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 However, due to the rapidly changing nature of this industry, this presentation will be outdated soon.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.

Company & Industry Background

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. *

External

POLITICAL- Pressure to crack down on child predators

- Increased emphasis on privacy

ECONOMIC- Greater affluence, leading to more number of users online

SOCIAL- “Everyone’s on it” & there is a pressure to Belong

TECHNOLOGY- Increases in broadband speed and penetration- Decrease in bandwidth and data center costs

PEST

External Environment Analysis 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

Buyer Power (High)

- Switching costs are minimal- Users maintain 1.6 accounts on social networking sites and check both accounts in transition periods

Threat of Substitutes (Medium)

- Internet sites with large user bases may create a social networking component (blockbuster, amazon)

Supplier Power (Low)

- Widgets and Appz providers are usually small developers with little bargaining power

Industry Rivalry (High)

- Intense competition between competing sites fueled by venture capital and speculative valuations

Porter ’s Five Forces External

OVERALL - MEDIUM

Competi ti ve Landscape : Worldwide

•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

networks far outdo it in terms of

visitors & reach.

Key Takeaways

Top 3 social networks in significant markets

External

Comscore: Worldwide data

Competi ti ve Landscape – US Markets

• Facebook now leads in the US

market (in addition to worldwide)

• MySpace still leads in terms of

ad-revenue

Key Takeaways

External

Market Share: Worldwide

MySpac

e

Face

book

Classm

ates.c

om

Linke

dIn

Twitter

0

100

200

Millions of Unique Vis-itors

• The “market size” is ambiguous.

However, listed here are the

biggest social networks and the

unique visitors (non-duplicated

traffic) that they receive.

Key Takeaways

• 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

ComScore Data

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.

Possible Success Factors for the industry External

But, what does success mean?

Answer:1) Increase

advertising revenue

2) Increase user engagement

Key Business Imperatives

Question: How do we measure success in Social media like Social networking sites?

External

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

• It is interesting to note that even with much greater user engagement, FB cannot make as revenue much as MySpace• This graphic suggests that there is no link between both 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.

Strategic Map #1

MySpace$750 mil.in sales

Facebook$300 mil.

User engagement

Estim

ated

reve

nue

Mapping user engagement to revenues

External

From comscore data

Interface

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!

External

Strategic Map #2

MySpace130

Millionusers

Facebook200 million

users

People-to-people interaction

pace

of i

nnov

ation

, new

feat

ures

Mapping users to the pace of innovation

External

Strategic Map #3

MySpace7500 apps

available

Facebook52,000apps

available

apps available and their penetration

Supp

ort f

rom

the

web

site

• “Support from the website” - refers to how much the Application (App) can benefit off the website (MySpace/Facebook)

• This is clearly higher for facebook since it has sophisticated ways of spreading the word that an App has been installed. It informs your whole friend list & gets your friends to try it too. •Facebook is skilled at viral marketing•Also, Facebook allows developers to monetize without interference on their portion of the page.

External

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

Internal AnalysisInternal

Mission, Vision, Culture Internal

Facebook Some of Facebook’s key personnelName Desig Priors

Mark Zucherberg CEO Founder of Facebook.com

Chamath Palihapitiya VP Product Marketing

AIM, ICQ, Spinner.com, Winamp.com

Gideon Yu VP Finance CFO of YouTube!

Sheryl Sandberg COO VP of Sales at Google

Dave Morin Sr. Platform ManagerApple, Director at several Startups

Facebook has a young and

innovative culture. It sources its people

from top silicon valley companies.

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 is a social network for life

Positi oning and Segmentati on

• Facebook has expanded its target segment over the years

• It has done this without alienating its previous users

Key Takeaways

•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

Internal

Facebook traffi c break up

US Africa, Mid-east

Asia Europe Latin America

0102030405060

Facebook Users

Facebook Users

• 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

Key Takeaways

Internal

• 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)

What is Facebook good at? Internal

Strengths

What is facebook NOT good at?

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.

•

Internal

Competency Ladder

Creating a platform for users to interact with each other, using applications &

other means

Not good at ensuring privacy from applications. Inadequate rules

The AJAX functionality, unlimited storage, easy to use interface – these will be copied with time

The combination of: 1) Innovation from the developers AND 2) the Facebook team’s efforts to retain user engagement

INCOMPETENCIES

PERIPHERAL

THRESHOLD

COMPETITIVE ADVANTAGE

COMPETENCIES

STRATEGIC

DISTINCTIVE

SUSTAINABLE COMPETITIVE ADVANTAGE

The facebook platform resulting in the Maximum user engagement in the industry

The strength lies in the platform & the way the user

interacts with it

The number of developers working on FB apps & their

collective innovation and energy

Constant creation of new gimmicks to retain user

attention (eg. The Like button)

Internal

STRENGTH1. Huge active user base. 2. Popular Platform for application

development3. Present in all geographies4. Translated in over 40 languages5. Email and Chat are integrated

WEAKNESSES1. Weak at monetizing the user

base and delivering a high number of ad’s per user

2. Inability to manage application feeds leading to clutter on the website & reactions from users

OPPORTUNITY1. Advertising is moving towards

Targeted ads and not blanked advertising. FB is perfectly positioned for this since it has a huge amt. of personal user information and preferences.

2. Improve Email and Chat

S - O1. Increase targeted

advertisements and develop “local ads” – A way of showing products relevant to the user’s location.

2. Improve quality of the integrated email and chat apps.

O - W1. Work on ways to reduce the

increasing amount of clutter on FB homepages

2. Create more monetization opportunities

THREATS1. Social networking audience is

fickle and thy frequently shift providers

2. People may grow tired of the highly structured FB and move to MySpace

3. People have privacy concern with Facebook

4. Risk of losing young, hip image

S - T1. Try to deliver localized content

and ads (i.e. move beyond the language translations)

2. Improve development platform on aspects like security, privacy, monetization and limit clutter.

T - W1. Always keep enhancing and

innovating features to keep users coming back to the website.

2. Increase opportunities to customize pages without ruining design

SWOT Analysis Internal

Long Term Objecti ves

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

Internal

Recommendati ons

• Focus on monetization to improve valuations when it needs to go in for further funding.

• Use the ‘Status Updates’ to deliver targeted advertisements

• Deliver “Local advertising” based on user locations.

Monetization

• The display of updates from applications annoys users & results in comparisons with MySpace. This should be controlled

• Privacy concerns from Apps to be addressed• Clutter forces users to miss out on news about the

people they are interested in

Applications (rules & controls)

• 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.)

• Solve the problem of how businesses can contact customer looking for services in a manner that does not infringe privacy

Communications

Internal

Industry Model for SOCIAL MEDIA

T-Factor Question to be asked Function of

Transactions Do the transactions on your site, make a difference to the users life? Are they repeated?

Repeat transactions

Targeting Can the site distinguish between the preferences, likes/dislikes of two users?

Targeted Advertisements

and ContentTime Do your users spend time on your site? Are

you an industry leader in user enagements?User Engagement

& Content

Transactions

TimeTargeting

3 T’s Framework

Social media can be broken down into the below 3 components to effectively analyze its competiveness.

It needs to be able to do all three with varying competencies.