Porter’s five forces analysis has become a pervasively adopted framework for industry analysis, which can be used to examine the competitive intensity and attractiveness of a market or a company. The social networking companies gradually come into the spotlight of the business world in recent years, which was especially featured by the significant event of Facebook’s IPO on May 18, 2012. In such circumstances, it will be extremely interesting to apply the five forces analysis to gauge this giant and even unfold some hints that why this star company has been struggling in the stock market since it went public. Although it has been a tough time period for Mark Zuckerberg, the more transparency and disclosure of the company’s financial as well as operational information available for the capital market provide us much more useful resources to put Facebook under our microscope of five forces analysis.
The Bargaining Power of Customers (Strong)
With regard to customer aspect, it might be taken for granted that we are referring to billions of active users on this website. But when we look further into this company and its product, the surprising truth is that the users and their personal information are actually the product rather than the customer, at least from the financial standpoint. Advertising composes 84% of the company’s total revenue, which was $1.18 billion for the second quarter of 2012 according to its official financial reports. Then we found out that the advertisers are Facebook’s real customers, and what confronts this company is a fiercely competitive market. Although Facebook declared that 70% of its advertising campaigns resulted in a return on ad spend of 3x or better, and 49% of campaigns showed 5x or better, Facebook adverting is still generally undervalued by the marketers given the factor of being the last ad viewed or clicked before a conversion outweighs all other criteria, and Facebook advertising usually comes into play earlier in the...
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