the company became the fastest entity in the Standard & Poor’s 500 Index to attain a market capitalization of $250 billion. The last quarter of 2015 saw the company’s market capitalization go beyond $300 billion.
Impact of Mission, Vision, and Primary Stakeholders
The company’s mission is to enable people from across the globe to share information and make the world a more connected place. Users utilize the social media platform to share their thoughts, feelings, and express what matters to them. They also use the platform to discover the events that shape the world as well as understand how the globe functions on a daily basis (Loeb, 2012).
The company’s vision is to build a universal mobile product that can be used by everyone in the world wherever they are. Facebook is also building itself up to be the platform where every new application created is social and enables users to share. The final part of the company’s vision is to make Facebook a formidable economic and monetization engine making it one of the most valuable companies in the world (Loeb, 2012).
Primary stakeholders include the company’s angel investor Peter Thiel among other investors. Thiel invested $500,000 into the corporation when it was just beginning. Other investors came into play after seeing the potential of the seedling company. Accel partners brought in $12.7 million, while Microsoft invested $240 million. The investments were made before the company went public in 2012 (Milian, & Chan, 2012).
The company has remained focused on its mission and vision statements. Currently, there are more than a billion users on the social media platform. In 2013, the US had the most Facebook members with more than 168 million users. Brazil, India, Indonesia, and Mexico follow closely in terms of the number of people registered on Facebook. The five countries made up 309 million users of the social media platform, which represents about 38.6% of the total number of people registered on Facebook across the globe.
Forces of Competition
A. Threat of New Entrants
Facebook is the biggest social network in the industry and is continuously looking for ways to minimize competition. As a result, entry into the market is very difficult especially considering the high market capitalizations of the two most formidable competitors in this market, Facebook and Google. Furthermore, Facebook has at least one billion regular users who have remained loyal to the brand throughout the years.
B. Threat of Substitutes
The threat of substitutes is moderate as some countries have their own social networking sites. For instance, the Chinese have the Renren Network while the Germans have the Wer-kennt-wen network. However, Facebook is the most popular because it uses a universal language and has settings to change the language from English to the user’s choice.
Google is considered the company’s greatest competitor because it offers similar services on Google +. Facebook has taken direct steps of minimalizing the threats of substitutes by collaborating with Skype to offer video calling, and purchasing instant message service providers like Whatsapp. Thus, the threat of substitutes is on a decrease (Trefis Team, 2014).
C. Bargaining Power of Customers
The company has two main customers, the advertisers, and the registered members. The advertisers pay Facebook to run their advertisements while users use the site and its services to socialize with friends and family members. The customers of the site have a high bargaining power because they can always opt to advertise and use other social media websites. If the users do not feel secure on the site or do not enjoy its features, they will migrate to other sites. The advertisers will follow suit because they want to advertise on sites with the most people.
D. Bargaining Power of Suppliers
The company’s suppliers are its users. They submit tones of personal information on the site that the company uses to customize advertisements specifically targeted at them. Their bargaining power is high as they can choose to use other social media platforms to socialize.
E. Intensity of Competition
Despite facing significant competition from other companies including Google Inc., the intensity of competition to Facebook is low. The low rivalry is attributed to the fact that Facebook has more than 1 billion monthly users. It has a wider audience than any other social media platform. Millennials are practically addicted to Facebook as it is seen as a fun place to hang out virtually. G+ is seen to be more official and used mostly for professional communication.
The section will provide a thorough analysis of Facebook’s strengths, weaknesses, opportunities, and threats. Among the company’s greatest strengths is the number of users who use the social media platform on a monthly basis. More than one billion people log into Facebook every month. Millions of people use the platform on a daily basis. The company is able to make monetary gains from its universal customer base.
Serving this number of people on a daily basis gives the company valuable information on customer tastes and preferences. The personal user information can help Facebook customize advertisements to target specific customer segments. The result is an increase in the number of people who will click on an advertisement because it is specifically suited for them. Facebook ends up making more money from its database of customer information.
