Porter’s 5 Forces Analysis of Facebook
Porter’s 5 forces analysis of Facebook indicates where this social networking site stands against its competitors. Porter’s 5 Forces analysis refers to a powerful but simple tool that is used to understand where the power in a business situation lies. It is a framework that tries to analyze competition level in an industry as well as the development of a business strategy. This tool draws from the economics of industrial organization to drive the five forces that influence the intensity of competition in an industry, therefore its attractiveness. On the other hand, Facebook is simply a social networking site that makes connecting and sharing with friends and family online easier. Facebook was created by Mark Zuckerberg in 2004 while studying at Harvard University. It has over 1 billion users globally making it the largest social networking website.
How to conduct Porter’s 5 forces analysis of Facebook
To conduct an analysis of Facebook using the Porter’s 5 forces model, you need to consider the following forces:
- Power of buyers or customers
This entails assessing how buyers can easily drive fluctuation in price. Factors that should be considered under this force include the number of users of the social network, cost that users can bear if they switch to another network and relevance of individual buyers to the social network. For Facebook, advertisers who use the site to advertise are the customers. Being a major social platform, Facebook attracts more advertisers. Therefore, there is a low bargaining power for customers. Nevertheless, if Facebook loses its current shine, advertisers will be less interested in it and this will increase the power of customers or buyers.
- Power of the suppliers
This is basically about the number of the suppliers, uniqueness of the service or product, relative size and strength of suppliers and the cost of switching between suppliers. Users are the suppliers of Facebook. Due to its large user base globally, there is low power of the suppliers. Nevertheless, Facebook should keep improving its footprints globally to avoid the effects of emerging networks.
- Threat of substitutes
This entails an evaluation of the ability of customers to pursue another way of meeting their needs the way Facebook does. There are different products that offer functionalities that are similar to those of Facebook. Such products include Google+, WhatsApp and Skype. These are substitutes that pose a threat to Facebook. Therefore, there is high threat from substitutes for Facebook.
- Threat of the new entrants
If a market is lucrative it has to attract new competitors. There is high threat of the new entrants for Facebook. This is due to the disruptive innovations that are always happening within the social space. Consequently, similar products are always emerging. Facebook should therefore keep improving its product to monetize it more and meet the needs of users.
- Competitive rivalry
Facebook has a highly competitive playing field. The launch of Google+, which is a social network, is one of the most recent examples. Users can access this network via Gmail using Android devices and the web. Although this network has not outwitted Facebook successfully, it cannot be downplayed as a rival site. Therefore, there is high competitive rivalry that Facebook is facing.
Why Porter’s 5 forces analysis of Facebook is important
This analysis is very important because it enables potential investors or analysts to understand the current position of Facebook in relation to competitors in the social media industry. This understanding is important because it can help individuals make informed decisions on whether to invest in or recommend Facebook as a company on the basis of its relative position in the industry or against its rivals.
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