Analyses of Facebook using Porter's models

Bizning Vakil By Bizning Vakil, 15th Aug 2012 | Follow this author | RSS Feed | Short URL
Posted in Wikinut>Business>Analysis

The cloud-based integrated multiple data sources and visualisation systems is a response to the challenges associated with the growing volume, velocity, variety and complexity of information, and what’s more important a new way of making money. In this regard, the following report is prepared using Facebook. The overall accompanying analysis is based on Michael Porter’s models, reflecting company’s cloud leveraging strategies.


Facebook, one of the fastest-growing cloud companies in the world, it builds tools that enable users to connect, share, discover, and communicate with each other; enables developers to build social applications on Facebook or to integrate their Websites with Facebook; and offers products that enable advertisers and marketers to engage with its users – a unique tool for setting a B2B focus for businesses of all, let alone CIA’s and other agencies’ dramatic costs reduction benefits from Facebook’s cloud information.

As of February 2, 2012, it had 845 million monthly users and 443 million daily users. Facebook’s net income in 2011 rose 65% to $1bn, and overall revenues totalled $3.71bn . In the beginning of February 2012 the company announced initial public offering that could value the social network between $75 billion and $100 billion, the biggest U.S. stock-market debuts of all time according to the Wall Street Journal.

Surely, today’s Web 2.0 and cloud-based data integration represent inexhaustible opportunities for Facebook, it’s cost-effective, flexible, agile and it’s the primary determinant of the whole World Wide Web attractiveness. But there are a lot of problems with the concept, the majors are breach and security concerns. If services are down the cloud is gone as well as reputation and attractiveness, that knocks many companies out of competition, so the purpose of the study is in evaluating Facebook’s position in the cloud and potential risks as the company surpassed its developers’ expectations long time ago and has grown into something more than just social networking site.

Generic Strategies: Cost Leadership and Differentiation

Cost leadship in the social networking industry isn’t a factor, because social cloud services are free, but profits are basically generated from advertising and additional applications. According to , 85% of Facebook profits came from advertising and 12% from Zynga - a social network game developer.

The revenue derived from Zynga’s payments processing fees related to sales of virtual goods, plus virtual and real gift shops. Facebook provides its own self-advertising platform and competes with, Google Adwords, YouTube and Twitter . The cloud marketing is low-cost oriented industry, so Facebook focuses its strategy on uniqueness differentiation for a broad market.

It provides such advertising services like “Campaign Cost and Budgeting” with cost per click (CPC) and cost per one thousand impressions (CPM) tool, attractive user interface, like recently launched Timeline and free social media services integrated with other highly valued websites, which delivers a massive exposure potential for businesses.

Industry forces: Competitive Rivalry

Facebook has built a strong brand loyalty and dominates the social networking industry plainly by increasing the level of interaction between users and websites that works in its favor. Facebook’s major “social” rival is Twitter, but there is no intense competition. First, because Twitter’s traffic density is much lower than Facebook’s, and Twitter users fairly exceed 200 million. Second, a social networking paradox, but cloud-based integration rationale - in 99% cases people recommend to follow them on Twitter to their Facebook friends, and vice versa.

Users' Power

Facebook promotes interaction between its users through various features, including the Like feacture, comments, sharing, upcoming events, tags and others, which are innovative and previously unknown. For example, Developers portal provides Facebook documentation, Graph API, Query Language and Authentication resources for developers and self-customization. User activity is analysed by user research centre, so new features are added and unpopular ones removed in a continous process, masses customization process dramatically limits users’ bargaining leverage and they’re less likely to switch to another social networks.

Moverover, users are absolutely confident in privacy and information safety as they have full control over their profiles and what they choose to display.

Developers Power

Since Facebook has launched Open Graph and Timeline dramatically increased competition between app developers. Before, Open Graph was available for inside developers only and Facebook opened it for all. With a large number of substitute inputs and broad competition, application developers bargaining power fell to a minimum. It has diversified distribution channel as well, making the users to be developers and distributors themselves.

Threat from New Entrants

A major potential threat in the near future may represent Google, which has recently lauched Google + social network. It looks and functions much like Facebook, enabling users to post status updates, share links and upload photos and gained a lot of attention and onrush of users.

