Business Environment Analysis: Impact on Facebook Inc.'s Performance

This report provides a comprehensive analysis of Facebook Inc.'s business environment. It begins with an examination of the macro environment, including political, economic, social, technological, legal, and environmental factors that impact the company's performance. The report then delves into the micro environment, utilizing Porter's Five Forces model to assess the bargaining power of customers and suppliers, the threat of substitute products, and the threat of new entrants. An analysis of Facebook's internal environment is also included. The report concludes with a SWOT analysis, evaluating Facebook's strengths, weaknesses, opportunities, and threats, providing a holistic view of the company's strategic position. The report highlights the challenges and opportunities faced by Facebook, offering insights into its competitive landscape and strategic decision-making.

ANALYSIS OF BUSINESS
ENVIRONMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Impact of macro environment on Facebook Inc. performance...........................................1
2. Analysis of micro environment on operations of Facebook...............................................4
3. Analysis of the internal environment of Facebook Inc......................................................7
4. SWOT analysis of Facebook Inc......................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Business environment consists of many factors which affect strategic decision making
and scale of operations of business units. It comprises both internal and external forces which
affects business organisation’s performance.
Facebook Inc. is an American based social networking provider situated in California
founded in 2004 by Mark Zuckerberg. It comprises more than 2 billion customers accessing
social media sites such as Instagram, Facebook Messenger, WhatsApp, Oculus etc.
1. Impact of macro environment on Facebook Inc. performance.
Facebook Inc. operates in a diverse environment full of opportunities and threats and is
affected by the major macro environment which hinders its performance (Li and Calantone,
2011). Users can operate Facebook website from various devices using internet technology such
as laptops, desktops, mobile phones and tablet. It has earned a revenue of 17 billion US$ in 2015
which rose in 2016 to around 18 billion US$.
The macro environment of Facebook is affected by many factors such as changes in
policies, confidentiality of user’s information, breakdown of systems due to viruses etc.
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Illustration 1: PESTLE Analysis of Facebook Inc.
(Source: Marketing theories – PESTLE analysis, 2018)

However, the company emphasises on protection of user’s personal details so as to make
them comfortable while sharing information on Facebook (Biggadike, 2010). These factors are
external to organisation and affects decision making and performance of company. These are:
Political:
Political imbalances and changes affect Facebook and its operations directly. As the
company operates in various regions is prone to restrictions imposed by political environment.
The government intervene as a result of checking privacy policy of the company so as to protect
users and their personal information. It restricts illegal acts such as multiple fake accounts and
hacking of personal accounts (Li and Calantone, 2011). All these government restrictions
increases cost for company to function. Both the government and users are particular about
safety and security of their personal details which if hamper may result a huge loss for the
company affecting its overall revenue.
The government in developed countries allow various services to expand operations and
diversify business of Facebook by rendering services such as stability, opportunity and support.
Thus, before entering into a diverse market, the company should identify various threats and
opportunities available such as legal framework, invasion by military, importance of internet
information providers, tariffs and trade regulations, technology, trading partners, Anti-trust laws,
regulations on prices and taxation policies. Economic:
Economic conditions are specific to countries and include those factors which affect
growth aspects of an organisation. Economic factors are important for growth and success of
Facebook which is related to Gross Domestic Product. The increase in GDP is related to
purchasing power. Furthermore, the market penetration with the increasing economic stability in
developing countries provides growth to the company. The development of countries provides
opportunities to improve infrastructure and telecommunication services which will enhance
growth of Facebook (Marketing theories – PESTLE analysis, 2018).
However, the company has grown tremendously in few years with increase in revenue to
88% in 2016. Facebook being a social networking provider has growth potential and being a
leader could penetrate in different markets having growth factors (Chesbrough, 2009). Since the
company experiences low expenses, it has more possibility to gain higher revenue. The company
enjoys competitive edge over others due to low expenditure and higher growth rates which has
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increased its cash liquidity to invest in other projects. Facebook has high operating cash flow
which enables the business unit to quantify its sales so as to generate earnings.
