FACEBOOK, INC.

Make the world open and connected

Angeli Ronica Buenviaje

Evan Christopher Cotiangco
Agnes Malihan
Kristian Paolo Palenzuela
Chamuel Michael Joseph Santiago
June 14, 2018
Facebook
Launched on Feb 4, 2004 by Mark Zuckerberg,
along with fellow Harvard College students
and roommates Eduardo Saverin, Andrew
McCollum, Dustin Moskovitz, and Chris
Hughes.
Facebook
• Initially its membership was limited to
Harvard students. Later it was expanded to
higher education institutions in the Boston
area, the Ivy League schools, and Stanford
University.
• Gradually support was added for students at
various other universities, and eventually to
high school students.
• Since 2006, anyone who claims to be at least
13 years old has been allowed to become a
registered user
Facebook
• The name comes from the face book
directories often given to American
university students.
• Facebook held its initial public offering (IPO)
in February 2012, valuing the company at
$104 billion, the largest valuation to date for
a newly listed public company.
• Facebook makes most of its revenue from
advertisements that appear onscreen.
Case Synthesis
Facebook, headquartered in Menlo Park, California,
is the largest social media network in the world.
After going public, the firm surpassed Wall Street’s
expectation, however, there is a belief that the
company was losing its ability to satisfy its
customers and shareholders. Social media monitors
and analysts believe that Facebook’s growth has
already peaked. Facebook stakeholders are anxious
for the firm to develop more competitive
advantages. Competing in a highly dynamic and
competitive industry, Facebook needs to determine
the best strategy to out-innovate its rivals and retain
its customer “mindshare”.
Industry: Social Networking
• Social networks serve as platforms for connecting
people around the world.
• Other than connecting people, it serve three main
purposes:
• Advertising
• employee and idea screening
• application development and gaming
• A rapidly growing industry where imitation costs
are low, and competitive advantages are difficult
to protect for extended periods.
• At end of 2012, its market was around USD 11.5
billion with 1.6 billion unique individuals regularly
using social networking sites worldwide.
 Facebook and its Competitors
Social Business
Focus Users/Target Customer Segment Platform WOPL
Network Type

Facebook Public General: photos, A billion users. Broad segments: Open Wide
videos, blogs, open to people 13 and older.
apps

Google Plus Subsidiary General Nearly 100 million users. Broad Closed Moderate
segments: open to people 13 and
older.

Twitter Public General. Micro- Over 200 million users. Broad Open Narrow -
blogging, RSS, segments. Moderate
updates

MySpace Subsidiary General: photos, 36 million users. Broad Closed Moderate

videos, apps segments: open to ages 13 and
older however users are mostly
teenagers.

LinkedIn Subsidiary Business and Over 200 million. Focused: Closed Moderate
professional working and employment
networking seeking professionals.
Strategic Group Map
Point of View and Time Frame
The group has taken the point of view of Mark
Zuckerberg, founder and CEO of Facebook.
The group assumes that the timeline of the
case takes place in 2013.
 VISION FRAMEWORK
FACEBOOK, INC. (2013)
Core Ideology
Core Values
● Autonomy and Responsibility
● Focus on Impact (innovation)
● Facebook is Run by Hackers (detail
oriented innovation and creation)
● Growth and Coaching (no fear of failure)
Core purpose
“Give people the power to share and make
the world more open and connected”
 VISION FRAMEWORK
FACEBOOK, INC. (2013)
Envisioned Future

10-to-30-year BHAG
● Expand our global community.
● Develop great social products to increase
engagement.
● Increase the utility of our services and provide the
most compelling user experience.
● Improve our ad products.
● Excel at mobile product development and make our
mobile products fast, reliable and easily available.
● Enable developers to build, grow and monetize their
mobile and web applications.
● Build a scalable infrastructure to provide the most
compelling, robust, and reliable product experience.
 VISION FRAMEWORK
FACEBOOK, INC. (2013)
Envisioned Future

Vivid description
Billions of people using Facebook's websites
and mobile applications every day to stay
connected with their friends and family, to
discover and learn what is going on in the
world around them, and to share and express
what matters to them to the people they care
about.
Facebook Core Products
Facebook Business Model

Value Propositions
For Users: “a social utility that helps people
communicate more efficiently with their friends,
family and coworkers.”