Unless both of the companies have approximately the same traffic density, Google as search engine and Facebook as a social network, Google yields to Facebook in social graph, Friends Circles, privacy and applications and many others. Google+ photos are integrated with Picasa web albums and cannot be compared to Facebook album functions, so it’s more about perception users maintain and Facebook has built a strong reputation and perceived by its users as more “personal”.


Facebook has relentlessly evolved its product, even when users were resistant to change, allowing it to incorporate ideas that could have disrupted it had it remained stagnant. It’s created a lucrative Platform developers want to build on. Finally, its turned its Pages and advertising products into central components of brand and local marketing, giving it the money to fund innovation elsewhere.

Facebook have their own infrastructure rather than using a third party cloud provider and they built own data centres to support physical infrastructure which available to partners as API and IaaS, also they maintain a PaaS service for those the partners, and they’re both deliver their own SaaS for specific applications . They are also one of the largest photo repositories on the planet due to inexpesive and scalable cloud storage.

They have also launched the Open Compute program that allows large scale data server and storage services to enter into the world of Facebook and ultimately make recommendations for how the architecture can be improved.

The defense system , run by a 30- person security team, is designed to weed out spam and malicious links. It analyzes up to 650,000 user actions per second and 2 trillion link clicks per day. So Less than 0.5% of Facebook users experience spam spreading. In case a user’s account is hacked, Facebook is providing more ways for them to regain access. These include Social Authentication that lets users identify friends in photos to prove they’re an account owner, and the Trusted Friends feature that sends an access code to a locked out user’s closest friends who can share it with them so they can login again, this has created a high level of trust and credibility among users.

These latest improvements to efficiency and security strengthened the service in ways it was moving too fast to focus on. While only seven years old, Facebook is looking more and more like an established, sophisticated company ready to deliver value for a long time into the future.


Today, the more businesses rely on Facebook, the less likely it is to fail. Zynga has already built a company valued at more than $1 billion using Facebook as a platform, and thousands of websites now use Facebook Connect for their login systems. The toolbar and web-wide “like” button are the next phase; by providing more distributed services, Facebook becomes invaluable.

Uniformity is the next right feature that stands Facebook out of others. Blue and white on every page, red for notifications, not too many graphics and the overall layout is neat and well spaced. Another, friendly user interface feature - no background glitter that seem to run through the bloodstream of anyone who visits a page, no annoying GIFs on comments, no annoying background music or anything that can alienate users. So The interface in Facebook is a very simple one and the design is plain and easy to use. This sets Facebook apart from the networking sites that are cluttered with obsolete tools.

Facebook’s foundation is so deep that it will be very difficult for it to fall now and it has a lot of ways to extend, it is already a cloud application vendor, but the weakness is in search tools and low integration with Google. However, Facebook has ability to enable search features and can upgrage their inbox.

Facebook appeals to users and can be very addicting to people who have an insatiable appetite to stay connected with friends and make new acquaintances. In fact, some people report they rarely use email or IM tools anymore in their online social communications anymore, relying almost entirely on Facebook for email, chat, image and video sharing.

Facebook users prefer the social portal model versus having to log into AIM, Yahoo Messenger, Gmail, Hotmail, Flickr, YouTube, MySpace, etc. Instead, Facebook gives them a single alternative to all these applications, with one login and interface to manage their online social interaction needs. This largely explains the explosive growth Facebook continues to experience and why the company reportedly invested more than $200 million in data center upgrades last year to keep up with demand.


Mulholland, A., Pyke, J., Fingar, P. (2010). Enterprise Cloud Computing: A Strategy Guide for Business and Technology Leaders. Tampa, Florida: Meghan-Kiffer Press.
Cloud Circle (2011). 1st Industry Trends Report.
Fingar, P. (2009). Dot.Cloud. The 21st Century Business Platform. Meghan-Kiffer Press.


Business Analysis, Facebook, Porters Model

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author avatar Bizning Vakil
An economist by definition, a teacher by practice, a journalist by nature, I find it hard to find any one permanent place to settle down...

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author avatar tuktuk
21st Aug 2012 (#)

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