stratgic planning

1. Colorado State University Pueblo
Facebook Inc.
Strategic analysis
ALBY JOY
4-15-2019

3. Section 1: Industry, competitor, and company analysis
Facebook, Inc. is an American online social media and social networking service company. The company is focused on building products that enable people to
connect and share through mobile devices, personal computers and other surfaces. The Company's products include Facebook, Instagram, Messenger, WhatsApp
and Oculus. The Company also engages in selling advertising placements to marketers. It is considered one of the Big Four technology companies along with
Amazon, Apple, and Google. Facebook had more than 2.3 billion monthly active users as of December 2018.(Reuter)
Porter’s 5 Forces of Competition Analysis,
Rivalry: Moderate to high. A wide range of players from full featured platforms to niche social networking sites and new mobile
apps could hamper Facebook’s user base growth. Social networking space is prone to innovation, swift change and the
introduction of new technologies.
Power of buyers: High. Given the large-scale competition, the bargaining power of users is high. The switching costs for users are
low, making it easy for them to migrate to other platforms.
Power of suppliers: moderate. Providers of servers, storage, power, software, data center and office equipment, technology etc.
represent suppliers for Facebook. Bargaining power of Facebook is expected to be moderate as it is a large scale customer holding
significant buying power.
Threat of new entrants: moderate. : Rapidly evolving mobile landscape could result in newer (more innovative) players enter the
market. The Internet business is characterized by low barriers to entry. It is relatively easy to build new sites and applications.
However, significant amount of resources are required for marketing and for gaining brand recognition, and this raises the barriers
to entry to an extent.
Threat of substitutes: High. New social networks and mobile applications could emerge as viable alternatives to Facebook. There
are a large number of social networks that facilitate sharing of information, and hence customers could choose these other
platforms over Facebook.
SWOT analysis Internal Strengths:
Industry – Online
social media sites on
the internet.
Competitors include
- Google
- Snapchat
- Twitter
- LinkedIn
External
Opportunities:
- Business diversification
- Product innovation
- Market penetration and
development
Threats:
- Imitation
- Cybercrime&
Data privacy
concerns
- Market saturation
- Strong brand image
- Large consumer base with externalities
- High revenues
- Innovative workforce
- International Expansion
- Create new features
- More ads in the news feed on non-mobile
platforms
-Address privacy rules
- More aggressive
marketing strategy
Weaknesses:
-Imitable products and services
- Negative impacts of online advertising
and privacy model on user experience
- Low diversification of business
- Adopt the best practices to reduce
costs and be less dependent on revenue
from advertisements
- Gather meetings for innovation
- More aggressive marketing
strategy
- More transparent data privacy
policy

4. Section 2: Strategy recommendations
Generic Strategies Map: Facebook Inc. uses the cost leadership generic competitive strategy. This generic strategy involves minimizing the costs of doing
business. Cost minimization enables the company to reduce its prices competitively.
Value Chain Analysis
Support activities:
- Administration and management
- Finance and Accounting
- Human Resources
- Procurement
Primary activities:
- Design and Development - Audience research • Flexible infrastructure • Open platform
- Customer services - relationship management and information management
- Production - Large number of applications • Content-rich user profiles • Effective grouping of users
- Marketing - Viral marketing • Social ads
Key Internal Factors: With a total weighted score of 3.33, Facebook is doing well, but could keep improving. A first strategy
would be that Facebook diversify its business to minimize market risk exposure while exploiting possible additional sources
of revenues to keep the organization growing. (Niko, 2018)
Key External Factors: Facebook Inc. has the opportunity to diversify outside its core social media and online advertising
business. The company has taken steps to exploit this external factor. For example, the company acquired Oculus VR,
which is a virtual reality technology business that can complement social networking services. Another opportunity is for the
organization to innovate products that are complementary to its social networking website and mobile apps. Furthermore,
market penetration and development can increase membership and revenues, in line with Facebook Inc.’s generic
competitive strategy and intensive growth strategies. (Justin Young 2018)
Competitive strength matrix: Facebook is in a good position compared to its competitors. The size of the ball graphically
indicates how strong the product is in the market space. Facebook has high market attractiveness and high competitive
posture. This makes the company in a perfect position for aggressive market penetration strategies and diversification of its
products.
BCG Matrix: On applying BCG matrix on different Facebook products, it is expected that (1) Instagram is a star because
currently it is the highest growing SBU owned by facebook (2) Oculus is a question mark since it is very futuristic
considering their product (3) Whatsapp and Facebook platforms are cash cows because their growth rate more or less
has been maximized currently (4) Messenger is a dog since the growth of similar apps like Whatsapp and Snapchat has
made it less popular.
Intensive Strategies: Facebook achieves growth primarily through the market penetration intensive strategy. The
objective of this intensive growth strategy is to maximize current market share. Market development is the secondary
intensive strategy that Facebook uses for business growth. The objective in this intensive growth strategy is to enter new
markets. The company uses diversification as a supporting intensive strategy for growth. Product development is a
supporting intensive growth strategy used in Facebook Inc.’s social media business. For example, as a strategic objective,
Facebook Inc. developed mobile apps to complement the social networking website. The company continues to develop
new product offerings.
Space Matrix: Facebook is in the aggressive section. It has already tried a horizontal integration, acquiring Whatsapp and
Instagram. The same strategies as explained earlier apply on this one: market penetration and development.

