Facebook Porter’s Five

Porters five forces analysis has become a pervasively adopted framework for industry analysis, which can be used to examine the competitive intensity and attractiveness of a market or a company. The tender neting companies gradually come into the spotlight of the business world in recent years, which was especially featured by the significant event of Facebooks IPO on May 18, 2012. In such circumstances, it will be extremely interesting to apply the five forces analysis to gauge this giant and even unfold just about hints that why this star company has been struggling in the stock market since it went public.Although it has been a tough m period for Mark Zuckerberg, the to a greater extent transparency and disclosure of the companys financial as hale as operational information available for the capital market provide us much more useful resources to put Facebook under our microscope of five forces analysis. The Bargaining Power of Customers (Strong) With regard to customer aspec t, it might be taken for granted that we are referring to billions of active users on this website.But when we look further into this company and its product, the surprising true statement is that the users and their in the flesh(predicate) information are actually the product rather than the customer, at least from the financial standpoint. advertizement composes 84% of the companys total tax, which was $1. 18 billion for the second quarter of 2012 according to its ordained financial reports. Then we found out that the advertisers are Facebooks real customers, and what confronts this company is a fiercely competitive market.Although Facebook declared that 70% of its advertise campaigns resulted in a return on ad top of 3x or better, and 49% of campaigns showed 5x or better, Facebook adverting is ease generally undervalued by the marketers given the factor of being the belong ad viewed or clicked before a conversion outweighs all other criteria, and Facebook advertising u sually comes into free rein earlier in the conversion funnel. In addition to the low cost to switch to other advertising media, theres no wonder that the advertisers have gained relatively strong, if not dominant, bargain power with perpetually debating the value of Facebook advertising.The Bargaining Power of Suppliers(Medium) Compared to the customers bargain power, Facebook is standing at a regnant position with thousands of common-sense suppliers playacting in its arena. It may be noticed that I use common-sense to categorize such kinds of suppliers providing hardware, software, and work Facebook study to run their business, like Zynga. On the other side, it might be interesting to scrutinize another sort out of suppliers in terms of Facebooks product, that is, the users of the website.Yes, those are the users who establish their loving network and feed in their personal information, which make up of Facebooks product and determine its success. In accordance with Facebook s operational highlights of second quarter 2012, monthly active users on its website have notched 955 million as of June 30, 2012, which was an increase of 29% year-over-year. But taking the whole social networking market and even the internet into consideration, it will be severe for Facebook to maintain such steady increase of its user base.Actually, the increase pace has gradually slowed down in recent quarters, observed by multiple sources. Additionally, the users with more education and experience have been reluctant to dole out excessive personal information on the website to protect privacy and prevent from possible solicitation. After all, Facebook still serves as the mostly visited social networking website and is therefore in demand of diversified supplies, so we could regard the negotiate power of suppliers as medium level. The panic of Established Rivals(Strong)As discussed, the social networking companies are facing a amply competitive market. Besides Facebook, ther e are several other main instrumentalists, including LinkedIn, Google, Yammer, Myspace, etc, as well as hundreds of small websites focusing on specific segment or providing general social networking services. For example, LinkedIn has built up a professional network into a cant-miss destination with millions of member professional. The year-over-year receipts growth for LinkedIn was very(prenominal) remarkable at over 80% for the last two years, and it has continued to see strong revenue growth beating analyst estimates.LinkedIn has shown an even more robust business model compared with Facebook. Rather than whole relaying on advertising income, LinkedIn also has considerable revenue from job postings and subscriptions, which help the company to grow its revenue at a notable rate and avoid stagnancy. In this sense, Facebook may have more struggles to make better its user experience and spur revenue growth especially compared with its competitors, and the threat of established r ivals is absolutely strong. The Threat of New Entrants(Strong)For new entrants to social networking market, the technical barriers are barely insignificant and Facebooks most service might be its menstruation huge user base. But such advantage is also balmy to be mimicked by other Internet giants who already have stable visitor stickiness like Google. Google launched its social networking and identity service, Google+, in June 2011. As of September 2012, it already has a total of 400 million registered users of whom one hundred million are active on a monthly basis.Instead of presenting as a social player consisting of not just a single site, Google has been able to provide an overarching layer integrating many a(prenominal) of its current online properties. Illustrated by Googles story, the threat of new entrants to social networking market for Facebook is quite strong and even electrifying if we recall the ever-changing world of internet business. The Threat of Substitute Pro ducts(Weak) Finally, the threat of substitute products to social network website including Facebook is not obvious yet.Facebooks current user base still shows a strong stickiness and its nonstop innovation also help it satisfy the users social networking needs well. But considering Facebook is essentially a social network that allows users to stay in touch with their friends, there are so many products or services could potentially address it. Especially if we observed the booming market of mobile networks, services like Buzzd, Twango and Dada may grow up to be a real threat in the near future. Overall, the threat of substitute products is medium based on the analysis above.