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INFORMATION MANAGEMENT

Facebook Graph Search

How will social search transform the way we use social media?

Word Count:

1965

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Table of Contents

1. Executive Summary................................................................................................3

2. Introduction ..............................................................................................................4

3. Conceptual Framework ..........................................................................................5

3.1. Porter’s Five Forces ........................................................................................5

3.1.1. Rivalry Amongst Competitors.................................................................5

3.1.2. Threat of Potential New Entrants...........................................................6

3.1.3. Bargaining Powers of Suppliers.............................................................6

3.1.4. Bargaining Power of Buyers ...................................................................6

3.1.5. Threat of Substitutes................................................................................6

3.2. VRIO Framework .................................................................................................8

4. Analysis ....................................................................................................................8

4.1. Application of Porter’s Five Forces ...............................................................8

4.1.1. Rivalry Amongst Competitors Medium................................................8

4.1.2. Threat of New Entrants Low .............................................................. 11

4.2. VRIO Framework Graph Search ................................................................ 12

4.2.1. Value ....................................................................................................... 12

4.2.2. Rarity ....................................................................................................... 12

4.2.3. Inimitability.............................................................................................. 12

4.2.4. Exploitation by Organization................................................................ 13

5. Findings ................................................................................................................. 14

6. Conclusions/Recommendations ........................................................................ 15

7. References:........................................................................................................... 16

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1. Executive Summary

The aim of this report is to critically analyze the market environment for the

newly introduced search engine of Facebook, the so-called Graph Search.

The first section of this report lays an analytical and conceptual foundation by

exploring Porter’s Five Forces and the VRIO Framework, which is extracted

from the Resource-Based View of the Firm.

In order to assess the competitive environment for Graph Search, this report

then applies Porter’s Five Forces Framework. This is followed by an analysis

of Facebook and specifically Graph Search’s resources and capabilities,

broken down into layers based on the VRIO Framework.

Following the analysis, this report postulates that the rivalry for Graph Search

is medium, as Facebook faces Google as a giant rival that could follow the

former’s footsteps in the near future. Meanwhile, VRIO Analysis suggests that

Graph Search will provide Facebook with temporary competitive advantage.

Finally, this report concludes by recommending numerous possible future

development strategies. Besides suggestions such as partnerships with

LinkedIn or indexing Instagram, this report advises Facebook to find a

sustainable way to monetize their new venture; establishing a review and

advertising system for places and interests could do this.

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2. Introduction

Facebook has announced to launch a new feature, the so-called “Graph

Search”, to inject search into social media. This report aims to provide an

understanding of how massive amounts of data has become a crucial tool for

leading companies to outperform their peers.

In particular, this report will focus on how Facebook is using the availability of

data not only to improve user experience but also to create a competitive

advantage. Facebook’s mission is to make the world more open and

connected. (Facebook 2013) They are enabling users to map out the stories

of their life by giving them tools to create their very own “social graph”. The

social graph is the sum of all the various connections, which provides a large

base for users to be able to connect. So far, Facebook’s ecosystem uses two

tools, the Newsfeed and Timeline. (See Figure 1) To leverage existing

connections and with graph search, they are hoping to create a platform for

new discoveries. (Facebook Graph Search Announcement, 2013)

Figure 1, Source: Marketingofadifferentcolor.com

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This topic has been chosen, as Graph Search will have a strong impact on

how people use Social Media in the future and is also relevant for competitors

to determine innovative ventures in order to keep up.

Due to its novelty, there had not been any academic article specifically for

Graph Search. However, in order to establish how valuable social search is,

the effectiveness of word of mouth advertising has been considered.

By applying Porter’s 5 Forces, this report strives to assess Facebook’s

position in the current market environment. More specifically, this report will

focus on two relevant forces, the rivalry amongst competitors and the threat of

new entrants. In addition, the VRIO Framework shall provide an insight to if

Facebook can use Graph Search to build long-term sustainable competitive

advantage. Furthermore, the report will conclude by stating its findings as well

as by recommending ways to monetize their new technology and other

possible future actions.

