Core Competencies Facebook Case Study

CORE COMPETENCIES: FACEBOOK CASE STUDY 13

CoreCompetencies: Facebook Case Study

CoreCompetencies Facebook Case Study

Thesocial media and social networking industry has recorded a number oftrends since its beginning. From the first time that the socialnetworking sites were developed, the industry has had developmentsthat defined the trends. The development of the social media industryis as a result of competencies that give players in the industry acompetitive advantage. Taking the case of Facebook and its success inthe industry, this paper will answer important questions on thetrends and competencies that the industry has. This will give way forthe understanding of competitive advantage and the strategies used bythe Facebook to succeed in the dynamic industry.

  1. Trends in the Social Networking Industry

Oneof the major early trends in the social networking industry is theformation of friends on the social sites and sending messages online.It is this trend that Facebook has become good at and excelled in, byconnecting millions in the world. This was the trend that wasestablished by MySpace, which is one of the major early socialnetworking sites (Van, 2013).The site was developed as a result of the need for people to connectwith friends and meet new people. According to Cooket al (2014),MySpace originally targeted the same market that Facebook hasperfected in getting and retaining despite the competition in theindustry. The trend developed into another major trend that hasdefined the industry.

Chattingis the trend that has developed into a major functionality of thesocial networking sites and the whole social media industry. This isbecause it involves sending and receiving of instant messages by theuser with no boundary of time and geographical location (Schoen,2013).As a result, the social media industry has changed with the favorbeing on Facebook side. On one hand, Facebook has perfected thefunctionality of chatting, while on the other hand, the competitorswere not able to do. This has given Facebook great advantages byleading the development of chatting as a modern trend in the socialnetworking industry.

Thetrend of calling and video conferencing is one of the developingtrends that have put the social networking sites on the rise, withFacebook leading the way. Facebook allows people to call each other,all at no cost, compared to conventional telecommunication servicesthat offer the service (Piskorski,2014).The advantage with Facebook is that it launched the calling and videocalling service with as an additional service, compared to otherservice providers like Skype who offer it as the main service (Van,2013).This trend has seen Facebook expand in terms of users and revenues.At the same time, the use of applications inside Facebook by usersand program developers has given Facebook the upper hand. As a resultof the developments, Facebook has become a leader in the industry, interms of services, applications, users and revenues.

  1. Core Competencies

Innovationis one of the core competencies that Facebook has utilized andcompetently applied in the social media industry. The use oftechnology has not only helped the company to formulate new products,but also compete in the provision of products that are competitivewith the other providers in the industry (Piskorski,2014).The company has provided the services that are conventionally knownto be offered by other industries. For instance, the company hasprovided advertising services, which is the revenue generated for thefirm, in competition with the advertising providers. Another productthat shows the innovative competence is allowing video calls andaudio calls that is traditionally a preserve of the telecommunicationcompanies. Therefore, the company is not only able to compete in theindustry, but also outside the industry.

Leadershipis another core competence that Facebook has had over the developmentof the social networking site. The success of Facebook as a socialmedia leader in the industry is as a result of the ability of theleaders and the management to develop the concept and rally employeesbehind it. Led by the founder and CEO of Facebook, Mark Zukerberg,the company has made the strategies that have positioned the companyas a leader in the industry (Lee,2014).The management of the company has mad deliberate decisions tointroduce innovative functions and products that have revolutionizedthe social networking industry as a whole. This makes the leadershipof the company a core competence in the development of the company,and a leader in the social media industry.

Anotheradvantageous core competency in Facebook and other social networkingsites is the strong knowledge base, as seen in its programmingprowess. The developers of Facebook have a lot of programming prowessthat has led to the development of programs, software andapplications that give the company its current functionality (Cooket al, 2014).The ability to develop a smart program has been exhibited byZuckerberg himself, especially during the beginning stages (Schoen,2013).In addition, the ability of the workers at the company offers anadvantage to the company compared to other social networking sites(Van, 2013).The expertise of these programmers gives the company the upper edgein the development of the website, the communication platforms andthe functions of the site.

Anothercore competency is the geographical and demographic segmentation ofthe services, friend and profiles for the users. The company hasperfected the art of segmentation to the levels of having accurateauto suggestions to the users based on their geographic allocationand demographic level (Lee,2014).This feature makes Facebook among the only social networking sitesthat link friends based on their social features and by suggestingthem to each other. According to Hitt et al (2013), the capability ofa company to segment its products of services to different countriesor regions is important to make it responsive to the different needsof the global audience. The system at the company is designed to tellwhich user is related to the other, and who has ever met another inorder to assist one user ink with others.

Tomake the autosuggestion feature more competent and successful, thecompany has developed better ways of telling a person that he or shemay be related to the other user. The company allows users to settheir profiles based on the way they know each other, the work theydo, the schools they attended or the places they have been (Lee,2014).As a result, the company promotes the interconnectedness of life, toreflect the social setup of the normal society. At the same time, thecompany promotes globalization by allowing anyone in the world tomake friends with any else. While the company does not limit, it alsotakes care of the security and privacy of the users by avoiding spam.This competence of segmenting its reach to different regions, whilemaintaining a global image is successful in the development of thecompany as a leader in the industry.