For Marketers, Businesses and Developers: “A

unique combination of reach, relevance, social
context and engagement to enhance the value of
their ads.”
Facebook Business Model
Profit Formula
• Revenue Generation: Advertisement and royalties
from third-software developers.
• Cost Structure: Fixed and variable costs associated
with website operation and maintenance,
licensing fees, revenue sharing agreements,
acquisitions, research and development, and
general and administrative activities.
• Profit Margin: Facebook’s profitability is
dependent on attracting a sufficiently large
number of users, marketers, and businesses to
cover its costs and provide attractive profits.
Objectives
Strategic Objectives
• Increase global social media network user or “mind
share” by 10 percent annually.
• Become the people’s choice for social media networking
site.
• Become the marketers’ choice for advertising channel.
• Become the developers’ choice for development tools
and application programming interfaces.
• Consistently getting new or improved products to
market ahead of rivals in the next five years
• Offer deeper technological capabilities than rivals in the
next five years.
Objectives
Financial Objectives
• An 50% percent increase in annual combined revenues
in the next five years.
• Increase 40% percent of revenues from the sale of new
products introduced in the past five years
• An 20% percent return on shareholders’ equity
investment.
Social Objective
• Ensure the safety and security of Facebook’s users.
EXTERNAL ANALYSIS
PESTLE Analysis with Porter’s 5 Forces
External Factor Evaluation (EFE) Matrix
 Political
Effects on Barrier,
Effects on 5-
Future Macro Determinants and Conclusion
Forces
Factors

Most government and Users are well informed Increase Threat

users have expressed about their rights and bargaining power
concern how much user can file complaints. of buyers
information social media Governments impose
networks collect -data stricter guidelines on
privacy laws use of users’ info

Popular governmental There are open trade Decrease Opportunity

support for globalization policies - enlarged bargaining power
and political stability in market size of buyers
developed and developing
countries
 Economic
Effects on Barrier, Determinants
Future Macro Effects on 5-Forces Conclusion
and Factors

The growth of China as Social media companies from Increase threat of Threat
an economic China may enter competition. entry
powerhouse China may open its market to
international companies including Decrease bargaining Opportunity
social networking sites - more power of buyers and
buyers and suppliers suppliers

Increasing stability of Infrastructure allows for easier Decrease bargaining Opportunity

developing countries access to internet - enlarged power of buyers
market size

Rapid economic Enlarged market size and increase Decrease bargaining Opportunity
growth of developing dependency on the internet power of buyers
countries

Increasing disposable Increase in device use - enlarged Decrease bargaining Opportunity

incomes market size power of buyers
 Social
Effects on Barrier, Effects on 5-
Future Macro Conclusion
Determinants and Factors Forces

There is significant Use of social networking Decrease Opportunity

level of willingness sites does not represents a intensity of rivalry
to pay for what have significant fraction of their and bargaining
customarily been purchases power of buyers
free services

Increasing Established industry players Decrease threat Opportunity

preference for high have found their niches. of substitute
quality services

Increase online More businesses will Decrease Opportunity

transactions establish their presence in bargaining power
online (ex. social media of buyers
sites) - enlarge market size
(B2B)
 Technological
Effects on Barrier,
Effects on 5-
Future Macro Determinants and Conclusion
Forces
Factors

Mobile platforms have Increase in device use - Decrease Opportunity

quickly become one of the enlarged market size bargaining
fastest growing segments power of buyers
of advertising.

Increasing cost of the Capital requirements Increase Threat

internet are high - maintaining bargaining of
large data centers. suppliers
Matching the capacity Opportunity
and capability of major Decrease threat
players requires of entry
enormous investment.
 Legal
Effects on Barrier, Effects on 5-
Future Macro Conclusion
Determinants and Factors Forces

Improving patent laws Industry players can Decrease Opportunity

worldwide maintain competitive intensity of
advantage for longer rivalry and threat
periods of time before of entry
competitors can replicate
products with patents

Increasing regulatory Enlarged market size Decrease Opportunity

support for free Wi-Fi bargaining
power of buyers

Strict internet Limits market penetration Increase Threat

regulation in China and in certain regions bargaining
other countries power of buyers
 Environmental
Effects on Barrier,
Effects on 5-
Future Macro Determinants and Conclusion
Forces
Factors

Increasing emphasis on Users and advertisers Decrease Opportunity

business sustainability view substitutes as bargaining power
incomparable or worse of buyers and
in terms of quality, competition of
performance, and substitute
other relevant
attributes
External Factor Evaluation (EFE) Matrix
Weighted
Weight Rating
Score