Other strengths include the fact that it has been at the forefront of revolutionizing how the world socializes. It is now recognized as a global leader in innovation and bringing people closer together. The social media platform is also available in more than 70 languages making it accessible to a wider pool of people from different geographic regions. Allowing the users to engage with others on a first language basis rather than English makes the platform more inclusive and convenient for major populations across the globe. Furthermore, the company has expanded its utility by integrating other features such as email and chat, making it easier for people to engage on a more personal level.
Major weaknesses that the company has had to deal with include a longer average load time and the cluttering of news feeds. The platform’s average load time is slower compared to 76% of other websites. The company had also lacked the proper means of managing application feeds making the users’ news feeds cluttered. There are also constant privacy issues that arise over the website. There have been many reports of users’ accounts being hacked by individuals with nefarious intentions.
Another security concern is the creation of multiple often-fake accounts on the website. The fake accounts are used to carry out illegal and fraudulent activities targeting the website’s large customer base. There is also the issue of under -age users being able to create accounts on the website. The situation is dangerous as some of these users can give out their locations to potential kidnappers, drug and child traffickers, as well as sexual predators. Furthermore, women have been the target of sexual assault as a direct result of interacting with people on the website.
Several opportunities present themselves to the company including the consolidation of the Fan Pages and App Pages. The separate pages seem redundant to the average user. The company should also look into improving its privacy structure so that people, especially celebrities, can stop being hacked. Celebrities bring in a lot of business for Facebook and its partners. Therefore, the company should work towards ensuring that their accounts including the accounts of average people cannot be hacked.
The company runs the risk of losing its hip and young image especially with the proliferation of adverts on the website. Most young people use the website to socialize and this feature enabled the sharp increase in Millennials utilizing the social media platform. However, the company is now focusing more on advertisements to make money. Many young individuals are being put off by this shift towards heavy emphasis on commercially exploiting the users. They are now looking into alternative platforms where they can socialize without bothersome advertisements (Trefis Team, 2014).
The privacy issues on Facebook are numerous and people are beginning to lose faith in the security system of the website. Constant hacking has led people to migrate to other safer socializing sites. Numerous reports on television have shown that many young women are raped by men they met on the social networking site. Furthermore, the website has been used severally to promote terrorist and extremist activities. Many young recruits of terrorist cells admit they connected to these groups on Facebook. They were subsequently radicalized, joining the various jihad movements across the globe. If the situation continues, most governments that are facing the jihad menace may ban the website in their countries.
Capitalizing on Strengths and Opportunities and Minimizing Weaknesses
The company is in operation in nearly all the countries in the world. It should be in a position to avail its services in additional languages other than the 70 it has been able to make available. Additionally, the company should adopt new ways of segmenting customers based on the information that users voluntarily give on the website. Proper segmentation of the target market will enable it to create adverts that are more specific to the consumer segments (Trefis Team, 2014).
A more stringent age restriction structure should be put in place to ensure children under a certain age cannot create Facebook accounts. The company could prompt new users to provide identification that demonstrates that they are over the age of restriction. The company could also conduct a short interview during the registration to confirm if the new applicant is as old as they claim to be.
Furthermore, the company should keep up with the ever-changing security dynamics across the globe. Facebook should employ individuals who are capable of instituting anti-hacking mechanisms in a bid to boost the security of the system. New security algorithms should be constantly deployed on the website so that hackers have no room to penetrate user accounts. Customer privacy issues should be dealt with in as little time as possible.
Facebook Incorporated should also look into ways of minimizing fake user accounts. The company should also collaborate with law enforcement agencies across the globe to help block accounts of sexual predators and other security threats such as terrorists and extremists. The social media website should also raise awareness on how the users can protect their information using new security features developed by the company.
