A term paper for a strategy class at the Asian Institute of Management. It talks about the competitive advantages of Facebook and how presents an industry model for the social media space. (if you use this ppt - please give credit. thank you)

1. Akash Senapaty
@ the Asian Institute of Management, Manila
SECTION B
Facebooks belongs to the online social networking industry. Companies like Facebook and
MySpace usually do not release official visitors or revenue numbers. But good estimates
are available online. The stats for online usage are mainly provided by Comscore and
Compete. However, due to the rapidly changing nature of this industry, this presentation
will be outdated soon. Todays date: 10st April, 2009.

2. Company & Industry Background External
Facebook.com
• Facebook.com is a free social networking website operated by Facebook Inc.
• Founded in 2004 by Mark Zucherberg as a network for Ivy League schools
Social Networking Industry
• Websites focused on building online communities of people having shared
interests. Social networks have common themes of information sharing,
person-to-person interaction and creation of shared & collaborative content
• The industry have been successful in getting a large number of people at one
place, but not very successful in monetization.
• Two-thirds of the world’s Internet population1 visit a social network or blogging
site and the sector now accounts for almost 10% of all internet time. *

3. External Environment Analysis External
POLITICAL ECONOMIC
- Greater affluence, leading to more
- Pressure to crack down on child number of users online
predators
- Increased emphasis on privacy
PEST
SOCIAL TECHNOLOGY
- “Everyone’s on it” & there is a - Increases in broadband speed and
pressure to Belong penetration
- Decrease in bandwidth and data
center costs

4. Porter ’s Five Forces External
Threat of New Entrants (Medium)
-Network effects have historically not
helped retain market share (but only to
grow it)
- Specialty networks (eg. Last.fm) are
still entering the online space
Supplier Power (Low) Industry Rivalry (High) Buyer Power (High)
- Switching costs are minimal
- Widgets and Appz - Intense competition
- Users maintain 1.6 accounts
providers are usually between competing sites
on social networking sites and
fueled by venture capital and
small developers with check both accounts in
speculative valuations
little bargaining power transition periods
Threat of Substitutes (Medium)
OVERALL
- Internet sites with large user bases
-
may create a social networking
component (blockbuster, amazon) MEDIUM

5. Competitive Landscape : Worldwide External
Key Takeaways
Comscore: Worldwide data
• Globally, the major players are
Facebook, MySpace, Orkut,
Friendster.
• These global players face issues in
countries like China, Japan and
Germany (among others) where local
Top 3 social networks in significant markets networks far outdo it in terms of
visitors & reach.

6. Competitive Landscape – US Markets External
Key Takeaways
• Facebook now leads in the US
market (in addition to worldwide)
• MySpace still leads in terms of
ad-revenue

7. Market Share: Worldwide External
ComScore Data
• Worldwide social networking market size is 0.58 billion
• Asia markets are growing the fastest at 29% (American markets at 10%)
• Latest data suggests 222million unique hits for FB and about 130mn. for MySpace
Millions of Unique Visitors
Key Takeaways
250
200 • The “market size” is ambiguous.
150
100 However, listed here are the
50
biggest social networks and the
0
unique visitors (non-duplicated
traffic) that they receive.

8. Possible Success Factors for the industry External
• Design – Ease of use, Attractiveness etc.
• Target Market – Some sites target niches, some target goegraphies
• Activity Focus – Target market can be connecting people over
relationships, or over shared interests
• User Engagement – Site needs to retain user minutes
• Transactions– Innovative features like applications, people you may
know, pokes, comments, likes etc., serve to increase user transactions.
• Privacy –privacy filters and controls
• Entry Barriers – Easy sign ups
• Trust – Different outlooks to Trust.
• Localization– Local content, languages etc.