Social:
Society's way of handling things and diverse culture affects working of an organisation.
Social factors play an important role influencing Facebook as it is a social media site. It is vital
to analyse behaviour of people while operating and designing its structure (Biggadike, 2010). As
it incorporates personal information of users, it needs adopting security measures to make people
comfortable while sharing personal stuff such as information, photos etc. Safety and security will
help the organisation in earning higher revenue as quality of life of people is enhancing.
Facebook has safety issues which hinders its social image in various countries. The
values and beliefs of different people affects marketing of Facebook as everyone has varied
needs and desires. Moreover, the social factors incorporate demographic conditions and thinking
power of society, level of skills of people, hierarchy structure and class of group targeted,
attitude and ethics of population, spirit of entrepreneurship and standard of education as well as
employment requirements.
Technological:
The technology plays a vital role in any organisation and is changing tremendously.
Facebook being a social networking site emphasises on advanced technology so as to grab
customers and contemplate them in an effective manner (Ferrell and Hartline, 2014). Though
Facebook should implement larger technological security so as to debar hacking of technology or
users personal details. Company should place more emphasis on betterment of mobile App
technology so as to render quality and improved experience.
The increasing number of social media companies and diversification of technology has
affected Facebook drastically. Facebook needs to capture online market by displaying enhanced
advertisement which will affect its profitability margin. Technology is growing at fast pace with
increasing changes and transforming organisations. Facebook needs to keep a close check on
competitor’s technology advancement and recent developments. As technology offers wider area
of operations, company needs to evaluate market and product. Google and Amazon are
companies which are tremendously diversifying their technology posing threat for Facebook
making competition tougher.
Legal:
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Legal rules and policies impact operations and performance of Facebook. These laws are
important as they set guidelines for social networking companies to operate within boundaries.
Customers and users should be provided legal rights for safeguarding their personal information.
The new and innovative protection rights imply customer satisfaction and enhanced opportunity
for Facebook to increase operations. Laws imposed correctly will provide operational facility to
company so as to expand its market reach (Chesbrough, 2009).
Every country has different laws and regulations and thus Facebook before entering into
new market should carefully evaluate possible threats and opportunities. The company should
focus on Anti-trust laws and discrimination laws of various countries and should impose the
same into their working. Copyrights and intellectual property law should be considered while
entering into new area. Consumer's protection is vital for Facebook thereby evaluating health and
safety laws. The company should carefully review all laws and regulations and implement the
same so as to earn competitive advantage.
Environmental:
Facebook operates in an environment which changes continuously providing
opportunities as well as threats for the company. The changes in climate and weather affect its
performance (Ferrell and Hartline, 2014). In addition, the company has enabled various
environmental protection laws so as to control pollution. Facebook incorporates waste
management techniques which focus on recycling of renewable resources and reusing of plastics
so as to reduce environmental degradation.
2. Analysis of micro environment on operations of Facebook.
The micro environment of business refers to the internal environment which affects
company’s working internally. These factors affect operations as well as decision making of
organisation and they are controllable (Ortega and Villaverde, 2011). The micro environment of
Facebook includes competitors and customers which affects social media industry thereby
bringing financial crises and instability.
Porter’s five forces model refers to analysing organisation’s internal environment which
is affected by factors external to company. It a powerful business framework which identifies
position of a company within an industry. Porter’s five forces model incorporates decision
making of buyers and suppliers as well as barriers to entry and exit. An analysis of Facebook
based on Porter's model will identify its competitive position within the industry.
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(Source: How to build your own Facebook Sentiment Analysis Tool, 2014)
Bargaining Power of Customers:
The customers of Facebook include people of all generations and age group using
WhatsApp, Instagram as well as Facebook Messenger social sites for interacting with friends and
family. Customers of Facebook impose pressure on company as they have higher impact on the
organisation (Ortega and Villaverde, 2011). Since users have higher demand, they impact
performance of Facebook thereby switching to other social media sites. Facebook provides a
social media site for advertising various news and resources by customers. Advertises are major
sources of revenue for Facebook and users have many other ways of advertising which poses a
threat for company such as print media, television, radio etc.
