Authors: Alexandru Glontaru, Alexandru Maiereanu, Tudor Maiereanu, Alin Popa
Facebook is one of the biggest corporations which develop online social media and social networking service. The website was launched on February 4, 2004, by Mark Zuckerberg, along with fellow Harvard College students. Constantly growing for the last five years, reaching over 1.2 billion users worldwide, Facebook has deeply involved in the social life and activity of people in various ways. It stores an enormous amount of user data, making it a massive data wonderland, it allows people using computers or mobile phones to continuously stay in touch with friends, relatives and other acquaintances regardless of their location, as long as there is access to the Internet. It allows users to trade ideas, stay informed with local or global developments, and unite people with common interests or beliefs through open, closed and private groups and other pages. Facebook, probably the most used social media, has big impact over the digitalization process and also the industry 4.0, connecting all of the data to the one single website, where everyone shares everything about themselves.
Increasing number of people using Facebook through mobile devices. Currently Facebook has more than 600 million users who use Facebook through mobile devices. The mobile advertising from these mobile accounts could supply the company with a larger income than 14% present today. Why is this so important? The answer is simple — because there is tons of money buried down deep in those tiny devices called smartphones.
Expansion to China. A way for Facebook to enter China`s social networking market is with the help of the government by easing regulations. A major opportunity for Facebook is the new emerging markets such as Africa, China or Russia. The social network markets in Europe and U.S. are more or less saturated, so the strategy is simple — when there is no more cake left to be eaten, expand the cake. But, an example that proves this approach does not always work is Russia, where Facebook has been beaten by VK — a main local social network. For this, two different strategies are used by Facebook. Firstly, it buys the companies which already have users in countries that it want to expand (e.g. WhatsApp deal). Secondly, it creates a market where one has not previously existed (Facebook Intenet.org). This program aims at providing internet to those less fortunate countries, and of course Facebook Ads.
Diversify sources of revenue. By being the number 2 website in the world with more than 1 billion active users Facebook shouldn`t rely only on advertising as a source of income. Other opportunities could be exploited.
Open Facebook marketplace. Because of the number of people using Facebook and the extensive coverage that it has, a Facebook marketplace could be opened. This idea, if successful could bring more revenues than any other activities similar to advertising.
Facebook: the big data specialist
Big data is a part of Facebook since the beginning. For many years to come this company will create big data, and will make use of it. Because the purpose of Facebook is to connect people the social network works with a series of algorithms – the famous EdgeRank among other – their role being to identify the connections and select the posts that will appear on a user`s newsfeed. Basically, the information is being used according to each member`s interest and whom they most interact to, also this information in used for publishing ads.
The multi-criteria search offered by this company (Graph Search) is available since 2013 for the users that. For example, individuals younger than 19 living in Bremen, Germany who study at Jacobs University Bremen, Class of 2018. Real time suggestions are being offered by Facebook, similarly to Google, Facebook also offers a filter system when you search something (city, gender, political or religious beliefs, etc.). Similarly, to this you have other features such as looking for a movie, a photo or a restaurant. The advertising service offered by Facebook is based of users interests and features in their profile.
– the good –
The internet is an open space designed by its own rules and Facebook became in the last years one of the most important players in this game. Over 1.25 billion people are active on Facebook and they can change it according to their common willingness. In other words, this means that one fifth of the world population builds its own community which fits every of its members and give them the power to interact with each other just by doing one click.
The first and most important one is Facebook’s potential to invest. Their market cap is now equal to $347,5 billion and they can literally drown their competitors in money. Besides investing money into marketing, research and development, Facebook can also acquire medium-sized companies in order to expand its reach, the best examples to support this are: WhatsApp, Oculus Rift or Instagram.
The second most important asset of Facebook is its users (in the introduction and background of the company we stated that Facebook has almost 1.5 billion users worldwide). First of all, it is an enormous market for ad campaigns — a main source of Facebook’s income. Secondly, it makes it almost impossible for the competitors to have their own social-related networks of services, thus they get stucked in this huge company. Ask yourself a question:
If “everyone is on Facebook” why should I bother using other social network where none of my friends are?
Integration with websites and applications. By this the user experience is enriched and more engaging, thus Facebook constantly tries to keep a close integration with other websites and producers of applications that run via Facebook. This results in competitive advantage over other social networking websites that are trying to provide the same level of service.
More than a billion active monthly users. For a social network to grow, it must have users. The more users the Facebook has, the more socially connecting it is. Because of its over 1 billion active monthly users Facebook went from connect people locally to connecting them globally too.
Excellent user experience. By having an easy to use interface, integrated with many websites, translated into more than 70 languages and many more additional features that other social networks don`t have Facebook ensures the best user experience out there.
Understanding of user’s needs and behaviour. Besides Google, Facebook is the next in terms of collecting data about users likes, dislikes and preferences. Having all this data about its users the company knows exactly how to improve the experience with Facebook for every user independent of another.
Unlimited potential for investments in marketing, innovation and infrastructure. Ability to buy smaller companies with huge potential ($20 billion spent on WhatsApp, $2 billion spent on Oculus Rift, $1 billion spent on Instagram).
By spending an average of more than 20 minutes on the site on a daily basis the users are addicted to the service. Considering there is an enormous number of monthly active users, this is huge(1.5 billion at the end of July 2015).
