MARKET ANALYSIS & PRODUCT INNOVATION

Market Analysis and Product Innovation: Facebook Inc.

In an increasingly competitive environment, business organizations must remain innovative. They must deliver offerings that resonate with the ever changing needs of the consumer and the operating environment (Akbar & Tzokas, 2013). This often calls for product innovation, which has been marked as a crucial driver of competitive advantage in the contemporary marketplace (Song & Chen, 2014). Nonetheless, product innovation is often not a straightforward undertaking. An organization must have comprehensive understanding of the environment in which it operates, especially in terms of the threats and opportunities it presents, for its products to succeed in the marketplace (Bart, 2002). The organization must also effectively utilize its resources and capabilities to overcome those threats and take advantage of the opportunities (Holahan, Sullivan & Markham, 2014).

One organization that is an epitome of innovation in today’s business environment is Facebook Inc., whose social networking service has tremendously revolutionized how individuals and organizations interact. Even so, against the backdrop of increased competition, it is imperative for the company to keep introducing new, innovative offerings if it is to retain its position in the market. Based on a comprehensive analysis of the company’s strengths and weaknesses as well as opportunities and threats (SWOT), this report provides a product innovation charter (PIC) for the introduction of a new product, precisely an online payment service.

2. Organizational Background

Founded in 2004 by Mark Zuckerberg alongside his colleagues, Facebook is an American company that provides an online social networking service for users all over the world. The company has in less than a decade grown to be the largest social media company in the world, with more than one and a half billion active users as well as revenues in excess of $17 billion in 2015 (Facebook, 2015). Originally introduced as an online social platform by Harvard University students, the service has become a major channel for marketing today. Organizations in various sectors and industries have increasingly incorporated the platform in their marketing activities, and the outcomes have generally been tremendous. Facebook has indeed transformed the internet realm, and made the 21st century arguably the best century in history in terms of online social interaction.

3. SWOT Analysis

A major strength of Facebook emanates from the wide-ranging popularity of its social networking service. Approximately 1 billion people across the world actively use the service daily to post, like and share messages, photos, and videos relating to their personal lives as well as friends, relatives, acquaintances, products, services, brands, and organizations (Facebook, 2015). Adding Instagram and Whatsapp, which are also owned by Facebook, the company has users in excess of 2 billion. This popularity gives the service a significant upper hand compared to similar services such as Myspace, Twitter, Pinterest, Linkedin, and Google+.

Additionally, Facebook attracts a much broader user base — the young and the older, men and women, as well as the educated and the uneducated. This is unlike networks such as Twitter which mainly attract the elite and the educated, or Pinterest, which mainly attracts female users. With its focus on a broader demographic profile, Facebook has allowed its service to be integrated with millions of websites and applications all over the world. This has made the network even more attractive to marketers, who can now link their websites to the platform. The service can as well be accessed from a range of devices including desktop computers, laptops, smartphones, and tablets. Other important strengths include robust financial performance, commitment to research and development (R&D), as well as competent leadership and employees.

In spite of these strengths, Facebook has a number of weaknesses. First and foremost, the company is predominantly dependent on advertising, which accounts for approximately 95% of its total revenues as of 2015 (Facebook, 2015). This is a significant weakness given that products and services generally go through a lifecycle. The challenge of overreliance on advertising is further compounded by the service’s relatively low click-through-rate (CTR) for ads compared to most advertising websites. This has the potential to drive away marketers to other online marketing platforms. Another weakness is that the service offers little or no customization. In other words, it offers a generally standardized template for all its users, unlike websites such as Pinterest, which usually reflect user’s individual needs and personalities. Other notable weaknesses include overdependence on developed markets (especially North America and Europe), widespread instances of impersonation, information privacy concerns, and increasing ad prices.

There are a number of opportunities Facebook can take advantage of to enhance its competitive advantage. For instance, internet connectivity has increased substantially in most parts of the world, including developing countries (Pew Research Center, 2016). This has come against the backdrop of impressive economic growth, increased consumer incomes, and the emergence of powerful mobile devices (International Data Corporation [IDC], 2015). Increased internet connectivity presents significant opportunities for businesses, particularly with regard to online shopping, online marketplaces, online payment solutions, mobile advertising, as well as home internet solutions. With its immense global following, these are opportunities the company can exploit to minimize the risks associated with overdependence on a single revenue stream.