9. But, what does success mean? External
Question: How do we measure success in Social media like Social networking sites?
Key Business Imperatives
Answer:
1) Increase
advertising
revenue
2) Increase user
engagement

10. Industry Strategy
In this industry a social network can cater to the masses
(MySpace, Facebook) or to the niches
(blackplanet.com, imeem.com, last.fm)
The key is to increase user engagement (time the user spends on the
website). This is of interest of advertisers. The number of users is
secondary.
This presentation focuses on the non-niche social networks.
Mainstream and niche websites can have comparable user engagement

11. Strategic Map #1 External
Mapping user engagement to revenues
• It is interesting to note that even
with much greater user
engagement, FB cannot make as
revenue much as MySpace
MySpace
• This graphic suggests that there
$750 mil.
is no link between both
in sales
metrics, but I believe otherwise.
• In time I believe the co-relation
will be obvious.
• This result could be because the
social networking industry in a
state of rapid flux right now.
Facebook
$300 mil.
From comscore data

12. Interface External
Facebook has had a new design every year since 2005.
Continuous improvement and
innovation with site design has
helped Facebook
! Pace of innovation is important

13. Strategic Map #2 External
Mapping users to the pace of innovation
Facebook
200 million
users
MySpace
130
Million
users

14. Strategic Map #3 External
• “Support from the website” -
refers to how much the
Application (App) can benefit off
Facebook
the website (MySpace/Facebook)
52,000
apps
• This is clearly higher for
available
facebook since it has
sophisticated ways of spreading
MySpace the word that an App has been
7500 installed. It informs your whole
apps friend list & gets your friends to
available try it too.
•Facebook is skilled at viral
marketing
•Also, Facebook allows
developers to monetize without
interference on their portion of
the page.

15. Summary of Success Factors External
KSF Weights MySpace Facebook Orkut Twitter
People-to-People interaction 25% 4 9 5 7
Pace of Innovation (features, etc) 20% 7.5 9 7 7
Network effects 20% 6 7 5 9
Applications available 15% 6 9 6 3
User engagement 20% 7 8.5 7 7
TOTAL 100% 6 8.5 5.95 6.8

16. Internal Analysis
Internal

17. Mission, Vision, Culture Internal
Mission: To connect people on an innovate platform that fosters increasing
interaction. It should have an emotional connection.
Vision: To provide users with value beyond interaction. They should look to Facebook
to find answers to questions like, “which car should I buy” – all this based on the
power of social recommendations.
Facebook Some of Facebook’s key personnel
Facebook has a Name Desig Priors
Mark
young and innovative Zucherberg CEO Founder of Facebook.com
culture. It sources its Chamath AIM, ICQ, Spinner.com,
Palihapitiya VP Product Marketing Winamp.com
people from top Gideon Yu VP Finance CFO of YouTube!
silicon valley Sheryl
companies. Sandberg COO VP of Sales at Google
Apple, Director at several
Dave Morin Sr. Platform Manager Startups

18. Positioning and Segmentation Internal
•Feb 2004 (Launch) – Open only to Ivy
league students and alumni
• Mar 2004 – Opened to other US and
Canadian universities
•2005 - Opened to top companies
•2006 – Opened to anyone with an email
address
Key Takeaways
• Facebook has expanded its target segment over the years
• It has done this without alienating its previous users
Facebook is a social network for life

19. Facebook traffic break up Internal
Facebook Users
60
40
Facebook Users
20
0
US Africa, Mid-east Asia Europe Latin America
Key Takeaways
• Facebook’s user-base is international
• 29.3% of Facebook’s traffic is from the US (68.2% for MySpace).
Therefore, it is less dependent on US traffic
• They are well positioned to take advantage of the worldwide growth
in social networking users

20. What is Facebook good at? Internal
Strengths
• Design – Organized, simple to use interface
• Broad Target Market – Isn’t targeted to a specific
demographic, but there is something for everyone
(applications, musicians pages etc)
• Activity Focus – FB focuses on connecting and not on a
certain activity like music, business networking etc. FB is the
largest repository of pictures on the internet (bigger than Flickr)
• Transactions– Innovative features like applications, people
you may know, pokes, comments, likes etc., serve to increase
user transactions.
• Privacy – Advanced privacy filters and controls
• Entry Barriers – Easy sign ups
• Trust – When approving a friend request, FB shows you the
number of friends you have in common
• Localization– Available in 40 languages (50 in development)