3. Conceptual Framework

3.1. Porter’s Five Forces

Porter’s framework was established in 1979 to highlight the fact that industry

competition does not only occur amongst today’s direct rivals. Constant

striving for higher profitability goes beyond the direct industry rivalry as it

considers four additional forces. As Figure 2 illustrates, the 5 forces interact

as follows:

3.1.1. Rivalry Amongst Competitors

High intensity of rivalry in a market threatens firms by reducing profits.

Intense rivalry occurs habitually amongst competitors of similar sizes

and market influence, especially if there are a high number of

competitors. In case the market is more concentrated, competitors are

likely to recognize their reciprocal interdependence and contain their

rivalry.

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3.1.2. Threat of Potential New Entrants

Incumbents intend to keep new competition out of their market as

much as possible by increasing the costs of entering the market. The

higher the barriers to entry, the harder it is to gain ground in the market.

3.1.3. Bargaining Powers of Suppliers

Suppliers, which provide the company with inputs, may influence the

firm by raising prices or reducing the quality of their goods. The extent

to which they may pressure the market lies in the uniqueness of their

good or in the number of incumbents that provide the same good.

3.1.4. Bargaining Power of Buyers

The more buyers exist, the lower their bargaining power and vice-versa.

3.1.5. Threat of Substitutes

If the costs of switching to a substitute are low, firms can be strongly

threatened by losing their customers to them. Therefore, companies

constantly focus on enhancing customer value in order to reduce the

attractiveness of the substitute.

(Harvard Business Review, 2008)

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Figure 2, Source: Peng 2009

1

Rivalry

amongst

Competitors

4

Buyers

5

Substitutes

3

Suppliers

New Entrants

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3.2. VRIO Framework

The resource-based view evaluates resources and capabilities in order to

establish a firm’s sustainable competitive advantage. It does so by assessing

if their resources and capabilities are valuable, rare, inimitable and if their

organizational structure is able to mobilize those resources onto the market.

(See Figure 3)

Figure 3, Source: Peng 2009

4. Analysis

4.1. Application of Porter’s Five Forces

4.1.1. Rivalry Amongst Competitors Medium

So far, Graph Search is one of its kind. In order to determine the competition

on Graph Search’s level and to understand its complexity, it is essential to

look at the current market environment for both the Search Engine market as

well as the Social Media market.

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Figure 4, Source: Karmasnack 2013

As illustrated in Figure 4, Google is triumphantly holding an excessive market

share of 88.8% of the global search engine market in 2013. (Karmasnack,

2013) In order to unify all their services and respond to the increasing need

for connecting and sharing online, Google created Google+ in 2011, which is

their version of a Social Network. The company had been criticized for not

having comprehended the importance of social information early enough, as

they only jumped in once Facebook and Twitter had already driven the market.

(Miller, 2011)

This is where the rivalry needs to be examined from a social perspective.

88.80%

4.20%

3.50% 2.40% 0.60%

0.50%

Global Search Engine Market Share 2013

Google

Bing

Yahoo

Baidu

Ask.com

Other

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Figure 5, Source: Dreamgrow, December 2012

As demonstrated in Figure 5, Facebook dominates the market with a share of

62.46% followed by YouTube and Twitter. (Greamgrow, December 2012)

Google Plus so far only holds a share of 0.69%.

For Graph Search specifically, Google, due to its powerful search engine and

embedded social network, currently is the only market player that could

compete in its league. Graph Search will have first mover advantage in

introducing search into social media. Even though Mark Zuckerberg (2013)

has specifically stated, that “Graph Search is not web search”, it diverts to

Microsoft’s search engine Bing in cases where Graph Search comes up blank,

which will be the case regularly in its infancy. Given Facebook’s user

frequency, it is inevitable for users to start using Bing out of convenience

when using Graph Search. This will therefore directly challenge Google’s

search function and might decrease its market share.