However, Facebook’s ability to take advantage of these opportunities may be hindered by a number of threats. Competition is particularly an important threat. Since the birth of Facebook, other equally competitive online social networking platforms have also emerged. These include Youtube, Twitter, Google+, Linkedin, and Pinterest. Further rivalry comes from search engine companies such as Google and Yahoo as well as online marketplaces such as Amazon, eBay, and Alibaba. The implication is that competition for advertising revenue has increased, placing Facebook at a disadvantage.

Another threat stems from government regulations locally and internationally. As an internet company, Facebook is specifically subject to government regulations relating to information privacy, advertising, the protection of minors, telecommunications, consumer protection, and so on. Some countries such as China and Saudi Arabia have even more stringent regulations for social media, making it difficult for Facebook to thrive in such regulatory environments. Changes in consumer online behavior also pose a threat to Facebook. For instance, internet users are increasingly using extensions to block online ads. Such behaviors increasingly threaten the company’s business model. Other considerable threats include the slowing growth of online advertising, identity theft, imitation, market saturation, as well as unfavorable economic events such as inflation and recession. Table 1 below summarizes Facebook’s SWOT analysis.

Strengths

• Extensive worldwide popularity and strong brand presence

• Broader demographic coverage

• Integration with websites and applications

• Strong financial performance

• Substantial R&D budget

• Competent leadership and employees

Opportunities

• New products, such as an online marketplace and online payment solutions

• Market penetration and market development, especially developing and emerging markets

Weaknesses

• Overreliance on advertising

• Overdependence on developed markets

• Relatively low CTR

• Little or no customization

• Cases of impersonation

• Information privacy concerns

• Increasing ad prices

Threats

• Competition

• Government regulation

• Unfavorable changes in online user behavior

• Slowing growth of online advertising

• Identity theft

• Imitation

• Market saturation

• Unfavorable economic events

Table 1: Facebook’s SWOT analysis

Overall, Facebook’s strengths and opportunities remarkably outweigh its weaknesses and threats. With its substantial global following, brand presence, and financial strength, the company is better placed to minimize its overreliance on advertising by pursuing new opportunities, especially in emerging markets. The online payment market is one opportunity which the company can exploit to diversify its business model. The following section provides a strategy for introducing the product.

4. Product Innovation Charter

4.1 Background and Rationale

As identified in the preceding section, Facebook faces a major weakness: overreliance on advertising revenue, which majorly comes from marketers in developed countries. Accordingly, the company faces a major risk due to product lifecycle concerns and market saturation, a challenge that is further compounded by increased competition in the online space. The online payment market presents a significant opportunity for Facebook. With increased internet connectivity, online payment has become a popular phenomenon in the last one decade or so (World Pay, 2015). Today, individuals and organizations all over the world can send and receive money from any corner of the globe as well as pay for goods and services online. This has reduced the inconveniences associated with traditional payment methods such as bank transfer.

Presently, the market is dominated by companies such as Paypal, Skrill, Stripe, Flagship Merchant Services, and Square. Google has also recently entered the market by introducing its service Google Wallet. A major shortcoming with these online payment services is that they primarily serve developed markets. In fact, a company like Paypal has imposed numerous restrictions on countries in Africa, Asia, and Latin America. Instances of Paypal accounts of users outside the U.S. being blocked for no reason are not uncommon. Additionally, most online payment companies charge fairly exorbitant fees for their services. By entering the market, Facebook can fill these gaps. The attractiveness of the market further emanates from the increasing acceptance and demand for online payment solutions in emerging markets, which remain significantly underserved (World Pay, 2015).

4.2 Focus

Facebook has a number of competencies that place it in a better position to venture into the online payments market, such as extensive experience in the internet space, huge global following and recognition, as well as sufficient financial muscle. More importantly, over 60% of its users are in Asia-Pacific, Africa, and Latin America, particularly in India, Brazil, Indonesia, and Mexico (Facebook, 2015). These countries have in the last few years experienced tremendous internet penetration, with projections indicating that the penetration will be even greater in the foreseeable future (Pew Research Center, 2016). In addition, Facebook’s users cut across a broader demographic profile, making the opportunity even more worthwhile. Furthermore, the company has recently expressed interest in the online payment market, though by introducing person-to-person payments through its online networking service. Collectively, these competencies and capabilities give the company a better chance of pursuing the market.

