E-Commerce

Posted: September 6th, 2013

E-Commerce

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Future Analysis of Facebook

Introduction

            E-commerce refers to business transactions through the web and internet. These digital transactions are based on exchange of value against products or services from either an organization or an individual. In e-commerce, the marketplace is virtual because customers can purchase products anywhere and anytime across a given network (Li, 2007). Digital technology enables global e-commerce and promotes interactivity between the customer and the company. The virtual market or market space reduces transaction costs and increases timeliness and precision. Facebook is a social media site and company that practices and promotes e-commerce globally. Its popularity has earned it over 300 million users over the years, and its applications create a platform for business dealers and merchants to conduct commercial initiatives. Therefore, to attract potential customers, online retailers use facebook as a marketing technique. On the facebook pages, businesspersons post links to their online stores in a bid to widen their market share.

Background

            Mark Zuckerberg founded Facebook as “thefacebook” in 2004 exclusively for Harvard students. However, the site gradually gained popularity in the subsequent years, and it was the preference of most people across the world. Public registration began in 2006. Facebook has its corporate headquarters in Menlo Park California and international headquarters in Dublin, Ireland. Facebook also established an IPO, which was launched, on the NASDAQ stock exchange, to target investors. Currently, half of the numerous active users log on facebook using their mobile devices.

Analysis of Facebook

Mission and Vision

            As a company, facebook is grounded on a mission and a vision. The mission and vision express the founder’s intention, which was to create an opportunity for people to share their experience, connect across a global network, and enhance openness. The mission is critical in e-commerce because it allows customers and businesspersons to interact efficiently and conveniently. Online retailers are able to sell their products at an international level, and get feedback from their loyal customers concerning their services and their terms of value. Nowadays, customers opt for online shopping, and this requires most businesses to capitalize on e-commerce. Since facebook has garnered multitudes of users from all parts of the world, consumers are more familiar with transactions done on the social site. This shows that the social networking website has convenient features that enhance trade and it will venture into new feature developments to be compatible with business templates to satisfy all its users.

Industry Information

            Online social networking services connect people with similar friends and interests by creating for them web space for communication purposes. Facebook is one of the websites that provide these services and it is convenient and cost effective. Apart from being databanks of digital information, these websites are shopping, job search and entertainment platforms. With facebook, users can share photos, views, ideas, and they can add friends and groups in their accounts. As a social network website, facebook promotes e-commerce through bulleting boards, which people use to buy and sell products to each other. Software developers can use open platforms provided by facebook to create new applications for different purposes. Software developers from companies take advantage of facebook’s mass distribution to develop applications that meet the business goals. This technology involves too much sensitive information and therefore it is subject to terms of service and privacy policy. Facebook’s continuous innovation projects viable outcomes, which will give it competitive advantage over the other peer competitors in the future.

Business Strategy

             Facebook Inc. embarked on a precise strategy that involved generating revenue through attraction and establishment of multitudes of friends. “Friends and followers often have indirect, passive riles in business. We have seen this in the case of Facebook, which deployed a strategy of building 500 million friends that enable it to generate nearly $800 million in revenues (Libert, 2010).” To generate income, Facebook relies on the activity of its customers who are passive participants. Libert (2010) terms this business strategy as “popular nation”. Facebook’s CEO, Mark Zuckerberg made strategic decisions on the onset of the company’s establishment, enabling it to experience steady growth. These decisions are reflected in the company’s SWOT analysis (Daft et al, 2010).

Facebook has its strengths in a stable and highly esteemed partnership with Microsoft. “Facebook has a major partnership with Microsoft which has invested $ 240 million; brokers banner ads for the company, and is developing tools that make it easy to create links between Windows applications and facebook’s network (Daft et al, 2010).” Its aggressive and innovative culture coupled with well-harnessed technological base gives it optimum returns. The preference of most social network users shifted from My Space to Facebook after the latter launched the IPO and became public. However, some of its challenges are difficult to counter because of lack of management expertise. According to Daft et al (2010), facebook spends more than its revenue, and this poses a significant threat. Poor management practices can also cause it to miss recommendable partnerships in the industry. Nevertheless, the company’s popularity is a grand opportunity for it to expand its operations globally and introduce advanced web features to increase its revenue through boosted advertisement rates.

Zuckerberg’s strategy is to make facebook a business premise for companies to provide products and services to members with a facebook account. “Prosper.com developed a facebook application for its service that allows members to lend one another money at negotiated interest rates (Daft et al, 2010).” The company’s CEO capitalizing on an excellent executive team that will ensure the strategy is effective. The formulation of this strategy followed Porter’s model that relates to the five competitive forces of businesses. The first is the potential of new entrants in social network industry. Internet technology is advancing and creating opportunities for companies to establish themselves. More websites for social networking necessitate facebook to modify its features and formulate strategies of attracting and retaining members.