Opportunities
Popular governmental support for globalization and political stability in 0.05 4 0.20
developed and developing countries
The growth of China as an economic powerhouse 0.05 3 0.15
Increasing disposable incomes and significant level of willingness to pay for 0.05 3 0.15
what have customarily been free services
Increase transaction and usage of the online platform 0.15 4 0.60
Mobile platforms have quickly become one of the fastest growing segments of 0.15 4 0.60
advertising.
Improving patent laws worldwide 0.10 4 0.40
Increasing regulatory support for free Wi-Fi 0.10 3 0.30
Increasing emphasis on business sustainability 0.05 3 0.15
Threats
Increase in data privacy concerns and laws 0.15 1 0.15
Increasing cost of the internet 0.10 2 0.20
Strict internet regulation in China and other countries 0.05 2 0.10

Total 1.00 3.00

INTERNAL ANALYSIS
Product Life Cycle Assessment
Value Chain and Financial Ratio Analysis
Internal Factor Evaluation (IFE) Matrix
 Inbound Logistics
Effects of Firm’s
Value Chain Analysis Impact on Value Chain Elements Conclusion
Business Model

The Facebook user The company receives the content Increase value Strength
uploads the content without additional cost. The and services
such as photos, texts company obtains free information
and videos. from users. The company receives
open feedback from users for any
improvement and change

Procurement
Effects of Firm’s
Value Chain Analysis Impact on Value Chain Elements Conclusion
Business Model

Users have to be invited Creative applications are practically Increase Strength

into the circle in order to designed by the users. With perception of
enable participation communities / groups established in value and cost of
Facebook, users will unlikely use a switching
different site
 Marketing and Sales
Impact on Value Chain Effects of Firm’s
Value Chain Analysis Conclusion
Elements Business Model

User-friendly platforms for Increases web traffic and Improve customer Strength
both users & advertisers attracts user loyalty relations and improve
quality of service

Social ads and viral Ability to provide the Improve perception of Strength
marketing platform for marketers to value
reach their existing and
prospective customers

Regular hosting of events Encourages sharing of ideas Improve customer Strength

and conferences with users, and collaboration among the relations and improve
developers and marketers stakeholders to further quality of service
improve the products and
services of the company

Easily imitable products and Competitors are developing Decrease company’s Weakness
services similar products and services value
 Operations
Impact on Value Chain Effects of Firm’s
Value Chain Analysis Conclusion
Elements Business Model

Operates more than 30 sales Effectively builds and maintains Improve Strength
office around the world. Global long-term partnerships with perception of
sales force attracts and retains advertisers, users and value and quality
marketers and provides support developers. of service
at all stages of the advertising
campaign cycle.

Facebook’s operations involves The company utilizes hardware, Improve Strength

transformation of raw content software and data centers and convenience and
into a user-friendly format. highly technical employees to service
deliver uninterrupted service to
its users.

Implements self-service ad Entices the advertisers to use Improve Strength

platform the platform due to ease of convenience and
access and user friendly service
features
 Technology Development
Impact on Value Chain Effects of Firm’s
Value Chain Analysis Conclusion
Elements Business Model

Facebook utilizes an The company provides Add value and Strength

open platform a set of tools and improves customer
services to encourage relations with
developers to create developers
their applications

Uses acquisitions to Each acquired business Improves value and Strength

improve capabilities and brought knowledge to quality of products and
develop new businesses Facebook in a strategic services
area of weakness
 Human Resource Management
Impact on Value Chain Effects of Firm’s
Value Chain Analysis Conclusion
Elements Business Model

Employs highly skilled Talent and experience of Improves value and Strength
engineers and computer each employee is the quality of products
scientists whose foundation for enhancing and services
expertise span a broad Facebook’s products and
range of technical areas. services

Buys companies to get The company uses the Improves value and Strength
excellent people talent and knowledge of quality of products
acquired employees to and services
improve capabilities and
develop new businesses

Developer-centered Ensures continuity of Add value Strength

culture and celebrates operations. Maintain high
the “offensive line” level of innovation.
 Finance/Accounting
Impact on Value Chain Effects of Firm’s
Value Chain Analysis Conclusion
Elements Business Model

Significant amount of Continuous improvement Add value Strength

funding was allocated to in the products and
research and services that Facebook
development offers to its users as well as
developing new business
that may generate more
revenue