4.3 Goals and Objectives

For Facebook, the primary aim of venturing into the online payments market would be to diversify its product portfolio and develop new markets for the new product. The company would specifically want to achieve the following objectives:

1. Increase non-advertising revenue by 10% in the next 3 years.

2. Obtain the necessary regulatory approvals in the next 6 months.

3. Conduct comprehensive research of the online payments market in major emerging markets in the next 12 months, especially India, Brazil, Indonesia, Mexico, South Africa, Nigeria, and Kenya.

4. Seek strategic partners in the online payments industry in the next 18 months.

5. Develop and implement a fully-fledged online payment platform in the next 24 months.

6. Gain a 5% market share in the online payments market in the next five years.

4.4 Guidelines

To achieve the above objectives, a number of factors must be put into consideration. Table 2 below summarizes the guidelines for implementing the idea.

No.

Item

Explanation

1

Approval

The necessary approvals must be obtained, especially from shareholders, the board, and regulators

2

Project team formation

Important for overseeing the entire project from beginning to end

3

Resource mobilization

Financial, human, and technical resources

4

Staff awareness

Important for minimizing resistance to the idea

5

Market research

Necessary for understanding trends relating to internet connectivity, online consumer behavior, and online payments, as well as competitors and profit potential (Holt, 2002).

6

Platform development

With a better understanding of the market, the online platform can be developed, with specific consideration to market needs

7

Strategic partnerships

Given the competitive nature of the market, it may be important for Facebook to take advantage of players with experience in the industry. Strategic alliances, partnerships, joint ventures, acquisitions, and mergers with incumbent players can be useful ways of overcoming market entry challenges (Holt, 2002).

8

Pilot testing

It is often prudent to test a new offering in a subsection of the larger target market. In this case, for instance, a pilot test can be done in one country. Pilot testing enables detection and correction of errors and failures before full implementation (Holt, 2002).

9

Full implementation

If the piloting testing proves successful, the idea can be rolled out in large scale

10

Monitoring

To measure the success of the product, regular evaluation would be important (Holt, 2002). This is achieved by evaluating the extent to which the set objectives have been achieved.

Table 2: Guidelines for implementation

5. Conclusion

Though Facebook remains a strong company, it must improve its competitive position in the marketplace. The company’s overreliance on advertising places it at a major disadvantage from the perspective of product lifecycle. The online payments market, especially in developing and emerging markets, presents an ideal opportunity for the company to diversify its product portfolio. If carefully implemented, the idea has immense potential to enhance its position in the stiffly competitive global technology marketplace.

References

Akbar, H., & Tzokas, N. (2013). An exploration of new product development’s front-end knowledge conceptualization process in discontinuous innovations. Journal of British Management, 24, 245-263.

Bart, C. (2002). Product innovation charters: mission statements for new products. R&D Management, 32(1), 23-34.

Facebook (2015). Annual Report 2015. Retrieved 28 September 2016 from: https://s21.q4cdn.com/399680738/files/doc_financials/annual_reports/2015-Annual- Report.pdf

Holahan, P., Sullivan, Z., & Markham, S. (2014). Product development as core competence: how formal product development practices differ for radical, more innovative and incremental product innovations. 31(2), 329-345.

Holt, K. (2002). Market-oriented product innovation: a key to survival in the third millennium. The Netherlands: Kluwer Academic Publishers.

International Data Corporation (IDC) (2015). Mobile internet users to top 2 billion worldwide in 2016. Retrieved 28 September 2016 from: https://www.idc.com/getdoc.jsp?containerId=prUS40855515

Pew Research Center (2016). Internet access growing worldwide but remains higher in advanced economies. Retrieved 28 September 2016 from: http://www.pewglobal.org/2016/02/22/internet-access-growing-worldwide-but- remains-higher-in-advanced-economies/

Song, M., & Chen, M. (2014). Organizational attributes, market growth, and product innovation. Journal of Product Innovation Management, 31(6), 1312-1329.

World Pay (2015). Global payments report 2015. Retrieved 28 September 2016 from: http://offers.worldpayglobal.com/rs/850-JOA- 856/images/GlobalPaymentsReportNov2015.pdf

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