Facebook and Amazon Companies’ Strategic Analysis

Facebook Analysis

PESTEL Analysis

The popular government support and political stability in the Western market present opportunities for further market penetration. However, the political barrier in developing countries is a threat. The increasing economic growth and stability in the developing countries has increased disposable income of users and advertisers of Facebook products. The increasing online buying and preference for quality products present opportunities for Facebook establish a strong global market position. The rising acceptance and usage of mobile devices, social media, and online retail platforms present opportunities for growth and threats for reduced market dominance in the event of new entrants. Facebook is at the forefront in sustainable business practices and climate change campaign, thus, may survive any ecological challenges. The strong global patent laws and free Wi-Fi support have created a healthy legal environment for Facebook.

Five Forces Analysis

Facebook performs relatively well in all the parameters of Porter’s Five Forces. In terms of competitive rivalry, the impact is moderate since Facebook is the market leader. The bargaining power of customers or buyers is a strong force and has imposed pressure on Facebook to introduce more products over the years. The aspect of bargaining power of Facebook’s suppliers is a weak force because of the high supplier network, the existence of many vendors, and fewer individual suppliers. The threat of substitutes is a very strong force affecting Facebook due to availability of many substitutes, low cost of switching to other service providers, and moderate substitute costing. Lastly, the threat of new entrants is a weak force because of the high loyalty and brand development costs.

Major Competitors

The major competitors of Facebook PLC are Microsoft, Google, and Twitter. These companies offer similar services as Facebook and have a substantial market share.

VRIO Analysis

The VRIO (Value, Rarity, Imitability, and Organization) is a critical tool for reviewing Facebook’s business strategies to ascertain successes and positioning in the market environment. As captured in table 1, Facebook’s capabilities and resources are well integrated to attract the first mover benefits. For instance, the WhatsApp product is rare and valuable to customers. Moreover, the Graph Search is costly for any rival company to imitate. This gives the company a competitive edge over Google that has a similar database service, which is not properly integrated for its benefit.

Table 1. Summary of VRIO analysis for Facebook

Valuable Rare Costly to imitate Exploited by Facebook Competitive implication
Physical efficiencies and resources Yes Yes Yes Yes Sustainable competitive advantage
Financial resources Yes Yes Yes Yes
Management and training Yes Yes Yes Yes
Brand Yes Yes Yes Yes

(Source: Self-generated)

In terms of value, at the end of the 2014 financial year, Facebook was valued at $36.096 billion. This is a strong resource standing. Facebook has unique and rare cyberspace resources such as WhatsApp, which has unique benefits such as social ads, social bookmarking, flyers, virtual gifts, MOGs, connect, and chats. Facebook is patented and very costly to imitate under the United States laws. Lastly, Facebook has integrated a well-structured system of management with stringent business polices focused on customer satisfaction. For instance, the features and ads enable customers to advertise and chat to create an interactive environment for increased resourcefulness.

Business Model

Over the years, Facebook has modified its business model to integrate the aspect of diversification. Facebook owns companies such as Atlas, Onavo, Parse, Facebook Payments Inc., Moves, Oculus, WhatsApp, and LiveRail among others. The companies provide services in the online platform such as Facebook.com, messenger, workplace, marketplace, moments, Instagram, MSQRD mobile app, Whatsapp, and audience network. The company generates revenues through users of these products through building a hole of big data. Thus, advertisers place advertisements at a fee, which is paid to Facebook. The company has tapped the user-base to generate average revenue per user (ARPU), which is currently estimated at $1.08. Facebook also generates revenues from payments from online games such as Candy Crush, and Farmville. Other sources of revenue are social media networking service provision and sale of virtual reality products.

Firm Performance

The company revenues increased from $606 billion in the year 2010 to $2.94 billion in 2014. The total equity increased from $2.162 billion in 2010 to $36.096 billion in 2014. The net profit also grew from $439 million in 2010 to $1.1140 billion in 2014. The return on revenues (ROR) grew by a ratio of 1:4 between 2010 and 2014. The return on Assets (ROA) also experienced positive growth by a ratio of 1:13.

Challenges and Recommendations

The current challenge is how the Facebook business development strategies can be modified to sustain a competitive business model that can topple Google as the digital advertising leader. The company should consider developing a cross-platform to capture the attention of advertisers and users across the more than ten channels that are currently operational.

Amazon

SWOT

The strengths of the Amazon Company include a strong background, customer centricity, cost leadership, efficient delivery network, ‘GLOCAL’ business model, and acquisitions. Amazon has a large product range that includes games, toys, online book store, electronics, home appliances, and white goods. The company’s customer centered CRM has increased the number of repeat buyers over the years. Moreover, the company has differentiated itself through strategic alliances to offer quality customer service and build a strong value chain. The efficient delivery network has endured the company to its customers besides free-cost delivery in selected regions. The ‘Go Global & Act Local’ has given the company a competitive age over Facebook, Google, Alibaba, and other competitors.

The weaknesses of Amazon include high debt, product flops, and shrinking margins. For instance, the fire phone was a flop in the US and Kindle fire performed below the projections. The companies have opportunities for global expansion, backward integration, acquisitions, and introduction of new stores beyond the US market. For instance, acquisition of e-commerce companies would give it an edge over other competitors such as Alibaba. The threats Amazon is facing include FDI government regulations, low industry entry barriers, and local competition from Google and Facebook.

Business Strategy and Implementation

The Amazon Company has developed an innovative online retailing approach. This strategy has created a bridge for the transition from commodity-based e-commerce to service-based model. For instance, the Amazon Home Services guarantee happiness to customers and aims at adopting the Alibaba’s traditional customer request approach. Other service models by Amazon include the Amazon Go, Amazon Echo, Dash Wad, and Amazon Fresh. These strategies are aimed at arresting the influence of Google and Facebook in the online business platform. Specifically, Amazon intends to reclaim the US market share for online retail business that the Facebook and Goolge companies have penetrated.

Strategic Recommendations

The Amazon Company should consider franchising business model as opposed to direct acquisitions as part of a cost reduction strategy. This will give the company an upper hand in market penetration beyond the US. For instance, the company may consider remodeling the kindle fire app and franchising other companies to use this platform to expand on the market coverage and increase the dwindling revenues.