Relies heavily on The number of advertisers Decrease value and Weakness

advertising to generate determine the revenue revenue/cash flow
positive cash flow stream of the company is concentrated on
one source.
 Firm Infrastructure
Impact on Value Chain Effects of Firm’s
Value Chain Analysis Conclusion
Elements Business Model

Large Scale Systems and Facebook’s Add value Strength

Scalable Infrastructure infrastructure has
enabled the storage
and processing of large
data and facilitated the
deployment of its
products and services
on a global scale.
 Liquidity Ratios
Financial Ratio Effects of Firm’s
Impact on Value Chain Elements Conclusion
Analysis Business Model

● Current Ratio For the past two (2) years, Increase Value Strength
Facebook’s current ratio is
consistently above the normal
current ratio of 1. Facebook
even doubled its current ratio
from 5 in 2011 to 11 in 2012.
Furthermore, Facebook has the
highest current ratio as
compared to its competitors
(Google and LinkedIn).

This indicates a good capacity of

the Company to pay-off
currently maturing debts.
 Financial Ratio Impact on Value Chain Effects of Firm’s
Conclusion
Analysis Elements Business Model

● Ave. Collection Facebook’s accounts receivable Increase value as Strength

Period turnover and collection period
● Ave. Receivable is 7 and averages 54 days for the
Turnover Ratio past 2 years (2011 and 2012).
This period at first may be
considered as a weakness since
it takes the Company more than
1 month to collect its
receivables from customers.
Facebook converts
its sales and
receivable to cash
faster as compared
to its competitors.

However, comparing the with its

competitors in the same
industry, Facebook has the
shortest collection period since
Google and LinkedIn needs
more than 2 months to collect
receivables from its customers.
 Capital Structure
Financial Ratio Impact on Value Effects of Firm’s
Conclusion
Analysis Chain Elements Business Model

● Debt ratio The debt ratio of Decrease Strength

Facebook is cost/finance cost
approximately 23% of and increase
the total financing in shareholder value.
2011 and 2012.

This ratio is lower as

compared to the debt
ratio of its
competitors, Google
and LinkedIn, which is
25% and 35%,
respectively.
 Asset Management Efficiency
Financial Ratio Effects of Firm’s
Impact on Value Chain Elements Conclusion
Analysis Business Model

● Total Asset The total asset and fixed asset turnover Facebook is not Weakness
Turnover Ratio ratio of Facebook went down from 0.59 efficiently utilizing
● Fixed Asset and 2.25 in 2011, respectively, to 0.34 and its fixed and non-
2.13 in 2012, respectively. The significant fixed assets to
Turnover Ratio
increase in assets and fixed assets of generate profit as
Facebook is due to the increasing compared to its
purchases of PPE which contributed to the peers.
lower turnover.

In comparison to its competitors, Google

and LinkedIn, the Company is below by
more than half in terms of effective
utilization of assets and fixed assets. Total
Asset turnover of Google and LinkedIn is
0.53 and 0.70, respectively, while fixed
asset turnover is 4.23 and 5.20,
respectively.
 Profitability ratios
Effects of Firm’s
Financial Ratio Analysis Impact on Value Chain Elements Conclusion
Business Model

● Gross Profit The gross profit margin of Facebook is Decrease Shareholder Weakness
Margin consistently around 70% to 75% in 2010 to Value and
2012. This margin is the highest among all of its Profitability.
● Operating Profit
Margin competitors with Google, LinkedIn and Twitter
● Net Profit Margin only has 59%, 87% and 59%, respectively.
However, Facebook experienced decreasing
● Return on Equity
operating and net profit margin with only 10.6%
and 0.6% in 2012 as compared to 52% and 19%
in 2010. This margin is because of the
increasing cost and expenses, especially
Research and Development costs of the
Company. Despite the high gross profit margin,
Facebook has one of the lowest operating and
net profit margin as compared with its
competitors, Google and LinkedIn.
In terms of return to shareholder equity,
Facebook experienced downfall in the last 3
years and has the lowest return as compared to
its competitors.
 Cash Flow
Impact on Value Chain Effects of Firm’s
Financial Ratio Analysis Conclusion
Elements Business Model

Operating Cash Flow Facebook has a Increase Value Strength

positive and
increasing operating
cash flows for the last
3 years.
Internal Factor Evaluation (IFE) Matrix
Weighted
Weight Rating
Score

Strengths

Ability to provide the platform for marketers to reach their existing and 0.15 4 0.60
prospective customers

Highly skilled and experienced talents from acquired businesses. 0.10 3 0.30

Strategic Facebook office location with more than 30 offices around 0.05 3 0.15
the world.