The4-criteria test reveals a lot of distinctive core competencies of thecompany in relation to other social networking sites in the world.The 4-criteria test reveals innovation and knowledge base asdiscussed in the explanation above. At the same time, the 4-criteriatest reveals the geographic and demographic segmentation aspect ofcompetence of the company. According to Drejer (2002), corecompetencies of a business guide its management process, operationalsuccess and competitive advantage. It is through these corecompetencies that Facebook has succeeded as a leader in the industry.

  1. Level of Competitive Advantage

Thekey core competencies that the company reveals are innovation,leadership, knowledge base, and geographical and demographicsegmentation. The level of competition strength that Facebook has inrelation to the competitors in the social networking industry is high(Schoen,2013).This is because Facebook is the market leader in the socialnetworking industry that is dominated by three other main players inaddition to Facebook Inc. among these players is twitter, a microsocial networking site that started in 2006 to offer peoplenetworking services and sharing ideas through short messages. Theother player is Google Plus, a social networking site for Google Inc,which shares the service of Google account holders. The other playeris LinkedIn, a social networking site established in 2002 for theprofessionals.

Key Success Factors

Importance

Weight

Facebook

Twitter

Google Plus

LinkedIn

Strength

Score

Strength

Score

Strength

Score

Strength Rating

Score

Innovation

0.3

6

2

4

1.1

7

1.2

4

0.9

Leadership

0.2

6

1.3

4

1.2

5

1.6

3

1.5

Knowledge Base

0.2

7

2.9

7

1.4

8

1.9

4

1.4

Segmentation

0.3

9

3.4

6

1.7

8

2.9

6

1.9

Weighted overall strength

1.0

28

8.1

21

5.4

28

7.6

17

5.7

Facebookhas a stronger WCSA compared to the other three players, as themarket leader. In innovation, Facebook score is 6, higher than therest, except for Google Plus. On leadership and segmentation, thecompany scores high because it has utilized these core competenciesmore than the rest. It is in the segmentation competence that thecompany scores higher because of the ability to use autosuggestionfunction based on the geographical and demographic factors of theusers.

  1. Financial Appraisal

Thecompany has recorded a consistent rise in the level of financialperformance and its financial position over the years has recorded anincreasing trend. Since the foundation of the company in 2004, thecompany has developed into a successful firm with increasing revenueand profitability. However, the actual financial profitabilitystarted significant increases 2006, with a sharp increase in theprofits and revenues in 2008 (Kirkpatrick,2011).The 2009 and 2010 marked the most significant increases in therevenues by the company as the firm recorded growths that led to itseventual listing in the stock exchange in 2012. The financialstatements for Facebook for the years 2011 up to 2014 reveal thesuccess of the company in the social media industry.

In2012, the company recorded revenue of $5.089 billion for the year,with a profit level of $53 million. In 2013, the net profit of thecompany increased drastically to $1 billion, after recording anincrease in the revenue of $7.872 billion (FacebookInvestor Relations, 2015).The revenue for the company in 2014 increased to $12.466 billion,which resulted in a net profit of $ $2.940 billion (FacebookInvestor Relations, 2015).This trend in the growth of revenues and net profit levels shows theresults of the growth of the company and the development ofadditional products. The development of the company’s product baseand introduction of new application has led to this growth,especially after allowing programmers to add applications using theFacebook platforms.

Thecash flow status of the company has been reflective of the company’sgrowth and expansion. The growth in the range of revenue-generatingproduct offered by the company has increased the amount of money thatis circulating in the company (Kirkpatrick,2011).As a result, their cash flow statements are reflecting an upwardtrend that signals the cash flow health of the firm. In 2010 forinstance, the company had a $633 million in terms of cash and cashequivalents opening balance. This variable increased into a balancenet cash flow of $1.785 billion in the year 2011 (Cooket al, 2014).The growth of the company in 2012 saw the balance of cash and cashequivalent to increase to $1.512 billion.

Thereason for the increase in the financial aspects of the company is asa result of the increasing trend of the number of active users on amonthly basis since 2010. In 2010, the year closed with an average of245 million users on the social networking site (Cooket al, 2014).By the close of the year 2011, the number of monthly active users hadincreased to 432 users. This figure increased to 680 monthly users in2012, the year which the company got listed on the stock exchange.Currently, the firm has over 1.44 billion users worldwide andcontinues to grow in terms of active users and the products thecompany offers.

Asa result of the increased financial success, the company hassuccessfully executed a strategy of buying out companies that seem toprovide products or services that are in line with its socialnetworking services. The company has acquired over 35 companies byMarch 2013, and continues to venture into the aggressive strategy(Cooket al, 2014).Because of the aggressiveness of the company in expanding services,the acquired companies seek to gain from the Facebook buyout.According to Hitt et al (2013), companies who see no future inoperating as competitors to global giant industries, view selling outas the possible way out. This is in the rational thinking of sellingan entity rather than compete with a giant competitor.

