Analysis of Business Environment

This report provides a comprehensive analysis of Facebook Inc.'s business environment, utilizing PESTEL and SWOT frameworks to identify internal and external factors affecting its operations. It discusses macro and micro environmental influences, internal capabilities, and strategic recommendations for enhancing business growth and profitability.

ANALYSIS OF BUSINESS
ENVIRONMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
1 Macro environment in which Facebook Inc. operates and impact on its performance................1
2 Analysis of Micro environment in which Facebook Inc. operates...............................................4
3 Internal analysis of Facebook business.........................................................................................8
4 Facebook SWOT analysis...........................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business environment analysis is important for any firm in order to identify the
internal and external factors that has impact on business operational activities which
can be positive or negative. The report will demonstrate macro environmental factors in
the context of Facebook Inc. and its impact on business performance. Micro
environmental factors will be identified from the use of Porter's five force analysis.
Internal analysis associated with resources, capabilities, core skills and core
competencies will be discussed in this report. Finally, the report will cover the SWOT
analysis with recommendations to improve business growth and profitability.
1 Macro environment in which Facebook Inc. operates and impact on
its performance
Facebook is an American social media platform which provides online social
networking services based in Menlo Park, California. The business was founded in
February 2004, Cambridge, Massachusetts, United States. The headquarter is located
in California, US. Mark Zuckerberg is the CEO of firm since 2004 and CFO is David
Wehner. There are a lot of subsidiaries such as WhatsApp Inc. Instagram, Oculus and
Onavo effectively. The total assets of firm in 2017 is US$84.524 billion and approx 2.2
billion monthly active users. Users are from all over the world and it is a easy platform
for them to share photos, videos and other online activities. The business is growing
fast and earning so much revenue with increasing number of users. There are some
environmental factors which affect the operations and other activities of Facebook Inc.
which is discussed below in terms of PESTEL analysis:
PESTEL analysis of Facebook Inc.
PESTEL analysis is a strategic tool which stands for political, economical, social,
technological, environmental and legal factors which has a significant impact on
business.
Political factors: It can be said that political factors has a wide range such as freedom
of press, stability in region, state of human rights and many other factors which has a
impact on Facebook Inc. in both direct and indirect ways effectively. The social
networking site Facebook is often used by millions of people as a platform to voice
disagreement with government policies and corrupt practices all over the world (Beske,
1

Land and Seuring, 2014). This has caused a restriction in number of developing nations
of the social networking site. There are some human rights issues in some nations
where the government is afraid of Facebook uses from their people that it can spread
information and data for their cause.
For an example, China, Iran and North Korea are some nations where the
Facebook access is currently restricted due to the same reason effectively. Along with
the political factors the business has its own impact on the political landscape formation
in the US and anywhere else. “Ever since the so-called “Facebook election” of President
Obama in 2008, the social media giant has been a political reference point for citizens,
politicians and media alike”
Economical factors: The Facebook long term growth prospects are paramount from
the implication of economical factors. For an example, strengthening of the USD has
negatively affected Facebook revenues due to the global scale of its operations.
However, the business foreign currency faced losses of USD66 million in 2015, USD87
million in 2014 and USD14 million in 2013 respectively and effectively. In addition to
this, Facebook Inc. revenues is subject to the cost of human resources, inflation of tax
rates, the macro economic climate of nation and availability of credits (Bhattacharyya,
2015). Facebook has also similar macro economic climate impact of its own like
political factors that scope and nature is a matter of debate in business. According to
the Deloitte report as commissioned by Facebook, the business is responsible for global
economic impact for USD227 billion and 4.5 million jobs in 2014 year ended. Thus, It is
necessary for Facebook to analyse economical factors and Gross Domestic Products is
one of them which is important. Nations where the economic stability is developing must
provide a chance to Facebook in order to improve telecommunications and
infrastructure.
Social factors: There are some certain social factors that affects and influence global
reach. It is crucial for the business to analyse behaviour of people in order to accept the
personal network effectively. Facebook should ensure that people will feel comfortable
and secure while operating social site and uploading the personal information. This will
help to increase number of active users which leads towards profitability. In this modern
world, people are improving their life by using high quality products and services that it
2