Easy and user-friendly platform. 0.10 3 0.30

Large Scale Systems and Scalable Infrastructure. 0.15 4 0.60

Significant funding allocated to research and development. 0.10 4 0.40

Strong liquidity ratio, debt ratio and positive operating cash flow. 0.10 3 0.30

Weaknesses

Competitors are developing similar products and services 0.05 2 0.10

Relies heavily on advertising to generate positive cash flow and 0.10 1 0.10
revenue.

Weak asset efficiency and profitability ratios. 0.10 1 0.10

Total 1.00 2.95


TOWS Matrix
Opportunities
O1: Popular governmental support for
globalization and political stability in developed
and developing countries
O2: The growth of China as an economic
powerhouse
O3: Increasing disposable incomes and significant
level of willingness to pay for what have
customarily been free services
O4: Increase transaction and usage of the online
platform
O5: Mobile platforms have quickly become one
of the fastest growing segments of advertising.
O6: Improving patent laws worldwide
O7: Increasing regulatory support for free Wi-Fi
O8: Increasing emphasis on business
sustainability
Threats
T1: Increase in data privacy concerns and laws
T2: Increasing cost of the internet
T3: Strict internet regulations in China and other
countries
Strengths Weaknesses
S1: Ability to provide the platform for marketers W1: Competitors are developing similar products
to reach their existing and prospective customers and services.
S2: Highly skilled and experienced talents from W2: Relies heavily on advertising to generate
acquired businesses. positive cash flow and revenue.
S3: Strategic Facebook office location with more W3: Weak asset efficiency and profitability
than 30 offices around the world. ratios.
S4: Easy and user-friendly platform.
S5: Large Scale Systems and Scalable
Infrastructure.
S6: Significant funding allocated to research and
development.
S7: Strong liquidity ratio, debt ratio and positive
operating cash flow.
S-O W-O
S1, 3&5-O1&2: Facebook has large scale systems O3,4&5-W2: As the number of Facebook users
and scalable infrastructure apart from having continue to grow across different channels, the
strategically set-up offices around the world to company must develop other products and
offer and deliver its products and services to services that can generate additional revenue
growing economies that recognizes the potential streams apart from advertisements and royalties
in using the said online platform. from third party developers.
S2&6-05: Facebook can easily capture the
increasing usage of mobile platform for
advertising with highly skilled and experienced
talents together with high level funding for R&D.
S4-O4: Facebook can take advantage of the
increase in transaction and usage of online
platforms by offering ease of access and usage to
its existing and potential users.
S-T W-T
S6-T1: Facebook allocates a significant portion of W1-T1: The company must continue to
its funds into research and development to negotiate and lobby policies with countries
address the issues and concerns of its users. where it has minimal or no presence to open up
their markets to broaden the company’s reach.
 Strengths Weaknesses
S1: Ability to provide the W1: Competitors are developing
platform for marketers to reach similar products and services.
their existing and prospective W2: Relies heavily on
TOWS Matrix
customers advertising to generate positive
S2: Highly skilled and cash flow and revenue.
experienced talents from W3: Weak asset efficiency and
acquired businesses. profitability ratios.
S3: Strategic Facebook office
location with more than 30
offices around the world.
S4: Easy and user-friendly
platform.
S5: Large Scale Systems and
Scalable Infrastructure.
S6: Significant funding allocated
to research and development.
S7: Strong liquidity ratio, debt
ratio and positive operating
cash flow.
 Opportunities
O1: Popular governmental support for globalization and political
stability in developed and developing countries
TOWS Matrix
O2: The growth of China as an economic powerhouse
O3: Increasing disposable incomes and significant level of
willingness to pay for what have customarily been free services
O4: Increase transaction and usage of the online platform
O5: Mobile platforms have quickly become one of the fastest
growing segments of advertising.
O6: Improving patent laws worldwide
O7: Increasing regulatory support for free Wi-Fi
O8: Increasing emphasis on business sustainability
Threats
T1: Increase in data privacy concerns and laws
T2: Increasing cost of the internet
T3: Strict internet regulations in China and other countries
 Strength-Opportunity
S1, 3&5-O1&2: Facebook has large scale systems
and scalable infrastructure apart from having
TOWS Matrix
strategically set-up offices around the world to offer
and deliver its products and services to growing
economies that recognizes the potential in using
the said online platform.
S2&6-05: Facebook can easily capture the
increasing usage of mobile platform for advertising
with highly skilled and experienced talents together
with high level funding for R&D.
S4-O4: Facebook can take advantage of the increase
in transaction and usage of online platforms by
offering ease of access and usage to its existing and
potential users.
TOWS Matrix