Considering all these facts, Facebook might be the best company in the world to work for. It recruits the best engineers and product specialists in the world and also uses the best technology out there.
– the bad –
Facebook has a dedicated Data Science team which has as main task development of learning algorithms who are able to understand user’s behaviours and to sort them in different categories. They have a personal webpage where they post updates and observations they made about the habits of the millions of people who are active on Facebook every day.
The statistics run by this team are oriented on a large field of subjects. They are interested in any pattern that can be found in users’ activity within the platform: from political views to emotional stability or even the level of intelligence. For example, based on patterns matching, they are able to predict with few weeks before that a user will change his or her relationship status from ‘single’ to ‘in a relationship’.
Maybe you wander why would invest a company as Facebook that much many and time in learning about the users. The most obvious answer is that all these statistics help them to target the advertisement which allows them to sell this service for a more expensive price. This comes also in help of the user as they are not spammed with advertisement that is out of their interest. On the other hand, Facebook could also have some hidden reasons to invest in this service. All this information would be of great concern for the governments (especially in countries with other political systems than democracy).
Weak CTR (Click through rate) of advertisements. Facebook has a lower click-through-rate (CTR) than an average website, which is only 0.05% and about 4% respectively. Facebook could change significantly its income by changing the way it displays the ads. For example, advertisements made by posting on a user’s wall have more than 6% CTR, although this approach might diminish the user-friendliness.
It is a race, and the only way for Facebook to keep ahead is to find more and more sophisticated ways to reach its users, or to create certain ads that will be personalised for every user. It is not an easy thing to do, but fortunately for Facebook, they hire the most comprehensive group of people in the world to accomplish this.
Lack of website customization. Considering again the user experience, many Facebook users feel the need of customizing the website in a way to reflect their own personalities. The social network approaches this issue in a plain way, forcing the users to stick to its own design and patterns.
Attitude towards users’ privacy. Facebook collects private users’ information and then stores it. Not having the “right to be forgotten” may lead to a negative impact, potentially to the decrease of Facebook’s popularity. Also, many users that upload personal information to the social network, which is in fact a certain threat to their safety arises. Such attacks occur every day and thousands of passwords are stolen. Thus, Facebook is not doing enough to protect users’ from identity attacks.
Since its privacy model is still not very transparent and understandable to users, people publish thousands of pictures on their Facebook pages, share updates and write controversial opinions, but only a fraction of them actually understands with whom they are sharing the information.
The problem driven by this also involves the company. Eventually, if the privacy issues will increase in magnitude and users will become more afraid of putting more and more private content on the web, the Facebook itself would shrink and one of its biggest assets — the number of users — might start to decrease in importance.
Could they use Facebook to find the people opposed to their views and even manipulate their moods?
– the ugly –
The sympathizers of social media always believe that the benefits far outweigh the hazards. The fact that Facebook is making communicating with friends and family easier than ever, no matter where they are, is astonishing, but we must not forget that Facebook could technically sell data from a user`s account.
What would happen if government agencies had access to Facebook data to detect insurance or tax fraud?
In a democracy-based society, at least up until the Snowden/NSA scandal, we thought we were immune to such practices. And it was a bit silly to have ever expected it to be manageable within fixed social and legal boundaries. There’s clearly a lot to be learned from studying the data generated by this company.
Increasing mobile devices. Currently Facebook has more than 600 million users who use Facebook through mobile devices. Despite that this group makes 60% of all Facebook users, the mobile advertising only accounts for only 14% income for the business. Since statistics showed that this transition is only on its start, if the company will be unable to monetize mobile users, it will face decreasing advertising income as more computer users will slightly shift to the mobile ones.
Users using ad-block extensions. Also related to the advertisements of the company, experienced users often take the possibility of installing extensions that block advertisements from the website. Explicitly allowing them to do so, the growing number of such users is threatening Facebook’s model as they can’t see advertisements and click on them. On the long run the social network needs to address this issue since, ads could not be as valuable then.
Slow growth rate of online advertising. Although online advertising still grows, but slower than in the past (14% in 2012, down from 23% in 2011), its rate still diminishes. In such a way, Facebook may have to develop a new way of approaching the advertising, to maintain its income.
Identity thefts. As a result of its privacy weakness, identity thefts are common on Facebook. The increasing number of identities that are stolen only brings along more criticism. By this fact, Facebook is damaging its brand for the inability to protect users’ private information.
Weak business model. On a basic approach, Facebook’s aim is to attract social network users, display the ads for them and charge the businesses for the ads displayed. The company may face severe difficulties if some conditions change that are not in firm’s control. For example, slowing growth of online advertising, new social network, shift from advertising on Facebook to other websites, growing number of mobile users or failure to diversify source of income may become a serious threat.
References: Facebook (2012). Financial Releases. Available at: http://files.shareholder.com/downloads/AMDA-NJ5DZ/2264826225x0x607714/2f174ca3-556b-429a-85d3-bea437ee2e6a/FB_News_2012_10_23_Financial_Releases.pdf Heussner, K. M. (2012). Internet advertising still a growth business, but pace slows. Available at: http://gigaom.com/2012/10/11/internet-advertising-still-a-growth-business-but-pace-slows/ Wikipedia (2013). Facebook, Inc. Available at: http://en.wikipedia.org/wiki/Facebook,_Inc. Wikipedia (2013). Criticism of Facebook. Available at: http://en.wikipedia.org/wiki/Criticism_of_Facebook