The second is the bargaining power of customers. Because of the wide array of social networking service websites, facebook customers though passive, can make a choice from the options available according to its suitability. The third is the bargaining power of suppliers. Facebook relies on other e-commerce of other companies through their adverts to establish a wide range of passive customers. The fourth is the threat of substitute products. Other social networks such as MySpace may have different e-commerce platforms attract customers and even entice loyal facebook users. This therefore prompts strategy formulation to ensure that it is at purr with the rest of its competitors in the social networking industry. The fifth is rivalry between competitors. Zuckerberg’s strategy should work to foster the company’s strengths, and to maximize on the available opportunities in the coming years. Thus, through strategic partnerships and dynamic capabilities, facebook will garner competitive advantage and maintain its numerous passive customers.

Financial Performance

            Facebook appears to be flourishing in the financial aspect. According to Spinello (26 April 2012), Facebook experienced a boost to its patent portfolio when it bought 70% of the patents Microsoft purchased from AOL. When facebook finally goes public or past the pre-IPO phase, its revenue will be between $75 billion and $ 104 billion. Facebook’s financial performance depends on the number of users it has secured. “As outlined in its S-1 filing, facebook sees “user-growth” as one of the key facets to its business. Along with “engagement, ” facebook’s financial performance will ultimately be measured by how well it succeeds in driving new users to its platform and keeping them there (Spinello, 26 April 2012).” Currently, the company enjoys the social networking of over 900 million active users.

The company has made acquisitions such as Instagram and Tagtile, which enables it to expand its mobile capabilities. However, according to the facebook IPO filing in January 2012, facebook mobile products do not generate meaningful revenue, and there is no strategy to this yet. The company’s revenue and financial results will be affected adversely if monetization strategies are not implemented properly and if facebook mobile products continue to substitute personal computer access (Spinello, 26 April 2012). Therefore, facebook needs to device appropriate strategies of forming mobile platforms for ad dollars. Once facebook perfects a mobile-revenue stream, its value-proposition will be higher. It should compete for marketers and advertisers. By implementing the strategy with precision, the future outlook of facebook will be characterized by upgraded applications and customized network platforms.

Industry Developments

            The online social network industry has undergone a metamorphosis since it was discovered with the help of technology, and various developments are still evident. Creation of online social networks has enabled the formation of many new companies whose businesses have been boosted to greater degrees. In the industry, more features are advanced to create and support various links for the purpose of business or social networking. Several websites have introduced unique features and perspectives to the marketing mix and connection. These social networking companies communicate the purpose of the varying products to the target audience. Facebook launched the Facebook Developers Platform that allows various software developers to create applications on facebook for different purposes. For example, various advertisers and businesses can develop their applications for commercial purposes. However, facebook should develop a strategy of ensuring that applications are in line with the privacy policy. Users are attracted to the websites by extensive internet marketing which displays its appealing outlook.

Future

            Facebook remains the world’s famous social networking website despite its few limitations. Through the connection opportunity it offers, people find new friends and even reunite with old ones. The use of facebook is crucial because it not only connects people socially but also it is used as a marketing strategy by myriads of companies from all over the world. Businesses are able to personalize their interactions with customers and develop a wider customer base. It has a basic template that is user friendly to a variety of people thus; communication is made easier and faster. The various applications and games provide entertainment to users and promote other events that might interest them. Therefore, the diversification in facebook caters for a large proportion of the society.

On the other hand, critics argue that facebook isolates users from reality because frequent users lack basic life skills. According to Marche, facebook only connects people but does not maintain the bond essential to human beings that involve physical interaction with the basic life skills. Nevertheless, the website demonstrates astounding internet technology that leads to further developments in life. Using facebook is a personal choice hence; it is up to users to manage the degree of using facebook so that they do not become anti-social beings. Facebook is gambling, and addiction issues spike controversy among many people. Young people have become addicted gambling games and critics are blaming facebook for the exposure. However, the company only acts as a medium and is not the core of the problem. It must device strategies of control and advance their terms of service. Facebook has a promising future if the company works on its weaknesses such as the privacy policy, management issues and monetization strategy. Proper implementation of its strategies will better its financial performance in the coming years and earn it a competitive advantage of its peer competitors. Zucker’s strategic plan of attracting many companies and sustaining facebook’s user was a positive step.

References

Daft, R. L., Kendrick, M. & Vershinina, N. (2010). Management-International Edition. Cengage Learning EMEA.

Libert, D. B. (2010). Social Nation: How to Harness the Power of Social Media to Attract Customers, Motivate Employees, and Grow Your Business. John Wiley & Sons.

Li, F. (2007). What is e-business? How the internet transforms organizations. Malden, MA: Blackwell Pub.

Marche, S. (2012). Is Facebook Making us Lonely? Retrieved from http://www.theatlantic.com/magazine/archive/2012/05/is-facebook-making-us-lonely/8930/

Spinello, S. (26 April 2012). Financial News Analysis. Retrieved from http://econ435.blogspot.com/2012/04/hot-topics-facebook-and-apple.html