Porter's Analysis and Resource Based View of Facebook.

1. SYRACUSE UNIVERSITY
Firm Strategy Analysis
Facebook, Inc.
Manan Kakkar
2/5/2012
A look at Facebook’s strategies and competitive threats using Porter’s Five Forces and the Resource
Based View models of analysis.

2. IST 755 Firm Strategy Analysis 1
Manan Kakkar
Table of Contents
Porter’s Five Forces analysis of Facebook................................................................................................. 2
Bargaining Power of Customers:........................................................................................................... 2
Bargaining Power of Suppliers: ............................................................................................................. 2
Threat of New Entrants ......................................................................................................................... 3
Threat of Substitute Products ............................................................................................................... 3
Competitive Rivalry within Industry...................................................................................................... 3
Resource Based View of Facebook ........................................................................................................... 4
Resources .............................................................................................................................................. 4
Capabilities ............................................................................................................................................ 4
Conclusion ................................................................................................................................................. 4
Bibliography .................................................................................................................................................. 5

3. IST 755 Firm Strategy Analysis 2
Manan Kakkar
Facebook
A social networking website started out of a dorm room at Harvard, Facebook has a fairly-tale success
story. The company recently filed for an IPO to raise $5 Billion (O'Dell, 2012).
Porter’s Five Forces analysis of Facebook
Porter’s five forces and their impact on Facebook:
Bargaining Power of Customers:
For Facebook, the advertiser is their customer; the advertiser is the one paying Facebook to use the
platform. According to Facebook’s S-1 filing for their Initial Public Offer (IPO) with the Securities and
Exchange, Facebook says off their $3.7 Billion revenue, $3.1 Billion was from social advertising
(Ebersman, 2012). The staggering number is a 69% increase compared to the $1.85 Billion in 2010.
Facebook’s financial details point out that 18% ad revenue increase was due to increase in average ad
price.
While Facebook currently has leverage while negotiating with its customers which has allowed them to
increase the average ad price, inability to add new users or lose existing customer due to platform
fatigue, new entrants, substitutes. If Facebook is not able to retain their existing user base by providing
a better experience, the customer’s bargaining power increases.
Facebook says, they have 425 Million active mobile users each month but have not monetized the
mobile platform. For their customers, this could be a deal breaker if a new entrant or substitute can fill
the gap. 12% of Facebook’s ad revenues in 2011 came from a single supplier (Zynga), this gives the
supplier significant bargaining power.
As of now, bargaining power of customers is low.
Bargaining Power of Suppliers:
According to the S-1 filing, Facebook currently has 845 Million monthly active users (Ebersman, 2012).
Precise information about 845 Million users’ likes, dislikes, interests and preferences is what Facebook
offers their customers. This data voluntarily supplied by the user and Facebook’s algorithms to show
targeted ads lets Facebook have leverage over their customer and increase ad prices.
However, as mentioned by Facebook in their S-1 filing, the company risks losing the suppliers for various
factors; these include:
• Inability to enter new countries or lose users in existing geographical locations due to privacy
laws
• Users switching to new entrants or competitor products like Google+
While Facebook has no cost-of-entry barrier for the supplier, Facebook is seeing some resistance in
adding new users (Wortham, 2011). Having said that, for 845 Million interconnected users
interconnected with an existing social graph, migrating to new networks is a tough choice, hence the
bargaining power of suppliers is medium.

4. IST 755 Firm Strategy Analysis 3
Manan Kakkar
Threat of New Entrants
For Facebook, mobile journal Path is a threat as they are new, focused and gaining traction (Miller,
2010). Path is a mobile only social network that added nearly 1 Million new users in two months; they
now have a nearly 2 Million users (Gannes, 2012).
As noted by Facebook in their S-1 filing, the company has 425 Million monthly mobile users and the
company hasn’t been able to monetize this user base (Ebersman, 2012). As users start using new
platforms like Path can pose a threat due to a new user experience (Lynley, 2011). Despite rapid growth,
products like Path offer low threat since they are limited to smart phones (iOS and Android) whereas
Facebook can be accessed on multiple platforms.
Threat of Substitute Products
Since Facebook is essentially a social network that allows users to stay in touch with friends, services like
WhatsApp, iMessage and Skype can be a threat. WhatsApp and iMessage are Internet based short
messaging services that integrate with a user’s phonebook and allow the user to send short messages
using their phone. (iMessage is iOS specific, whereas WhatsApp is multi-platform.)
Video calling services like Skype and Google Hangout can attract users by allowing video communication
over mobile phones and PCs. To counter both these threats, Facebook has introduced independent text
messaging apps and tied up with Skype to offer video calling. Since Facebook has taken steps to realize
potential substitutes and neutralize them, the threat of substitutes is low.
Competitive Rivalry within Industry
As Facebook’s growth has grown, competition from Google has strengthened. In June 2011, Google
introduced Google+, a new social network leveraging existing Google infrastructure to compete with
Facebook (Miller, Another Try by Google to Take On Facebook, 2011). According to Google CEO, Larry
Page, their network has 90 Million users According to Google’s revenue numbers; the company has 350
Million Gmail users, 250 Million Android devices (Page, 2012). 96% of Google’s $37.9 Billion revenues
came from advertising (Abell, 2012). Given Google’s wide product range (Email, Blogging, Search,
Mobile, and TV); Facebook can find strong competition in retaining users. Every Google product user is a
Google+ user and hence the threat of industry rivalry from Google+ is high.