is a great opportunity for Facebook to provide effective services to their users. The
online buying strategies and behaviours will create opportunities worldwide. E-
commerce services will also help to develop services and help to profit the related
mobile applications as well as Facebook.
Technological factors: Technology has a direct influence on founded business of
Facebook. There are a lot of opportunities for the business that Facebook should focus
on improving its technologies in order to entertain their customers worldwide from more
effective methods. This will help to provide more benefits to the customers. Latest
technology and security system should be owned by firm in order to protect their
customers personal information and data from hacking. Mobile app should be updated
in a regular time period in order to enhance improvement and customer experience
effectively. It can be said that the trend of mobile applications is increasing day by day
worldwide and the threat for social media companies is increasing because Facebook is
in competition with many other social networks.
Legal factors: There are so many rules and regulations formulated by the government
in order to impose a limitation on social networking sites such as Facebook effectively.
Facebook management should focus on all the rules and legislations which are required
to operate the business operational activities smoothly and attractively (Brooks, Heffner
and Henderson, 2014). This will help to attract more customers in the market and will
help industry to be popular in the internet web. Legal rights are necessary to manage
the businesses in the safe environment and information handling. Legal protection and
innovative new services will help Facebook to improve and develop patent laws which
will be done by providing opportunities. This will provide benefits for the firm in order to
reach many areas with the increasing coverage of Wi-Fi. Operational functions and
market penetration will surely expand the business functionality.
Environmental factors: Facebook is connected with natural environment that
ecological trends and problems will affect the macro environment of business
effectively. It can be said that the environment analysis of Facebook is vital and
operates in the whole world. Environmental factors such as population analysis, cultural
trends and behaviour of people in different nations will affect the business operational
activities. The sustainability condition of firm will satisfy and improve natural
3

environmental concerns effectively. In order to cope up with environmental factors some
waste policies, strategies and standards should be addressed by business in Western
countries in order to reduce the climate threats. This will help business to manage the
functions and operational activities in different countries which leads towards increasing
number of active users and profitability.
Recommendations for Facebook Inc.
The PESTLE analysis of business stresses the strategic reform importance and
also address more opportunities in the online advertising market and global social
media platform effectively (Charter, 2017). It is recommended that the business should
try to address issues within China government to make them suitable and adjustable for
the use of social media services. An another recommendation for the Facebook is to
develop new products in order to support online retailers which will help to increase
revenue stream effectively. Diversification is also a great strategy and should be
followed by firm to reduce the market risk and diversify of the business operational
activities.
2 Analysis of Micro environment in which Facebook Inc. operates
It can be said that social networking site Facebook is showing a great growth in
recent years and the price of stock from the IPO level is increase to $38 per share
effectively. The market value is more than $200 billion and it is expected the growth will
increase in the future as well. Facebook has some other platform as well including
Facebook messenger, Instagram, and WhatsApp (Cullen, 2017). It will be analyse in
this report how Facebook stacks up along Porter’s Five Forces to understand whether
there are factors which could hamper its growth story and cause its market valuation to
drop.
4

Competitive rivalry within firm: It can be said that Facebook is leading in social media
market but it has a significant impact of competition in the market effectively. The
competitive rivalry will help to determine how the competition will affect the business
and operational activities of Facebook in the environment. Here are some external
factors lead to the moderate force of competitive rivalry against Facebook provided
below:
 There is a small number of business and weak force.
 Moderate variety of business refers to moderate force.
 Low switching cost refers to strong force.
There are small number of firms which provides online advertising services to
that of Facebook. For an example, You Tube is a subsidiary of Google and has a social
media website offers online advertising services. The small number of these competing
firms exerts a weak force against Facebook. However, the variety of these firms helps
attract advertisers, thereby imposing a moderate force in Facebook’s industry
environment. In addition to this, the low switching costs will help to make it easier for
advertiser to shift away from Facebook to competitors in the market (Davidson, 2016).
Thus, it can be said that these external factors create moderate force of competition that
5
Illustration 1: Porter's five force analysis
Source: Forbes 2014