5. Competitive Strength Matrix Space Matrix
Main recommendations:
 Diversify its business to minimize market risk exposure while exploiting possible additional sources of
revenues to keep the organization growing.
 Continue its research and development (R&D) investments to increase its capabilities in counteracting
cybercrime that victimizes users of social media services.
 Focus more on its efforts in negotiating with governments to open up markets where it currently has
minimal or no presence.
 Having a more transparent approach on its data privacy policy, respecting the privacy concerns of its
customers.

6. Section 3: Financial analysis
For the financial analysis, three competitors have been selected: Twitter, Google and Snapchat. LinkedIn was also considered, however as its
financial data are not public and not easily accessible, it was omitted.
Liquidity, current ratio: The current ratio of Facebook was showing an increase till last year, there was a huge slump last year as it went
from 12.92 to 7.19, indicating that UPS was in a better position to pay back its liabilities with its assets one year ago than it is now. Its
competitors also showed a similar fall during the last few years. Since mid-2015, Facebook’s current ratio is higher than its major competitors,
significantly higher than the industrial average average. Facebook has to make sure now that its liabilities don’t exceed its assets, and that
its current ratio does not keep decreasing.
Leverage, financial leverage: Facebook has no debt. It has been operating its business with zero debt and utilizing only its equity capital.
All of its competitors rely upon debts as a means of leveraging. It can be interpreted as Facebook is comfortable with its equity capital.
Facebook has the least financial leverage compared to its competitors. Facebook's strong revenue and earnings have allowed solid
expansion of the company's equity capitalization, resulting in zero debt.
Activity, total assets turnover: Facebook has been rather stable at maintaining a good asset turnover ratio. This indicates that the usage
it makes of its assets is pretty stable over time. In comparison to its competitors, Facebook is in the norm, as only Google has a higher total
asset turnover. The asset turnover has been increasing since the end of 2014.
Profitability, ROE: This ratio is highly important for investors as it shows how profitable a company is. Facebook return on equity has been
increasing over the last five years, going from 11.34 to 27.9. Its results are always above (or at the same level) than its competitors. In this
case, Facebook is above all of them, and it generates much more profit with the money shareholders have invested in it.
Growth, change in revenue and net income: Facebook’s revenue and net income has shown steady increase over the last five years.
These calculations are made on a change from one year in comparison to the previous one. When comparing the net income of Facebook
to its competitors, Google holds a much higher position except in the year 2017. Facebook is in the norm or better.
In conclusion, Facebook Inc. has a rather good financial situation, and would constitute a good investment company. Facebook's strong revenue
and earnings have allowed a growth based on solid expansion of the company's equity capitalization, resulting in zero debt.

7. Section 4: Financial data and ratio (Mornignstar.com)
0
0.5
1
1.5
2
2018 2017 2016 2015 2014
Financial Leverage
Facebook Twitter Google Snapchat
-200
-150
-100
-50
0
50
2018 2017 2016 2015 2014
ROE (%)
Facebook Twitter Google Snapchat
-100
0
100
200
300
400
500
600
700
2018 2017 2016 2015 2014
Change in revenue (%)
Facebook Twitter Google Snapchat

8. References:
 Lindsey Fair, Facebook may be in the lead, but there's a storm in the forecast, Cape Breton University
 Jeffrey Scott Ray, Facebook: A Case Study of Strategic Leadership, University of Maryland (2011)
 Facebook Inc. Five Forces Analysis (Porter’s Model) & Recommendations, Justin Young, Panmore Institute (2018)
 Facebook Through The Lens Of Porter's Five Forces, Forbes.com
 SWOT Analysis of Facebook: How has it survived for so long?, pestleanalysis.com
 Understanding Facebook's Capital Structure (FB), investopedia.com
 Facebook, Inc. Porter Value Chain Analysis, Blue Ocean University
 Ikran Muhammad, Facebook Strategic Analysis, Metropolitan State University
 2014 - 2018 Annual report, Facebook.
 Atal, M. (2007, July 3). MySpace, Facebook: A tale of two cultures. Business Week Online.
 Käll, Malin, Business Strategies on Facebook, University of Gothenburg (2013)
 IFE EFE Facebook, Niko Pushpawardana (2018)
 Business strategy analysis on Facebook, www.slideshare.net
 Morningstar.com, data retrieved on 4/10/2019 from http://financials.morningstar.com/
 Reuter Facebook Inc. https://www.reuters.com/finance/stocks/financial-highlights/FB.O
 Facebook Inc., www.finance.yahoo.com
 Samantha Stephenson, Essay on Facebook, Strategic Management Analysis (2013)
 Laura Quilodran, Eric Henriquez and Simon Kreulen, Facebook’s BCG Matrix, padlet.com