Facebook is in the business of communicating and thus, the most logical way of communicating these recommendations to relevant stakeholders is through the website itself. The recommendations can be sent as direct messages to the pages of individual board of directors. The company can also create a closed group for the employees and the BOD where pertinent information can be shared securely.
Corporate Governance Mechanisms
The company has a code of conducts that touches on everything from conflict of interest, public disclosures, protection of user data, protection of Facebook assets, to reporting violations. The rules help the stakeholders understand how they should behave in different situations. The code of conduct can be found on the Investor’s Relations page on the website. Furthermore, the company has a board of directors as one of its corporate governance mechanisms. The BOD is comprised of independent directors who have the mandate to oversee the functions of the company on behalf of the investors and other stakeholders (Taylor, 2015).
The company also has a dual-class stock structure that allows each shareholder a vote based on the number and class of his shares. The shares are divided into Class A and Class B shares. Typically, the Class A shares are sold to the public and they allow the shareholder to have a vote for every share. Class B shares are distributed among Zuckerberg, early investors and co-founders of the company. The Class B shares allow their owners 10 votes per share. The mechanism allows the owners of Class B shares more veto power when it comes to decision making (Taylor, 2015).
Effectiveness of Leadership and Recommendation
Many investors have criticized the company owing to its ineffective leadership in the manner that shares are distributed. The distribution of shares has allowed Zuckerberg and his cohorts to have the controlling power in the company. Public investors rarely have a say in the way the company is going. For instance, these investors have very little influence on the equity incentive plan rolled out for employees. They certainly do not want to see 2.5% of their equity value diluted annually until 2022 but there is really nothing they can do (Taylor, 2015).
The recommendation here for Facebook is to recapitalize the shares. The strategy will ensure that every shareholder has equal voting rights. The public shareholders are proud to own a part of one of the biggest companies in the world. However, they would be more thrilled to actually have a say in the corporate governance of the company.
Corporate Social Responsibility
Facebook created the ‘Organ Donor’ sign up option and more than 6000 people enrolled in one day in the United States. Before the option, only 400 people would register to become organ donors every day. Users can register with an official organ donor registry on the site making it easier for hospitals to reach organ donors. Medical practitioners believe that more awareness on organ donations can save the lives of millions of people each year. This is exactly what the social media platform has done. By adding the ‘Organ Donor’ option, the company is raising awareness on the importance of organ donations. It has done what it does best by connecting potential organ donors to online donor registries making the experience faster and easier for both parties. The registered organ donors will share their status online, prompting others to follow suit. In the end, millions of lives will be saved (Castillo, 2013).
Castillo, M. (2013, Jun18). Study: Allowing organ donation status on Facebook increased number of donors. CBS News. Retrieved on 9/3/2016 from http://www.cbsnews.com/news/study-allowing-organ-donation-status-on-facebook-increased-number-of-donors/
Loeb, S. (2012, Oct 23). Mark Zuckerberg lays out Facebook’s vision and strategy. VatorNews. Retrieved on 9/3/2016 from http://vator.tv/news/2012-10-23-mark-zuckerberg-lays-out-facebooks-vision-and-strategy
Milian, M. & Chan, M. (2012, May 18). Facebook’s valuation: What $104 billion is worth. Bloomberg Technology. Retrieved on 9/3/2016 from http://www.bloomberg.com/slideshow/2012-05-17/facebook-s-valuation-what-104-billion-is-worth.html
Taylor, H. (2015, Jun 11). What is happening at Facebook’s shareholder meeting? CNBC. Retrieved on 9/3/2016 from http://www.cnbc.com/2015/06/11/facebook-annual-shareholder-meeting-what-to-expect.html
Trefis Team (2014, Nov 28). Facebook through the lens of Porter’s Five forces. Forbes.com. Retrieved on 9/3/2016 from http://www.forbes.com/sites/greatspeculations/2014/11/28/facebook-through-the-lens-of-porters-five-forces/#7af681ca1cd3