Even if Google were to copy Facebook’s move and index their social

database to be organized by an additional search function, their significant

disadvantage is the lack of Google Plus users, which ultimately results in

61.46

22.2

1.98 1.07

0.85

0.69

0.630.52

0.38

Social Media Market Share 2012 in %

Facebook

Youtube

Twitter

Pinterest

Yahoo Answers

Google+

Linkedin

Instagram

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absence of valuable user information. Google is very aware of the challenge

that is coming their way and has thus adopted an aggressive acquisition

strategy for their social network. Google Plus interconnects all of Google’s

products. As a consequence, it cross-promotes its services such as Gmail

and YouTube to increase the quantity of users signing up to Google Plus. It

has therefore managed to acquire a staggering number of 500 million users in

a considerably short period of time. However, if broken down to actual active

users, the number drops to 135m users per month. (Chapman 2013) In

comparison with Facebook’s 1 billion active users per month, Google has a

significant gap to fill. It is implied that the rivalry in the Social Media search will

increase over time. Therefore, the rivalry is considered medium in the social

search industry.

Figure 6

4.1.2. Threat of New Entrants Low

To ensure steady profitability, it is a matter of great interest for incumbents to

keep out potential entrants. In order to do so, the companies try to augment

the barriers to entry to reduce the incentives to enter the market. Usually, high

initial capital investments form a great obstacle for new entrants. In the

Online-based business industry, however, a new network can be established

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at relatively low cost. On the other hand, to compete with the giant

incumbents, it is crucial to obtain enormous amounts of capital to establish a

competitive infrastructure. What is also fundamental is superior technological

know-how. What turns out to be the highest barrier is to create a product so

differentiated and unique that will mobilize users to switch and furthermore,

the ability to compete with the current market leaders. As the VRIO

Framework will later demonstrate, Facebook has set the barriers very high as

their massive database of valuable user information cannot be recreated and

therefore leads to a competitive advantage for them.

4.2. VRIO Framework Graph Search

4.2.1. Value

Facebook currently holds two immense factors that might make their business

valuable, which are the high number of users (over 1 billion) and the quality of

information. So far, however, the abundance of data has been rather

problematic for Facebook to create actual value. Therefore, it has been long

awaited for Facebook to develop new ways to utilize its mountains of data

lucratively. It is argued that word of mouth advertising is a very powerful tool

to influence consumer behaviour. (Harrison-Walker 2001) Therefore, the fact

that it enables users to search for interest, people, photos and places that

their friends recommended- the search results are highly valuable. Moreover,

instead of links that might refer the user to the answer he is looking for, Graph

Search directly delivers the answer on-screen.

Even though Graph Search will improve the user experience drastically, it is

questionable if it will be able to drive revenues- Facebook has not announced

how they are going to monetize their new venture.

4.2.2. Rarity

Facebook’s database with high quality information is a unique resource.

Furthermore, visionary staff and extraordinary technological competency

make their capabilities rare.

4.2.3. Inimitability

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Facebook’s intangible resources, such as tactic knowledge, superior

motivation and managerial talents are exceptionally difficult to imitate. Mark

Zuckerberg’s primary goal is to make an impact. Monetizing his inventions

come rather secondary, which is absolutely priceless to the company’s

success in terms of innovation. Furthermore, creating an interface similar to

Graph Search is doable, but gaining the same amount of users and valuable

information is not imitable in the near future.

4.2.4. Exploitation by Organization

A lot of factors contribute to Facebook’s innovation success- starting with its

organizational structure. Much like Google (Iyer, Davenport, 2008) Facebook

provides an open, unstructured and collaborative platform for employees to

foster innovation. The flat hierarchy and informal atmosphere encourage the

flow of communication. (ABC news interview) Their location also plays a vital

role, as their headquarters is located in Silicon Valley, where infrastructure

and qualified human capital, are abundant. (Business Insider Innovation

Video)

By combining its complementary assets, Facebook develops and leverages

the full potential of its resources and capabilities, which has enabled them to

create Graph Search and mobilize its value onto the market.

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Figure 7

5. Findings

The analysis of both Porter’s Five Forces and the VRIO Framework resulted

in the fact that Facebook, with the first mover advantage, wi ll enjoy a

temporary monopoly in the Social Media Search industry. The rivalry will

increase over time if Google injects search into Google Plus. Even if they

decide to do so, Facebook will hold an invaluable advantage of having seven

times more active users, which results in a far more accurate and valuable

search result than Google could provide with their limited users and shared

content.

