The Business Strategy of Facebook

The Business Strategy of Facebook

Since it was established in January 2004, Facebook has expanded its business interests beyond the Facebook.com social networking site to include the photo and video sharing social networking service Instagram, the online collaborative platform Workplace, and the cross-platform instant messaging and video conferencing apps Facebook Messenger

The multinational company has also been exploring new opportunities in new markets through the introduction of the Oculus brand of virtual reality headsets, smart displays and videophones under the Portal brand, and the upcoming Diem payment system and the corresponding cryptocurrency based on permissioned blockchain technology.

Facebook is currently worth more than 100 billion U.S. dollars. It is undeniably one of the largest technology companies in the world, as well as one of the Big Five companies in the U.S. information technology industry alongside Amazon, Apple, Google, and Microsoft. Nevertheless, understanding its success requires an appreciation of its business strategy.

Elements of the Business Strategy of Facebook

Revenue Strategy of Facebook: From Advertisement Revenues to the Sales of Consumer Electronic Devices

The multi-stream revenue strategy of Facebook is evident across its different brands and business interests. However, the majority of its earnings come from social network advertising revenues generated by the social network sites Facebook and Instagram, as well as sub-platforms such as the Facebook Messenger app and video-on-demand service Facebook Watch.

Fundamentally, the company sells advertisement placements or ad spaces to marketers and advertisers. These placements are distributed across the different layers of its social networking platforms to include the News Feed, as part of the sidebar, within the list of messages, inside video contents, and as part of the “Stories” sub-brand, among others.

Both Facebook and Instagram have combined users numbering more than 2 billion. Note that the flagship social networking site alone has about 2.85 billion monthly active users. Hence, these two online platforms have become attractive not only to large business organizations but also to startups and smaller businesses, as well as non-profits and even individuals.

The company follows a variable pricing model based on advertisement auction bids, as well as the potential engagement levels of the advertisement itself. Similar to platforms from Google and Twitter, and compared to mass media advertising, audience targeting is the primary advantage of using its social networking websites as platforms for online advertising.

However, part of the revenue strategy of Facebook is to explore other opportunities to earn. Sales from its consumer electronic products under the Ocular and Portal brands have provided a good starting point to diversify its revenue streams. The ongoing attempt to explore blockchain and cryptocurrency can also provide another source of income.

Company and Talent Acquisitions: From Instagram and WhatsApp to Supplemental Companies and Technologies

Another critical element of the business strategy of Facebook is acquisition. The company has been acquiring a number of organizations since it began generating substantial revenues from its flagship social networking site and additional capital from its public listing. These acquisitions also corresponded to acquiring relevant talents and technologies.

Instagram remains one of its major acquisitions. The company acquired the photo and video sharing social networking site in 2012 for about USD 1 billion in cash and stock. It also acquired WhatsApp for USD 19 billion in cash and stock in February 2014, and Oculus VR for USD 2.3 billion in cash and stock in March 2014.

Note that acquisitions can bring numerous benefits and specific competitive advantages. For example, in acquiring Instagram, the company has gained access to a community of social media users with specific interests and online behavior centered on sharing and consuming photo and video contents. The company has also created a synergy between Facebook and Instagram.

But not all of its acquisitions translated to running the acquired organizations. As an example, Facebook acquired the patents developed and used by the now-defunct social networking site Friendster. It also acquired the Israeli-made mobile app platform Snaptu and used its technology stack to launch the Facebook Lite app for low-end Android devices.

The company has undeniably built its technological capabilities and talent pool through its acquisitions. Other examples include the acquisition of the Israeli mobile web analytics company Onavo in 2013 as part of building its own data analytics capabilities, and the online file sharing service Drop.io in 2010 to expand further its talent pool.

Technology Strategy of Facebook: Building Capabilities and Competitive Advantage Through Innovation

One of the major sources of competitive advantage is technological capabilities. Remember that Facebook is a technology company. Hence, an integral part or element of its business strategy centers on a specific focus on technology strategy, including specific actions and tactics that revolve around building capabilities and discovering innovative solutions.

The company launched a 10-year plan in 2016 aimed at expanding the capabilities and usability of its flagship social networking site and increasing further its presence in the greater technology industry and other relevant sectors and markets. It is interesting to note that this plan is based on three technologies: drones, artificial intelligence, and virtual reality.

Building and deploying drones to beam internet access from satellites would help the company address the need to improve access to telecommunication services across the world. Facebook recognizes that around 16 percent to 40 percent of the global population still does not have access to wireless communication networks that can connect them to the web.

Connecting these untapped people to the web means expanding further the potential market reach and actual user base of its online-enabled products and services. Note that other companies such as Google and Amazon are also building network-related capabilities as part of their goal to reach more individuals across the world.

Artificial intelligence is also an integral part of the specific technology strategy of Facebook, as well as its overall business strategy. Online-based and online-enabled products and services depend on users and user data. Companies behind them need to have an effective and efficient way of processing these data to provide a better user experience.

The company has been building specific AI capabilities such as machine learning and neural networks to improve content delivery across its social networking websites and other digital communication platforms. These capabilities also allow the company to provide targeted advertisements and improve audience engagement.

Furthermore, to improve overall user experience of individuals using Facebook products and services, the company is also betting on virtual reality. It believes that texts, photos, and videos are not enough. Both virtual reality and augmented reality can elevate user experience by introducing new features that are more interactive, responsive, and immersive.

A Note on Marketing Strategy: Improving Products and Services, as well as Maintaining a Positive Brand Image

It is important to highlight the fact that the company caters to two general categories of customers: individuals or end-use customers and business or organizational clients. For example, Facebook and Instagram caters to both individual internet users and advertisers, as well as publishers and other content creators.

Building and sustaining its user base is essential to attracting organizational clients. The company would not be able to attract advertisers or encourage publishers and content creators to use its social networking platforms if it does not have an active and vibrant user base. Hence, this is the reason why its approach to product development centers on user experience.

Facebook has also been placing digital advertisements on different online platforms to include third-party websites and within applications to attract new or untapped users and maintain relevance. Remember that the company competes against other social networking sites and platforms such as Twitter, YouTube, Snapchat, Pinterest, and TikTok.

Through acquisition and technology strategies, Facebook maintains and improves further its competitive advantage. These strategies allow the company to develop new capabilities, including intellectual property rights such as patents, as well as human resource or talent capabilities, to improve and introduce new services needed to keep it relevant.

With regard to its brand image, it cannot be denied that the company has headlined in some of the most controversial issues in both business and sociocultural landscapes. To keep its reputation afloat, it tries its best to adhere to norms dictated by the general public while following regulations or mandates from governments.