This is the detailed Porter’s five forces analysis of Facebook which is the leading social networking being used by the Internet users around the globe.
Facebook is a social networking and a social media website that is based in California, USA. It was launched in February of 2004 by Mark Zuckerberg in Harvard College. Initially, it was open for membership to Harvard students only, and then later on its access was given to students of other colleges and high school students. In 2006, it was made public and anyone above the age of 13 is now allowed to become a registered user. Facebook is now accessible on computers as well as mobile devices as a result of Facebook App. This social website allows people to share their info with others, add friends, post pictures, videos and other stuff. Also, it allows users to create pages and groups which other users can like. Many businesses have set up their own pages where they are able to stay in contact with their customers and followers by sharing information they find useful for their promotional purposes. IPO of Facebook was held in 2012. Currently, Facebook has more than 1.94 billion monthly active users. In 2016, Facebook posted a revenue of more than $27 billion.
Following is a detailed Porter Five Forces Model Analysis of Facebook:
Competitive Rivalry – Medium
During its beginning, Facebook did not face any competition. However, now there are many competitors of Facebook such as Twitter, Instagram, Snapchat and so on. Social media is a place where continuous innovation and use of latest technologies is vital for survival. All players, therefore, have to continuously innovate their platforms and cannot consider their large user base as a confirmation of their survival. Customer trends are also quickly evolving. Google+ and Twitter offer some unique features that Facebook does not. Therefore, the time spent by users on Facebook has declined during the past few years. Many platforms such as Snapchat are targeting a particular niche i.e. the youth in order to grab market share (Team, 2014). However, Facebook has been around the longest and has acquired other players such as Whatsapp and Orkut, allowing it to retain market dominance. Thus, competitive rivalry is medium level force against Facebook.
Threat of New Entrants – Low
Setting up a social media website such as Facebook and its associated apps is not an expensive task making entry of new players into the industry easy. The difficulty arises with the significant amount of resources required for marketing, brand recognition, and attracting users from other websites with unique innovative features on your website. Any new player that enters this industry will require significant investment in order to establish itself and grab a market share. Also, it takes time to develop a loyal customer base. Therefore, threat of new entrants is low for Facebook as it has been around for a long period with the largest market share and a huge following.
Bargaining Power of Suppliers – Moderate
The suppliers of Facebook are the firms that supply it with technology and developers that help in the development of various software’s and applications for Facebook. Facebook is a bulk buyer of these technologies but at the same time, there are only very few reputed suppliers of these technologies such as IBM and Ericson (Butler, 2015). Thus, choice of suppliers is limited and switching is costly. Therefore, bargaining power of the suppliers over Facebook is of a moderate level.
Bargaining Power of Buyers –High
The buyers or customers of Facebook are the various users of Facebook, its apps, messenger, and Whatsapp. Since there is intense competition, the buyers are left with many choices. There is no switching cost involved as well. The second buyers of Facebook are the marketers that run ads on it. They will also shift away to other social media websites if Facebook raises the ad prices beyond reasoning. Therefore, Facebook has to plan its strategy very carefully in order to retain its customer base. Bargaining power of the buyers is high.
Threat of Substitutes – High
The substitutes of Facebook include various other social media platforms that offer features similar to that of Facebook such as Google+ and Twitter. Many new innovative apps are continuously being introduced in the market that can also be a substitute threat for Facebook. Substitute for marketers that use Facebook for advertising needs are newspapers, TV, other websites, and blogs (Young, 2017). Therefore, substitution of Facebook is very easy making this a high-level force against Facebook.
References
Butler, R.A., 2015. Analyzing Porter’s 5 Forces on Facebook. [Online] Available at: http://www.investopedia.com/articles/markets/111615/analyzing-porters-5-forces-facebook.asp [Accessed 21 June 2017].
Team, T., 2014. Facebook Through The Lens Of Porter’s Five Forces. [Online] Available at: https://www.forbes.com/sites/greatspeculations/2014/11/28/facebook-through-the-lens-of-porters-five-forces/#1b6652937dd3 [Accessed 21 June 2017].
Young, J., 2017. Facebook Inc. Five Forces Analysis & Recommendations (Porter’s Model). [Online] Available at: http://panmore.com/facebook-inc-five-forces-analysis-recommendations-porters-model [Accessed 21 June 2017].