  1. Strategy Recommendations

Thegrowth of the company in the social networking industry has beenremarkable, and has increased over time. However, there are a numberof recommendations that would be appropriate to the CEO of the firm.These recommendations are strongly based on the blue oceanstrategies. The blue ocean strategies are focused on establishing thebusiness in achieving market leadership trough creation ofuncontested position in the market (Kim&amp Mauborgne, 2005).The achievements of uncontested market space are achieved throughexpansion to make competitors irrelevant by creating new demands andproducts. At the same time, the blue ocean strategies seek to achievelow cost services that aim at breaking the value-cost tradeoff.

Oneof the recommendations to the CEO of Facebook is to reach theexisting demand for social networking beyond the current limits. Thiswill involve reaching all the people in the world who are not yetconnected to the social networking site (Cooket al, 2014).To achieve this, the company should focus in capturing the new phoneusers who are venturing into the internet for the first time. Bypartnering with internet service providers, and phone manufacturers,the company can know the new users and capture them through thespreading use of Smartphone in the world. This will make othercompetitors irrelevant in the new markets, or as second-fiddleplayers.

Anotherrecommendation is to reconstruct the market by focusing on the bigpicture of the social media networking, rather than the numbers. Thisis because focusing on the big industry will allow the company tointroduce new products that will retain the current users and getmore users. It is worth noting that the needs of people are changingon a regular basis, especially on the way people connect and share.According to Aaker (2006), the market dynamics of a product changes,as consumers change their preferences and tastes. Therefore, Facebookshould seek to redefine the type of products offered in the socialnetworking site. This way, the company will make it difficult for thecompetitors to successfully compete with Facebook.

Anotherrecommendation for Facebook is to extend their strategy of marketsegmentation based on geographic, demographic factors to coverlanguage and culture. This will allow the company to use languages ofdifferent countries, and reach customers in a manner that theyunderstand more. According to Kotler and Keller (2012), thepresentation of products and services in a language that relates tothe local cultures of people promotes their loyalty to both the brandand the product. However, this should not be achieved at the expenseof the brand image.

Moreover,it is recommended that Facebook reduces the cost of the servicesoffered that are charged in order to increase the clientele and wardoff competition. This is mostly applicable in the advertising chargesfor the firm as it would make the company more appealing toadvertisers. According to Hitt et al (2013), reduction of pricesmarginally in comparison to competitors reduces revenues for the longterm but has significant benefits in the long term. While this wouldreduce the revenue levels of the company, it would also increase thenumber of advertisers, and thus increase the long term revenues.

Conclusion

Facebookhas recorded a remarkable growth since its foundation and has grownto become a market leader in the social networking industry. Theindustry has been shaped by trends in social networking, sending ofinstance messaging, chatting, as well as making audio and videocalls. Leading among provision of these products and trends isFacebook, whose expansion has grown immensely in past five years. Theexpansion and growth are reflected in the company’s financialperformance, which has increased over the years as seen in theincrease in revenue and profits. The cash flow status and the valueof the company has also grown over time, especially with the firmsuccessfully listing on the stock exchange. While the firm has corecompetencies of segmentation, expertise, innovation and leadership,more recommendations on its strategy and market coverage will improvethe company for the future.

References

Aaker,D. (2006). Strategic MarketManagement. Upper Saddle River, NewYork: Pearson Prentice Hall

Cook,M., Hicks, K., Rodriguez, R., &amp Rogers, A. (2014). Case 12:Facebook. In Hitt, M., Ireland, D., &amp Hoskisson,R. (2014). Strategic Management:Concepts and Cases: Competitiveness and Globalization.New York: Cengage Learning

FacebokInvestor Relations, 2015. FacebookReports Fourth Quarter and Full Year 2014 Results.Retrieved From,&lthttp://investor.fb.com/releasedetail.cfm?ReleaseID=893395&gtJuly 24, 2015

Hitt,M. A., Ireland, R. D., &amp Hoskisson, R. E. (2013). Strategicmanagement: Concepts and

cases:Competiveness and globalization(10th ed.). Mason, OH: South-Western Cengage

Kirkpatrick,D. (2011). TheFacebook Effect: The Inside Story of the Company That Is Connectingthe World.New York: Simon and Schuster

Kim,W.C., &amp Mauborgne, R. (2005).&nbspBlueOcean Strategy: How to Create Uncontested Market Space and Make theCompetition Irrelevant.Boston: Harvard Business School Press

Kotler,P., &amp Keller, K. (2012). MarketingManagement. San Francisco: PearsonEducation Limited

Lee,N. (2014). Facebook Nation: Total Information Awareness (2ndEdition). Springer Science+Business Media

Piskorski,M.J.&nbsp(2014).&nbspASocial Strategy: How We Profit from Social Media.Princeton, NJ:&nbspPrincetonUniversity Press

Schoen,H., et al. (2013). &quotThe Power Of Prediction With Social Media.&quotInternetResearch23, 5 (2013): 528-543

VanD.J.(2013).&nbspThe Culture ofConnectivity: A Critical History of Social Media.Oxford: Oxford University Press