21. What is facebook NOT good at? Internal
Threats and Weaknesses
• Local Markets– Not the leader in key markets like
China, Germany, Japan, India
• User Engagement – There are early reports of ‘Facebook fatigue’.
Not everyone is a fan of their new design
• Applications – FB users frequently complain about the clutter
brought about by applications
• Infrastructure Costs – FB has been EBIT positive for 5 quarters
but is not turning a profit because of (theorized) huge depreciation
expenses for data centers etc.
• It is not being able to monetize itself in keeping with the growth
trajectory
• Keeping the user base intact – Much of the recent growth has
come from older people (and not the early tech-savvy adopters like
earlier). The challenge is to not alienate the original FB users.
•

22. Competency Ladder Internal
The number of developers
SUSTAINABLE COMPETITIVE
working on FB apps & their
ADVANTAGE
collective innovation and energy The combination of: 1)
DISTINCTIVE Innovation from the
developers AND 2) the
The strength lies in the
Facebook team’s efforts to
platform & the way the user
retain user engagement
interacts with it
STRATEGIC
COMPETITIVE ADVANTAGE
The facebook platform
resulting in the Maximum user
engagement in the industry
COMPETENCIES
THRESHOLD
Constant creation of new
gimmicks to retain user
attention (eg. The Like button)
Creating a platform for
users to interact with each PERIPHERAL
other, using applications & The AJAX functionality, unlimited
other means storage, easy to use interface – these will
be copied with time
INCOMPETENCIES
Not good at ensuring privacy from
applications. Inadequate rules

23. SWOT Analysis Internal
STRENGTH WEAKNESSES
1. Huge active user base. 1. Weak at monetizing the user
2. Popular Platform for application base and delivering a high
development number of ad’s per user
3. Present in all geographies 2. Inability to manage application
4. Translated in over 40 languages feeds leading to clutter on the
5. Email and Chat are integrated website & reactions from users
OPPORTUNITY S-O O-W
1. Advertising is moving towards 1. Increase targeted 1. Work on ways to reduce the
Targeted ads and not blanked advertisements and develop increasing amount of clutter on
advertising. FB is perfectly “local ads” – A way of showing FB homepages
positioned for this since it has a products relevant to the user’s 2. Create more monetization
huge amt. of personal user location. opportunities
information and preferences. 2. Improve quality of the
2. Improve Email and Chat integrated email and chat apps.
THREATS S-T T-W
1. Social networking audience is 1. Try to deliver localized content 1. Always keep enhancing and
fickle and thy frequently shift and ads (i.e. move beyond the innovating features to keep
providers language translations) users coming back to the
2. People may grow tired of the 2. Improve development platform website.
highly structured FB and move on aspects like security, privacy, 2. Increase opportunities to
to MySpace monetization and limit clutter. customize pages without ruining
3. People have privacy concern design
with Facebook

24. Long Term Objectives Internal
To become part of daily life
by becoming a complete
communications tool
Bring people and businesses
on the same page to deliver
services
Create an enjoyable and
useful online experience so
that user engagement grows

25. Recommendations Internal
• Focus on monetization to improve valuations when
it needs to go in for further funding.
Monetization • Use the ‘Status Updates’ to deliver targeted
advertisements
• Deliver “Local advertising” based on user locations.
• The display of updates from applications annoys
users & results in comparisons with MySpace. This
Applications should be controlled
• Privacy concerns from Apps to be addressed
(rules & controls) • Clutter forces users to miss out on news about the
people they are interested in
• Improvement in storage, archival and search in the
email and chat functions. (challenge is for FB to
become the users primary email and chat client.)
Communications • Solve the problem of how businesses can contact
customer looking for services in a manner that does
not infringe privacy

26. Industry Model for SOCIAL MEDIA 3 T’s Framework
Social media can be broken down into
Transactions the below 3 components to
effectively analyze its competiveness.
It needs to be able to do all three
with varying competencies.
Targeting Time
T-Factor Question to be asked Function of
Do the transactions on your site, make a Repeat
Transactions
difference to the users life? Are they transactions
repeated?
Can the site distinguish between the Targeted
Targeting
preferences, likes/dislikes of two users? Advertisements
and Content
Do your users spend time on your site? Are User Engagement
Time
you an industry leader in user enagements? & Content