according to this element of Porter's five force analysis competition rivalry is now a
considerable point for Facebook in order to strategic formulation effectively.
Bargaining power of Facebook customers: It can be said that customers are the
main factor of company that they impose pressure on firm in terms of their requirements
and demands effectively (Forbes 2014). Here are some factors provided below that are
significant in order to create a strong force towards customers bargaining power on
social networking site Facebook and its services:
 High substitute availability (strong force)
 Low switching costs (strong force)
 High demand from buyers (weak force)
Facebook is a social media services provider to its customers that advertiser is
the main element of business revenues. There are so many substitutes available for
these advertisers. For an example, customers have a lot of options for advertisement
such as radio, TV, print media and Magazines instead of advertising in Facebook in
order to achieve target customers effectively. This conditions exerts a highly strong
force towards Facebook. In addition to this, customers have choice to shift away from
Facebook according to the external factor of low switching costs that it will also exert a
strong force towards Facebook. It can be said that the high demand of online
advertising buffer a potential shift and slightly weakness the customers power of
bargaining. This element of five forcer analysis should be prioritise by Facebook in order
to ensure competitive advantage effectively and efficiently.
Bargaining power of Facebook customers: Suppliers are the factors which influence
the social networking and advertisement services effectively. This element of Porter's
five force analysis describe how suppliers affect the business environment. Here are
some factors provided below which leads to the weak bargaining power of suppliers on
Facebook effectively.
 Moderate size of individual suppliers (moderate force)
 Large population of suppliers (weak force)
 High overall supply (weak force)
It can be said that suppliers of Facebook should include network techniques and
technologies, servers, office supplies and equipments. There are some suppliers which
6

are large businesses and exert a moderate force towards Facebook (Frambach, Fiss
and Ingenbleek, 2016). Thus, it can be seen that such kind of suppliers are easy to
available that there are so many manufacturers of such materials and equipments
required by firm effectively. The corresponding factors which are external exert a weak
force towards business of Facebook. The suppliers minimise the influence of individual
suppliers n the firm. According to the porter's five force analysis, suppliers is not a major
issues for Facebook and online advertisement business environments.
Threats of substitutes or substitution: It can be said that there are so many
substitutes in the market available which could potentially reduce the performance of
Facebook business. This will also create challenges in the social media industries. The
force will describe the impact of substitutes on business performance. Here are some
factors that creates strong threats of substitutes towards business of Facebook and
described below:
 Low switching costs (strong force)
 High substitute availability (strong force)
 Moderate cost of substitutes (moderate force)
It can be said that it is very easy for the advertisers to pay for substitutes, for an
example, TV, print media and advertisement instead of paying Facebook advertisement
effectively. There are so many substitutes available in the market which affects the
business of Facebook. Many of them comes from TV advertisement which are more
expensive than the Facebook advertisements. Thus, it can be said that such conditions
exert only a moderate force on the firm. This elements of porter's five force analysis
describes that the threat of substitutes is a major issues for the firm that it affects the
strategic improvement in Facebook industry.
Threat of new entrants: There are a lot of threats form new entrants that Facebook
faces bad impact of such industries n environment (Hamplová and Provazníková,
2015). The element will describe the impact of new businesses on Facebook effectively.
Here are some factors which leads to the threat of new entrants in social media
networking websites and its products and services discussed below:
 Low switching costs (strong force)
 High cost of brand development (weak force)
7

 High cost of loyalty (weak force)
It can be said that in this modern world the competition is rising day by day in any
sector effectively. The new entrants has a negative impact on business of Facebook
which creates a strong force against. It is very difficult to make a brand like Facebook
which is popular and developed brand. It is also difficult for the new businesses to make
a strong customer loyalty and number of users as compared to the business of
Facebook. Thus, the situation creates a weak force against Facebook and this is also a
normal issue for the business in order to formulate strategies and plans which leads
towards profitability.
3 Internal analysis of Facebook business
It can be said that Facebook is one of the most popular brand on internet and
ruling the social media platform effectively. The services provided by business is very
easy to use for customers in order to stay in touch with friends and family members.
The firm should operates its operational activities on daily basis in order to remain at the
top. It is all depended on the speed that it is one of the main reason in which people
works in business effectively. The main aspect is keeping the services free for the users
which will help to be at top on social media platform (Hayes, 2017). Services should be
compatible in order to help customers with latest technologies with the use of services
and products offered by business.
Resources: Process and activities managed by firm in order to operate operational
activities are known as resources of the business. Resources can be created in the
business environment as well. Resources can be categorised in two terms such as
specific and non-specific effectively. The main resources of Facebook is customers who
uses the social networking sites which increase profitability and number of active users
effectively. Facebook is a online networking site which helps people to stay connected
with their friends and family members from all around the world. This will also provide
information and other useful data from all over the world in terms of advertisement and
many other things. There are some subsidiaries of Facebook such as Instagram which
is now very popular on the internet, WhatsApp and messenger are the tools which helps
people to remain active on internet services effectively.
8