Weakness-Opportunity
O3,4&5-W2: As the number of Facebook users
continue to grow across different channels, the
company must develop other products and
services that can generate additional revenue
streams apart from advertisements and royalties
from third party developers.
 Strength-Threat
TOWS Matrix
S6-T1: Facebook allocates a significant portion
of its funds into research and development to
address the issues and concerns of its users.

Weakness-Threat
W1-T1: The company must continue to
negotiate and lobby policies with countries
where it has minimal or no presence to open up
their markets to broaden the company’s reach.
Competitive Strategy Framework
 DIMENSION PARTICULARS CONCLUSION

Specialization The company caters widely in terms of product line and customer segment. Maintain
Facebook offers various products and targets different users and
advertisers.
Brand The company has been the icon of social networking for years. Its brand as Maintain
Identification well as the company has been recognized globally.

Product The company gives high importance to product quality. It prides itself with Maintain
Quality competent and skilled programmers who produce innovative and technical
developments at a fast pace.
Technological The company is proactive side in the aspect of technological leadership. Maintain
Leadership Through strategic partnerships and acquisitions, Facebook aims to provide
user-friendly platforms that caters to customers’ needs.

Cost Position The company's cost position relies heavily on advertising revenues. The Improve
Facebook users platform is however, free of charge.

Vertical Facebook has employed horizontal scaling on the other hand. This is Maintain
Integration through adding more machines, moving fast, and finding the right people.

Service The company provides customers support to business services through its Maintain
Facebook Business Tools used by website owners, publishers, app
developers, business partners (such as advertisers) and customers.

Financial Facebook is not heavily reliant on debt as indicated by its financial ratios. Maintain
Leverage
SPACE Matrix
Alternative Courses of Action

ACA 1: Product Diversification

Facebook should expand its product line
rather than mainly relying on revenues from
advertisements and royalties. Facebook can
offer subscription plans to Facebook users.
The users will be paying for their use and not
indirectly shouldered by advertisers. Facebook
should integrate e-commerce services in its
platform, in effect be a one stop shop for
internet users.
Alternative Courses of Action
ACA 2: Product Development based on
internal R&D, not on acquisitions
Facebook should focus on product
development by using already acquired assets.
Acquisition strategy has been effective for the
company however, it’s been an expensive way
of developing its products. Facebook should
make acquisitions as needed only. Facebook
should continue to improve advertising
solutions it provides to marketers and to
improve the development tools and APIs for its
developer community.
Alternative Courses of Action

ACA 3: Market Development Strategy

As the social networking market continues to
grow, Facebook should continue to expand its
user community and increase the number of
marketers and developers using the platform
as a way of connecting to users.
 Alternative Courses of Action
Advantages
ACA 1: Product ● Explore new region, target new
Diversification groups which will result to
increase in market share
● Higher customer satisfaction and
induces loyalty to the product or
service
Disadvantages
● Increase number of competitors by
entering other areas/segments (i.e.
compete with Amazon and eBay in
ecommerce)
● Increase in research and
development cost to expand
product line.
● Requires new costly infrastructures
and employee training.

ACA 2: Product ● Increase in utilization of its fixed ● Additional increase in current

Development and other assets. research and development cost.
based on internal ● Help follow or stay ahead of ● Competitors may copy their own
R&D, not on market trends and keep the developed product at a lower cost.
Facebook relevant in the market.
acquisitions
ACA 3: Market ● Gain and attract new customers ● Increase in marketing and
Development from different target group. promotional expense.
Strategy ● Increase in market share. ● Moderate risk of having no return
from investment
 ACA 1 ACA 2 ACA 3
KEY FACTORS Weight
Decision Matrix based on Quantitative Internal Strengths
AS TS AS TS AS TS