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6. Conclusions/Recommendations

It can be concluded that Graph Search will transform the way people will use

Social Media and the Internet as a whole. With its introduction, Facebook

challenges Google on another level, before they could even catch up with

their social layer. In order to sustain their competitive advantage, it is advised

that Facebook encourages users to update their pages to ensure more search

accuracy. Facebook also might actively acquire businesses for them to

establish proper business pages to be linked to “places”. As it is highly

recommended for Facebook to find a way to drive revenues with Graph

Search, in order to stabilize their position in the stock market, this could be

taken further by incorporating an active review and advertising system for

places and interests.

It is also worth considering partnerships with other social networks such as

LinkedIn to leverage their recruiting platform. Additionally, indexing Instagram

pictures will add more diversification to their database and possibly attract

more users.

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7. References:

ABC News, Inside Facebook Interview (2010) [video]

http://www.youtube.com/watch?v=MSSeDJPVfrY

Accessed 17.02.2013

Barnett, E. (2011), Facebook power users 'have gone to Google+ and Twitter'.

Available from:

http://www.telegraph.co.uk/technology/facebook/8833593/Facebook-power-

users-have-gone-to-Google-and-Twitter.html [Accessed: February 17, 2013].

Blodget, H. (2010), Innovation Series: Mark Zuckerberg. Available from:

http://www.businessinsider.com/innovation-series-mark-zuckerberg

[Accessed: February 17, 2013].

Boissonneau-lehner, D. (2010), Organizational Culture’s Role in Facebook’s

Success. Available from:, Web site:

http://blogs.ubc.ca/daniellehner/2010/10/26/organizational-cultures-role-in-

facebooks-success/ [Accessed: February 13, 2013].

Carroll, R., & (2013), Facebook's Graph Search to take on Google and help

users . Available from:

http://www.guardian.co.uk/technology/2013/jan/15/facebook-announcement-

graph-search-mark-zuckerberg [Accessed: February 1, 2013].

Chapman, M. (2013), "The Marketing Interview- Marvin Chow Google +",

Marketing Magazine, Feb 6, pp.15-16.

Hensel, T., Facebook Graph Search Announcement (2013) [video] .

https://www.youtube.com/watch?v=c-E3cfPHjeYAccessed 17.02.2013

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Iyer, B. & Davenport, T.H. (2008), "Reverse Engineering Google’s Innovation

Machine", Harvard Business Review, vol., no. pp. 64,66.

Karmasnack (2013), Search Engine Market Share . Available from:

http://www.karmasnack.com/about/search-engine-market-share/ [Accessed:

February 13, 2013].

Lorrens, D. (2013), Plus-One This: Proof That Google Plus Will Prevail. Available

from:, Web site: http://www.fastcompany.com/3004448/plus-one-proof-

google-plus-will-prevail [Accessed: February 13, 2013].

Mcguire, T., Manyika, J. & Chui, M. (2012), Why big data is the new

competitive advantage . Available from:

http://www.iveybusinessjournal.com/topics/strategy/why-big-data-is-the-new-

competitive-advantage#.UQa6eOhQo7A [Accessed: February 1, 2013].

Miller, C. 2011, Another Try by Google to Take On Facebook

http://www.nytimes.com/2011/06/29/technology/29google.html?pagewanted=

all&_r=0

Porter, M.E. (2008), The Five Competitive Forces That Shape Strategy .

Available from: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-

strategy/ar/1 [Accessed: February 12, 2013].

Worstall, T. (2012), And Now For Facebook's Real Problem: Data Is

Becoming Less Valuable. Available from:

http://www.forbes.com/sites/timworstall/2012/05/26/and-now-for-facebooks-

real-problem-data-is-becoming-less-valuable/ [Accessed: February 2, 2013].

Williams, D. (2013), How Facebook's Graph Search Will Dethrone Google

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search-dethrone-google-search/239509/ [Accessed: February 1, 2013].

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Weber, T. (2012), Facebook buys Instagram photo sharing network for $1bn.

Available from: http://www.bbc.co.uk/news/technology-17658264 [Accessed:

February 13, 2013].