In this paper, PESTEL, SWOT, and Five Forces analyses, as well as VRIO framework, will be used to evaluate the company both on the internal and external levels.
PESTEL Analysis
The political factors that can influence the company are the following: political stability or instability, legal support of globalization (support from the government), and any political barriers that prevent Facebook from expanding in other markets (e.g. Asian). It is evident that the social network has the power in supporting and spreading different information, thus directly influencing the political landscape of countries (e.g. the elections in the USA, the series of terrorist attacks in Europe, etc.). The company is interested in the political stability of developed countries since any instability can interfere with Facebook’s function (Facebook is banned in North Korea). If a government supports globalization, the company will easily expand and promote its products and services towards the population (Horst and Miller 55).
The economic factors are these: stable economies in developed countries (present opportunities), economic growth in developed countries, and increasing incomes. All of the mentioned factors are opportunities for the company: stable economies will let the company expand, and the economic growth and raised incomes will allow users from developed countries purchase products and services.
Social changes present a variety of opportunities. First, users demand more quality services, which gives Facebook the possibility to review the quality standards. Second, users become more interested in online shopping, which can help the company gain additional profits by selling Facebook-related services and wares. Third, the company can enhance social support by supporting groups about charities, funds, and needed help during emergencies (Nadkarni and Hofmann 244).
Technological factors present both opportunities and threats. For example, other social networks (Twitter, Tumblr, Snapchat, etc.) also attract potential users of Facebook and decrease the company’s profits. At the same time, more users prefer using mobile phones to connect with each other, which increases the company’s popularity, especially among young adults.
Ecological factors also present opportunities and threats. The company can support environmental sustainability, gaining respect and support from its users. Addressing the issue of waste disposal is also an option to gain support. At the same time, the company’s services can pose a danger to the environment, which can adversely affect its functions.
Legal factors can also have a positive or a negative influence. For example, Facebook supports spreading free Internet access. By spreading the access, the company will also gain more new users and potential buyers. Restricted access towards the website (e.g. in China, North Korea) present a threat to company’s profitability in these areas.
Five Forces Analysis
Competitiveness: there are not many rivals in the industry who can also provide targeted online advertising (Google, YouTube, Amazon, possibly Twitter). The number of these firms is a weak force. Nevertheless, since users have no difficulties in changing preferable social networks, low switching costs are a strong force of competition (Haucap and Heimeshoff 52).
Bargaining Power of buyers and customers: There are two strong forces: low switching costs for advertisers and multiple substitutes. Advertisers can quickly switch to other social networks with a similar audience, whereas there are multiple substitutes that provide similar services. These factors weaken Facebook’s bargaining power. At the same time, since online advertising is crucial and advertisers have strong bargaining power, it also weakens customers’ bargaining power.
Bargaining power of suppliers: The bargaining power of suppliers is weak for the following reasons: since Facebook’s demands for services are not unique in the IT industry, there is no need for individual suppliers. There is a variety of suppliers who can provide the company with hardware and software, and the company can switch easily between suppliers. Thus, suppliers’ bargaining power is weak.
Threat of substitutes: this threat is a strong force because advertisers who use Facebook can choose other forms, such as TV ads, radio, print ads, or any other social media. However, some of these substitutes might cost more than Facebook’s services (Goyal 223).
Threat of new entrants: this threat is a weak force, although it might present some difficulties. Since loyalty to the brand is high, and Facebook’s unique services are difficult to copy because of the needed investments, new entrants are a weak force that only depends on low switching costs for customers and advertisers.
VRIO framework
To evaluate the company on the internal level, VRIO framework will be used. Facebook’s resources are capable of adding value because the company adapts globally towards different markets and individuals with different gender, age, culture, and preferences. The rare resources possessed by the company are its technologies, brand development, and culture. It is difficult for competitors to replicate Facebook’s brand and gain as much support and loyalty. As to inimitable resources, the company’s reputation and culture are unique and cannot be copied. The company’s brand is built upon these resources.
However, if these resources are not organized correctly, the company will not be able to be competitive. Facebook has adapted its resources to grow in different markets even if it had problems with those: for example, Facebook was nearly blocked in Russia because of the specific policies in the country, but when the company agreed to follow those, it was able to remain unbanned (Kramer). Small networks are not capable of competing with this leader of social networks that also adapts to both restrictive and global demands.
SWOT analysis
Strengths: The largest amount of users among all social networks. The company also addresses users’ needs and demands, thereby improving their experiences.
Weaknesses: Advertisement is the only source of revenue, and information leaks are common and often remain unfixed. Many features that exist on other websites lack on Facebook. Website design can also be seen as obsolete.
Opportunities: Expansion in developed countries, adding more sources of revenues, customizing the website so that it is highly usable, protecting users’ information from hackers, and developing a major application to sell services and products.
Threats: More users prefer blocking ads or using software that blocks it, which adversely influences the profitability. Many accounts and information about them are targets for hackers, and identity thefts remain unaddressed. If the company does not find additional sources of revenue, advertising might become unreliable and reduce Facebook’s value.
Firm Performance
The firm performance in different dimensions (financial, customer satisfaction, social performance, environmental performance, and employee performance) is mostly positive (Santos & Brito 112). Financial performance directly relies on the advertisement; although it is the only source of revenue, it allows the company to remain one of the most valuable social networks. Customer satisfaction can be improved if Facebook adds more demanded features and updates its design. Social performance of the company relates to its ability to address social change, which is strong since Facebook often supports charities and improvement of the quality of life (e.g., by giving access to free Wi-Fi). Employee performance is moderate because identity thefts and hacks are not addressed properly. At last, the environmental performance of Facebook could be improved by conducting more researches on the environmental impact of company’s processes (energy use or carbon footprint).
Works Cited
Goyal, Sumit. “Advertising on Social Media.” Scientific Journal of Pure and Applied Sciences, vol. 2, no. 5, 2013, pp. 220-223.
Haucap, Justus, and Ulrich Heimeshoff. “Google, Facebook, Amazon, Ebay: Is the Internet Driving Competition or Market Monopolization?.” International Economics and Economic Policy, vol. 11, no. 1, 2014, pp. 49-61.
Horst, Heather A., and Daniel Miller. Digital Anthropology. A&C Black, 2013.
Kramer, Andrew. “Russians Selectively Blocking Internet.”The New York Times, 2013. Web.
Nadkarni, Ashwini, and Stefan G. Hofmann. “Why Do People Use Facebook?.” Personality and Individual Differences, vol. 52, no. 3, 2012, pp. 243-249.
Santos, Juliana Bonomi, and Luiz Artur Ledur Brito. “Toward a Subjective Measurement Model For Firm Performance.” BAR-Brazilian Administration Review, vol. 9, no. 1, 2012, pp. 95-117.