Ability to provide the platform for marketers to reach their existing 0.15 4 0.60 4 0.60 3 0.45
and prospective customers
Highly skilled and experienced talents from acquired businesses. 0.10 3 0.30 3 0.30 3 0.30
Strategic Facebook office location with more than 30 offices around 0.05 4 0.20 3 0.15 4 0.20
the world.
Easy and user-friendly platform. 0.10 4 0.40 4 0.40 3 0.30
Large Scale Systems and Scalable Infrastructure. 0.15 4 0.60 4 0.60 3 0.45
Significant funding allocated to research and development. 0.10 4 0.40 4 0.40 3 0.30
Strong liquidity ratio, debt ratio and positive operating cash flow. 0.10 4 0.40 4 0.40 4 0.40
Internal Weakness
Strategic Planning Matrix

Competitors are developing similar products and services 0.05 4 0.20 4 0.20 2 0.10
Relies heavily on advertising to generate positive cash flow and 0.10 4 0.40 3 0.30 2 0.20
revenue.
Weak asset efficiency and profitability ratios. 0.10 4 0.40 4 0.40 3 0.30
TOTAL 1.00
EXTERNAL
Opportunities
Popular governmental support for globalization and political stability 0.05 3 0.15 3 0.15 3 0.15
in developed and developing countries
The growth of China as an economic powerhouse 0.05 3 0.15 3 0.15 3 0.15
Increasing disposable incomes and significant level of willingness to 0.05 4 0.20 3 0.15 3 0.15
pay for what have customarily been free services
Increase transaction and usage of the online platform 0.15 4 0.60 4 0.60 4 0.60
Mobile platforms have quickly become one of the fastest growing 0.15 4 0.60 3 0.45 4 0.60
segments of advertising.
Improving patent laws worldwide 0.10 3 0.30 3 0.30 4 0.40
Increasing regulatory support for free Wi-Fi 0.10 3 0.30 3 0.30 3 0.30
Increasing emphasis on business sustainability 0.05 3 0.15 3 0.15 3 0.15
Threats
Increase in data privacy concerns and laws 0.15 3 0.45 3 0.45 3 0.45
Increasing cost of the internet 0.10 2 0.20 3 0.30 3 0.30
Strict internet regulation in China and other countries 0.05 3 0.15 3 0.15 3 0.15
Total 1.00

7.15 6.90 6.40

 RECOMMENDATION
AND CONCLUSION
Generic Strategy:
Broad Differentiation Strategy

Complementary Strategy:
Product Diversification Strategy
Recommendation and Conclusion
Functional Strategies:
● Logistics: Increase transparency on how the company manages user
content. Protecting user privacy should also be of utmost
importance in the product development process of Facebook.
● Marketing and Sales: As majority of the marketers use the self-
service ad platform to establish their advertising campaigns, the
global sales force of Facebook should be able to provide assistance
to the marketers and users in the whole process to attain high
customer satisfaction and induce loyalty.
● Operations: Open more local offices in strategic locations to provide
continuous and uninterrupted service to its users. The company can
also invest on self-service tools to provide direct customer support.
● Finance: Charge fee to Facebook users to the new product and
service offering. Improve the utilization of fixed and non-fixed assets
to generate more profit for the company.
Recommendation and Conclusion
Functional Strategies:
● Human Resource Management: Gather a pool of top notch
students graduated from prestige schools by training to diversify
Facebook’s product and services. Cultivate the current culture of
being Bold, Moving Fast, and Taking Risks
● Firms Infrastructure: The Company should continue the efficient
maintenance and scaling of its technical infrastructure in order to
avoid disruptions in their services.
● Research and Development: Focus and invest on R&D to innovate
products that will increase customers and suppliers satisfaction
and loyalty. This will also benefit by increasing usage to the
existing users and penetration of the market that is not currently
captured by the existing products.
 Financial Projections and Forecast

Assumptions used:
•Year-on-year sales growth on Advertising segment is 40% based on the average sales increase.
•Year-on-year sales growth on Royalty segment is 50% based on the average sales increase.
•Sales for the new product line is projected to be 3/4 of the sales for the Advertising segment and is expected to increase by 40%
for year 2 to 5 based on the projected increase in advertising segment.
•Cost of sales and Gross profit margin of 25% and 75%, respectively, is based on the average Cost and GP margin from 2010 to
2012.
•Marketing & Sales and General & Administrative expenses is 12% and 10% of gross sales, respectively, is based on the average
marketing and administrative expense ratio from 2010 to 2012.
•Research and Development Expense is projected to be at $1,400 for the next 5 years.
THANK YOU
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