Low cost of switching also incorporates users with higher impact over company thereby
impacting its overall revenue as shifts to other websites and platform is easy and manageable.
The company to remain in industry needs to spend more on research and development so as to
grab more and more customers to use its services. Company needs to enhance user’s experience
so as to attract and retain them on social platform provided by Facebook. Since many different
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Illustration 2: Porter's Five Forces

and attractive messaging apps are available to customers, it restricts Facebook from charging
fees for the same (Morris, Schindehutte and Allen, 2011).
Bargaining Power of Suppliers:
The company includes all those people who impacts displaying and advertising features
as well as people who provide server facility which runs various social media software of
Facebook as his suppliers. They also comprises hosting services provider, storage facility, power
supplier, technology supplier, date centre manger as well as office equipment provider. The
suppliers usually pose a weak bargaining power in the industry due to their moderate size and
large population supplying higher facilities. Facebook usually encompasses supply of technology
and office provisions which are available through various sources; thus, impacting lower force
from suppliers (Marketing theories – PESTLE analysis, 2018).
The cost and high speed internet facility provided by suppliers decide the time users take
to spend on Facebook which impacts its profitability and generation of revenue. Thus though
suppliers have an impact on Facebook it is of moderate nature as company holds a large scale of
customer base. On the other hand, there are limited suppliers of specific hardware and software
programs which give Facebook suppliers an edge over bargaining to an extent. Thus, the supplier
of Facebook has a limited impact on major areas but poses power to influence the company on
specific areas.
Threat of Substitute Products:
Various available substitutes may hamper the competitive performance of Facebook.
These substitute poses threats and imposes challenges for the company. Substitutes refers to
identical services such as those provided by Facebook. The major substitutes available which are
offering identical services are LinkedIn, Snapchat, Twitter and Google+ which might poses
threats. It has relatively higher impact on the company due to three factors as low switching cost,
higher availability of identical services and moderate cost of available substitute (Schot and
Geels, 2008). Customers who uses Facebook for advertising purposes has many other media
platform which are cheaper such as print media, television, newspapers, websites, radio etc.
The customer base of Facebook is usually higher and prone to technological changes
which influence users to shift without incurring any costs. For instance, cooking enthusiast users
can use different sites for sharing photos related to cooking recipes to a specific site than
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Facebook. Apart from this, various innovations in mobile application may hinder the growth of
Facebook which tends to increase shifts of customers to other social networking platforms.
Threat of New Entrants:
The internet business used by Facebook has generally low barriers for new firms.
Increase in technology and evolving of newer ways has enforced entry of new firms in the
industry. There is usually low impact of entering of new firms in the industry as it is easy to
develop new applications and sites (Schot and Geels, 2008). New firms could enter the potential
market as costs are low and competitors are more. Though for grabbing the market, attracting
users with better features and positioning of brand requires huge investment and resources to be
implemented which poses threats for new firms to enter into industry.
Facebook poses threat from new business units entering industry due to innovation of
social networking platforms and websites. Since newer technology has reduced development of
mobile applications which has made easy entrants of new firms thereby reducing barriers. It
majorly requires attracting customers thereby providing attractive features and fastest internet
service which impel them to shift from Facebook. The risk of new entrants can poses threat to
the company as switching cost of customers is relatively low and demand is high as technology
advances.
Competitive rivalry:
Facebook has many competitors such as LinkedIn, Snapchat, Twitter and Google+ which
possesses better mobile applications and niche social networking platform which might hinder
successful growth of the company. The social media website is directly connected to technology
and innovation. Thus to remain in the competitive market, company needs to continuously
evolve with technological advancement and changes should be adopted so as to be in
competition with others (Morris, Schindehutte and Allen, 2011).