Capabilities: Facebook is a social network service website launched on February 4,
2004. This is a list of software and technology features that can be found on the
Facebook website and are available to users of the social media site (King and Brooks,
2016). It can be said that there are number of active users on Facebook that it is a great
opportunities for businesses and other advertisers to spread their information and other
advertisement activities on low costs effectively. Users are increasing day by day
because Facebook is totally free for the customers. There are a list of technology
features and software information that can be easily found on Facebook and also
available for the active users. Advertisement is one of the great opportunities for the
advertisers in order to provide information and business marketing.
Core skills: There are so may core skills but mainly only five exists for Facebook such
as communication, numeracy, information technology, working with others and problem
solving effectively. Communication skills provides almost all the personal and social
learning activities. This will help Facebook users to interact with other person which can
be from all over the world through messenger application effectively. This will help to
express feelings, information and opinions. Communication is oral and written and both
exists in Facebook core skills. Facebook also provides information and communication
technologies to its customers in order to focus on IT information which is useful for them
(Miles, 2015). Thus, these core skills will help business to grow faster and will also
provide better services to the customers.
Core competencies: The core competencies for Facebook is its large base of
customers. It can be said that it can not be beaten now a days that there is almost 2.2
billion monthly active users which is very big deal for any other firm. The transfer cost is
also too high that WhatsApp, Instagram and Conclus is now obtained by firm in order to
increase number of users for the business. It is impossible for any other business to
create a same platform like Facebook that customers will not mover from FB to any
other social networking sites as they are using since they have joined. There is an
almost total disconnect between what Facebook says it does (build communities,
connect people) and the economic realities and social consequences of what it actually
does: Monetize private information.
9

Thus, it can be said that Facebook internal environment is very strong and build
up with a large number of customers using on daily basis effectively (Pearson, Pitfield
and Ryley, 2015). This will help business to produce effective growth which will lead
towards profitability.
4 Facebook SWOT analysis
The SWOT analysis will help to identify strengths, weaknesses, opportunities and
threats of Facebook. It will help to identify internal strategic factors and external
strategic factors for the business. In the case of Facebook Inc. these factors pertain to
the dynamics of the online social networking environment and online advertising market.
Strengths: The main strength of business is the market position which is on top in
social media market services. The business have a strong brand image, high revenues
and also large customer base effectively. The site is popular with a effective brand
image and also the business as developed reliable services for customers. The site is
more attractive that there are number of users make social media platform more
effective and efficient in the market. The company has a strong financial position and
capacity for development and research (Saleem, 2017). The firm has a strong
competitive advantage in the online advertising market which will help to beat other
rivalry firm effectively.
Weaknesses: It can be said that the firm has a strong position in the market but also
faces weaknesses based on social media business nature of its own effectively.
Facebook services are easily imitable because of the basic feature and function. For an
example, other firms can easily develop a function and feature like FB and compete well
effectively. The business earn income through online advertising, this earnings
mechanism is also a weakness because users could perceive the advertisements as a
nuisance in their social media experience. Low level of diversification is also a
weakness for firm which increase the risk exposure effectively. The firm is generating
revenues from social media advertisement and mobile application which is affected by
diversification activities. The firm should address weaknesses in order to reduce the
market risks and increase potential growth and profitability as well.
Opportunities: There are a lot of opportunities available for business in order to grow
the market of social media internationally. The business have opportunity to diversify
10