What Facebook will look like in future

Facebook Inc. is a social networking company that was established in 2004. Over time, Facebook has grown to become one of the most recognizable and profitable companies in the world. The company started with the Facebook website, its sole flagship brand. With time, however, Facebook has diversified into other products, including mobile device applications, Internet service provision, and virtual reality among many others. By the end of 2015, it was estimated that the organization had an increase of 1.86 billion monthly active users (McCracken, 2016). The volume of traffic to Facebook site at the time was only bettered by YouTube.com and Google.com.

Facebook’s Competitive Advantage

Many factors contributed, both directly and indirectly, to augmenting Facebook’s competitive advantage over years. Economies of scale, network effect, and brand identity underpin the company’s competitive advantage. These factors have allowed it to stay ahead of competitors such as Twitter, LinkedIn, and Snapchat among others.

Similar to most giant tech companies, Facebook has deep pockets, which allow it to enjoy and exploit the economies of scale. The importance of utilizing the economies of scale in the tech industry cannot be overstated (Solon, 2016). The industry is the most dynamic and evolves rapidly. Therefore, only dynamic enterprises can take advantage of the changes and build on their competitive advantage. Facebook, unlike its competitors, can take advantage of their vast resources to aptly update the existing product offerings from time to time, making it a preferable option for many social media users (Carr, 2014). The company accomplishes this endeavor through massive investments in research and development, which cannot be matched by its competitors. In 2015, for instance, the amount invested by Facebook in R&D was thrice that invested by Twitter, its closest competitor (Solon, 2016). While spending more resources on R&D does not necessarily guarantee more innovation, it significantly increases the odds of succeeding in the market.

Apart from economies of scale, Facebook has also leveraged its brand identity to stay ahead of its competitors. It is incredibly distinguishable from its core competitors and other startups. In fact, Facebook ranks as one of the most recognizable brands in the world. In a study conducted in 2014 on the most recognizable American brands, Facebook ranked third after Coca Cola and Nike (Carr, 2014). It has already surpassed the popularity of McDonald’s and Walt Disney, which have for long epitomized the essence of the American culture. Its competitors are yet to build such social capital and cannot compete with Facebook on brand loyalty (McCracken, 2016). Most social media users open accounts with Facebook rivals but still maintain an account with Facebook.

Facebook’s ultimate competitive advantage, though, lies in its network effect. Facebook has grown its network over time and now has the largest social networking platform. In the tech industry, the larger the network, the more valuable the enterprise is. As of December 2015, the company had nearly 1.86 billion monthly active users (Burke, 2017).Almost 1.2 billion of them also doubled up as daily active users (Wilson, 2016). These figures triple those reported by LinkedIn and Twitter combined. The majority of social media users not only opts for Facebook but also spends comparatively more time on the Facebook platform as compared with competitors. A study conducted on the average time spent on social networks established that an average user logs on to Facebook for 42 minutes (McCracken, 2016). An average Twitter user logs in for 21 minutes, while on LinkedIn it amounts to 15 minutes (McCracken, 2016). This enormous prospective audience coupled with longer browsing time has attracted more than 4 million advertisers to Facebook, essentially monopolizing the social media market. To further enhance its network effect and stay ahead of Twitter, Tumblr, Flickr, Snapchat, and LinkedIn, Facebook also acquires its competitors (Burke, 2017). Thus, the company acquired Instagram and later on WhatsApp, adding almost one billion people to its network. It is virtually impossible for its competitors to compete with Facebook given the enormous network effect the company enjoys.

