The Business of Facebook
The business model of any organization is very important in helping a business become successful or unsuccessful. They help guide the leaders in the company to reach the goals and purpose of their organization. In recent news, the business model of Facebook has been under a large amount of scrutiny. I will be analyzing the business model of Facebook using the definition of business model from the textbook which states “A business model defines how an organization interacts with its environment to define a unique strategy, attract the resources and build the capabilities required to execute the strategy, and create value for all stakeholders” (Applegate, Austin & Soule, 2009).
There are four key dimensions to strategy: market positioning, product positioning, business networking positioning, and boundary positioning. These four dimensions combined help an organization develop a strategy which by definition of the textbook is the series of choices that determine the opportunities you pursue and the market potential of those opportunities (Applegate, Austin & Soule, 2009). In order to analyze the business strategy of an organization you must first determine what kind of business it is (Applegate, Austin & Soule, 2009). In E.B. Boyd’s (2012) article “What is Facebook’s Business” she states “[Facebook] creates a place for people to hang out and upload photos or pithy notes on what they are doing right that second, and then it posts advertising along the side of that status update highway.” Facebook services 845 million members all over the world, excluding China where Facebook has been blocked by the Chinese government. In December of 2011 Facebook averaged a total of 483 million daily active users worldwide (Form S-1, 2012). For a company such as Facebook, marketing position is very important. Market positioning determines the selection of customers that a business decides to serve (Applegate, Austin & Soule, 2009). One of Facebook’s ten main principles is “One World” which states “The Facebook Service should transcend geographic and national boundaries and be available to everyone in the world (facebook.com, 2012). Facebook’s customer base is two-sided. They have the 845 million individuals that have profiles on the site and then they have the companies that advertise. Considering the fact that Facebook already has 845 million users and there are only seven billion people on the earth, there is not much room for Facebook to grow their consumer base. With China off limits and many areas of the world that don’t have easy access to the internet, significant growth in the user base of Facebook is very unlikely (Boyd, 2012). The other side to Facebook’s customer base is the companies that purchase advertising on Facebook. Jonathon Blum (2012) states, “Any business would be foolish not to consider Facebook as an ongoing marketing option.” According to Blum, Facebook’s advertising costs are incredibly cheap. For a monthly fee advertisers can run ads and in return they receive a report on viewer’s impressions and click-through (Blum, 2012). In 2011 Facebook brought in $3.7 billion in revenues from advertising alone. This accounts for eighty-five percent of their revenues. Facebook receives revenues from advertisers with many different objectives ranging from long-term brand awareness to stimulating an immediate purchase (Form S-1, 2012). The advertising on Facebook is based on the likes that users have on their accounts. Advertisers can decide what type of audience they think would be interested in their product, then Facebook displays adds on the sides of people’s news feeds based on their likes and preferences (Blum, 2012). Product positioning is the choice of products and services that a company offers. It includes the features of these products and the price at which they will be offered....
References: Applegate, L., Austin, R., and Soule, D. (2009). Corporate Information Strategy and
Management (8th ed.) New York: McGraw Hill.
Blum, Jonathon (2012) Is Facebook Advertising Too Cheap? Retrieved from
Boyd, E.B. (2012). What is Facebook’s Business? Retrieved from
Carlson, Nicholas. (2010). Meet Facebook’s (Soon-To-Be) Billionaires. Retrieved from
Chao, Loretta. (2010). Mr.Zuckerberg Goes to China. Retrieved from http://online.wsj.com
Dignan, Larry (2012). Facebook’s IPO: Massive valuation brings business model scrutiny.
Retrieved from http://news.cnet.com/8301-1023_3-57435287-93/facebooks-ipo-massive-valuation-brings-business-model-scrutiny/
Form S-1 Registration Statement of Facebook, Inc
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