Recent trends and developments should be incorporated so as to maintain customer base.
The company has a huge customer base which might switch to other social platforms as varieties
of firms are available and there is no switching cost. The company to remain in league needs to
develop its mobile application as use of such services has increased.
3. Analysis of the internal environment of Facebook Inc.
Facebook has a competitive internal environment which focuses enhancing value to
customer and inventing new products and services which attracts users as well as maximizes
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profit. The users and advertisers are the main source of revenue for the company which needs to
be satisfied in the best possible way.
The company possesses many resources, capabilities, skills and competencies which
grants it an edge over others (Morris, Schindehutte and Allen, 2011). Moreover, the internal
analysis of Facebook will provide a clear and concise image of its overall working and various
strategies implemented to achieve success. The company needs to develop privacy policies and
rules to protect their users while sharing information.
Resources:
The resources of Facebook refer to its users or customers’ overall population which
ranges to approximately 900 million all around the globe. Such a huge database of Facebook is
an important resource which helps in generating revenue as well as giving a competitive
advantage to the company as compare to competitors. It has been observed that various other
social networking sites which provides similar services such as LinkedIn, Snapchat, Twitter and
Google+ has never acquired such a huge database as compared to Facebook. Thus, it could be
stated as huge customers are a crucial resource of Facebook.
The like button marketing strategy implies the no of users like a web page of any product
or service will increase its brand image thereby building a utility for that company. Google has
also incorporated same strategic plan so as to enhance its customer number. Facebook since its
incorporation is engaged in developing new services which attracts users and has increased its
customer base. The evolution of e-payment has also influenced huge ratio of customers.
Advertisers could use Facebook web page to give ads has also added to the resource base of the
company giving it sustainable competitive advantage. However, the resources are vital to
Facebook as they provide higher revenue and stability in industry. The innovative platform such
as Face.com by Facebook has given it a competitive edge which enables auto tagging of pictures
Capabilities:
The resources cannot be act as valuable on their own basis. To be productive resources
needs to form partnership with each other which will enhance productivity. Capabilities are a
generic term refers to the overall susceptibility of Facebook for undertaking an innovative
process. The company should focus on capabilities both internal to the firm as well as
competitors power to utilise resources. Thus, professionals at Facebook engage themselves in
developing newer applications and ways to attract resources which provides company
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competitive advantage. The company provides various services such as timeline view,
applications for smart phones, as well as music videos and sharing picture facility has provided it
with competitive advantage in the social media networking sites.
The professionals of Facebook have devised many software to protect customers and
their information from hackers. Facebook needs to capture online market by displaying enhanced
advertisement which will affect its profitability margin. Technology is growing at fast pace with
increasing changes and transforming organisations. Facebook needs to keep a close check on
competitor’s technology advancement and recent developments. As technology offers wider area
of operations, company needs to evaluate market and product. It also includes management of
financials and strategic tool expertise which will enhance its capabilities. This focuses on
motivating and controlling firms by managing resources and making the best use of it.
Collaborating with resources provides Facebook an advantage over others which generates
revenue and enhances profit margins.
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(Source: How to build your own Facebook Sentiment Analysis Tool, 2014)
Core skills and competencies:
Facebook possesses skills and crucial competencies which creates value for the
organisation as well as provide company an advantage in the industry. The company has
superiority in delivering services and efficiency in managing resources and technology has
provided it a huge base of customers (Marketing theories – PESTLE analysis, 2018). In addition,
the core skills and competencies of Facebook plays an important role in positioning its brand
image and generating revenue as compared to others such as Google+, LinkedIn, Snapchat and
Twitter. The major services rendered by company are to advertisers and users by providing them
space for advertising of their products and services.
The company has a huge base of customers comprising all age groups around the world
surfing through various pages and liking posts which generates preferences of customers
regarding a particular advertisement. Facebook web page is unbiased to all advertisers and users
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Illustration 3: Internal Analysis of Facebook Inc.