Privacy Policies and Features

Over the past years, Facebook has been embroiled in controversies relating to its handling and usage of user information. The major concern has been the violation of user privacy by the company. In 2007, the management violated user privacy by introducing the Beacon Program which, among other things, tracked Facebook users’ commercial activities, including their online purchases, built a profile for Facebook, which was then sold to advertisers without Facebook user’s explicit consent (Waldman, 2016). Later, the company revised this policy. The primary weakness of Facebook’s privacy policies and features, therefore, is sharing and making users’ information public. The implication is that the other users know what one posts unless the user disables the function manually (Waldman, 2016). The second major weakness is the appropriation and handling of the news feed feature. It essentially broadcasts news about what one has been doing while logged on Facebook to friends and followers. Inability of a Facebook user to delete his or her account is also a privacy issue (Waldman, 2016). Thus, information cannot be deleted from Facebook servers even after the account has been deactivated.

The management and organization at large are responsible for this privacy crisis. The management presumed that the users had assented to their information being shared to third parties for financial gain. It should have made the invasive Beacon advertising feature optional, with opt-in and opt-out features. In its bid to optimize profitability, the organization trampled over its user’s privacy rights. However, after a series of litigations, Facebook overcame these privacy issues. It has given the users control over their privacy settings (Waldman, 2016). Facebook users can opt in and out of applications settings when they want. Most importantly, Facebook mandates third parties to explicitly seek permission from Facebook users before accessing; otherwise, they are considered to appropriate their personal details (Waldman, 2016). Additionally, Facebook continually streamlines user experience, making it progressively safer.

Confidence in Innovation Strategies

The importance of users’, analysts’, and investors’ confidence in innovation strategies cannot be overstated. The higher the confidence, the more the users interact with the product and the more valuable the product becomes. There are various steps that Facebook can take to increase confidence in its innovation strategies. First, it should increase its R&D spending. The more resources the company allocates, the more likely it would be to enhance the level of innovation. In 2016, Facebook ranked as the fifth most innovative enterprise in the world (Shaughnessy, 2013). The company can improve its standing by intensifying its R&D activities. The second step would be to enhance its piloting and use more people in its testing. The more people are involved, the higher the quality of feedback which can be used to optimize innovation (Wilson, 2016). The third step would be to create an environment that promotes innovation. Google is currently the most innovative company. It has achieved its status by creating an almost informal working environment and organizational culture which spurs creativity and rewards even failure. Facebook should follow suit. The working environment should not castigate failure as there can be no innovation without experimentation, and failure is an indispensable aspect of experimenting (Carr, 2014). Lastly, it can enhance confidence in innovation strategies by acquiring capabilities from rivals and established brands such as WhatsApp and Instagram.

How It Works

Fending off New Entrants

As the social media industry continues to expand, more and more new and innovative companies will endeavor to enter the market. It is in the best interest of Facebook to hedge against oversaturation of the market as it will adversely affect its profitability both in the long and short run. A key measure it can take is to intensify the acquiring prospective competitors in case with Instagram and WhatsApp (Burke, 2017). It has tried to acquire Snapchat, but this attempt was unsuccessful. Another viable strategy is to venture entering new markets and enhance its network effect. There is the potential to expand into the Chinese market and other countries, thus increasing the number of users to up to 3 billion (Wilson, 2016). The more network effect it builds, the harder it becomes for new entrants to compete. A further strategy to fight off prospective competition is intensifying innovation. Brand loyalty in the tech industry is directly proportional to the range and quality of offerings (Solon, 2016). Facebook should increase its product offerings and expand its free basic services worldwide, the live video tool, and even its virtual reality tool, Oculus VR.

Conclusion and Lessons Learnt

In summary, it is evident that Facebook is a strong market leader in the social networking market. It has continually leveraged its competitive advantages to stay ahead of competitors. The key lesson learned is that in the social media industry, the main components that guarantee maximal competitive advantage are economies of scale, network effects, and brand identity. A further lesson is that user privacy is of utmost importance. Companies should provide the users with a chance to set their privacy settings that suit their needs. An additional lesson is that innovation can only be prompted through investing in R&D. Facebook has leveraged this to offer a comparatively wider range of product offerings. Lastly, to prevent new entrants from developing into serious competitors, companies should pursue strategies such as acquisition of competitor companies, venturing into new markets, building brand loyalty, and intensifying innovation.