5. IST 755 Firm Strategy Analysis 4
Manan Kakkar
Resource Based View of Facebook
Resources
Facebook’s biggest resource and asset is their information database on 845 Million users worldwide. As
mentioned earlier, competitors like Google+ and new entrants like Path have not reached even half the
user base Facebook caters to. This makes Facebook’s database their most valuable resource.
Facebook introduced functionality that allowed merchant websites to embed Facebook’s Like button. As
users continued to browse the web and “like” webpages or products they liked, Facebook was able to
build a rare utility to track product acceptance and user preference (Kessler, 2012). Though Google has
tried to introduce similar functionality, Facebook’s first-mover advantage, user-base and brand have
given the company an upper-hand.
For a competitor like Google+, new entrant like Path or substitutes like WhatsApp, collating and
aggregating such a huge database of user likes, dislikes, moods and preferences will take several years.
Facebook is in their 8th year of operation and introduced features that continue to add more data points
such as comments on other websites, ability to use Facebook credentials to login to other services and
epayments. All these services in one place and 845 Million users make Facebook’s resource very tough
for competitors to imitate.
Google’s user base across their portfolio of services such as Gmail, YouTube and Android gives the
company a competitive chance against Facebook’s existing database. With the introduction of +1,
Google’s version of Facebook Like, the company can build their own treasure of user information;
however, a competitive product alone will not result in substituting Facebook’s database. The
competitive product will have to offer better capabilities
Capabilities
Facebook has been working on developing new products and ways for users to communicate in order to
maintain and build a competitive advantage. Introduction of features like Subscribe, Timeline, Spotify
integration and a new app platform, the company has been able to adapt how users use the web.
Mentioned in their S-1 filing, CEO Mark Zuckerberg has explained how he has modeled the company’s
internal organizational culture to maintain what he calls as the Hacker Way (Ebersman, 2012). The
Hacker Way at Facebook lets the company build new features and fix problems quickly and in an
iterative process.
Conclusion
Despite having threats from various sources, Facebook’s consistent innovation and Hacker Way of
development has let the company build resources and capabilities that have given them a competitive
advantage.

6. IST 755 Firm Strategy Analysis 5
Manan Kakkar
Bibliography
Abell, J. C. (2012, January 23). Who Buys All Those Google Ads? An Infographic Breakdown. Retrieved
February 5, 2012, from Wired: http://www.wired.com/epicenter/2012/01/google-ad-buyers-
infographic
Ebersman, D. A. (2012, February 1). Facebook Inc. Form S-1. Retrieved Fenruary 5, 2012, from Securities
an Exchange Commission:
http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm#to
c287954_2
Gannes, L. (2012, February 3). Path Now Has 2M Users, Having Doubled Since It Relaunched Two Months
Ago. Retrieved February 5, 2012, from AllThingsD: http://allthingsd.com/20120203/path-now-
has-2m-users-having-doubled-since-it-relaunched-two-months-ago/
Kessler, A. (2012, February 2). The Button That Made Facebook Billions. Retrieved February 5, 2012,
from The Wall Street Journal:
http://online.wsj.com/article/SB10001424052970204652904577196992203069570.html
Lynley, M. (2011, December 11). Here's Why The New Path Will Make You Want To Delete Facebook.
Retrieved February 5, 2012, from Business Insider: http://www.businessinsider.com/path-will-
make-you-want-to-delete-facebook-2011-12#for-starters-the-app-looks-flat-out-gorgeous-1
Miller, C. C. (2010, November 15). Start-Up Plans a More Personal Social Network. Retrieved February 5,
2012, from New York Times: http://www.nytimes.com/2010/11/15/technology/15photo.html
Miller, C. C. (2011, June 28). Another Try by Google to Take On Facebook. Retrieved February 5, 2012,
from The New York Times:
http://www.nytimes.com/2011/06/29/technology/29google.html?pagewanted=all
O'Dell, J. (2012, February 2). BREAKING: Facebook files its S-1; let the IPO hoopla begin. Retrieved
February 5, 2012, from Reuters:
http://www.reuters.com/article/2012/02/02/idUS291585087920120202
Page, L. (2012, January 19). Larry Page - Google+. Retrieved February 5, 2012, from Google+:
https://plus.google.com/u/0/106189723444098348646/posts/jcyvVa5K4JW
Wortham, J. (2011, December 13). The Facebook Resisters. Retrieved February 5, 2012, from The New
York Times: http://www.nytimes.com/2011/12/14/technology/shunning-facebook-and-living-
to-tell-about-it.html