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Facebook and WhatsApp Competitiveness
The world of business is always in constant change as competitors try to outdo each other. This situation is even more prevalent in service industries, and especially in IT business, where innovation and understanding of the market trend in the market are key to the success of businesses (Lonial and Carter 94-113). Since the rise of the social media industry, which was pioneered by Facebook, there has been an entry of many innovative and competitive businesses among them is WhatsApp. Generally, the main concern of businesses in this industry is how to get many users communicating through their applications and also how to monetize these platforms.
Short Term and Long Term Issues Facing Facebook and WhatsApp
Facebook
Facebook was among the first to enter into the social media industry, as a result it was able to capture a sizeable share of the market. However, the success its success has been dampened by its inability to monetize most of the services that it offers. In the short term, Facebook main issue is how to attract new customers and also how to ensure that its current ones do not move to other competitors such as Twitter, Cyworld, Mixi, Orkut, and vKontake. In the long-term, the company’s main issue is how to monetize its services so that they may be beneficial to its shareholders.
WhatsApp
            Currently, WhatsApp is very popular among most of its users. In fact, most of them use the application more than once in a day. The main short-term issue that the company faces is attracting most customers into its system. It also faces competition from other companies such as WeChat, Line, KakaoTalk and Viber. Finally, it aims at building its reputation that has been tarnished due to concerns of the privacy of its users. In the long-term, the company aims at monetizing its platform.
Analysis Section
Porter Five Forces Model
This model opines that there are five forces that determine the competitiveness of a business namely: competitive rivalry, buyer power, supplier power, the threat of new entry, and the threat of substitution.
Facebook
New Entry
Although Facebook controls a significant market size, its market is under significant threat from new entrants such as Cyworld, Mixi, Orkut, and vKontakte. Moreover, companies such as Google, which have a dominant market position, can use their status to have a competitive edge over it.
Buyer Power
Facebook has a high buyer power. The company has a lot of customers since it was among the first in this industry. Therefore, it can be able to purchase most of its products at a discount. In fact, only a few companies such as Google and Microsoft can compete with Facebook in terms of buyer power.
Supplier Power
The company holds a dominant market position as a supplier of digital content. Although it is facing competition from regional providers of social media, on the overall, the company has an overwhelming high supplier power.
Threat of Substitution
Facebook faces a real and imminent threat of substitution from regional providers of social media services. In addition, it also faces threats from text based social media systems such as WhatsApp. For example, while most users of WhatsApp use the system more than once a day, only a third of Indian Facebook users log into their accounts on a daily basis.
Competitive Rivalry
Facebook has a lot of competitive rivalries. In particular, most of its users can easily switch to users who provide similar social media platforms such as Cyworld, Mixi, Orkut, and vKontakte. Others can simply shift to the text messaging platforms such as WhatsApp.
WhatsApp
New Entry
The company is vulnerable to new entry. Although the company has a lot of customers, it does not have any tactics of preventing a competitor from developing similar or better applications. Currently, the company faces competition from Line, KakaoTalk, Viber, and WeChat.
Buyer Power
The significant size of the market that the company controls makes it have a high buyer power. Even before 2015 experts had predicted that it would have 1 billion customers in that year. By then, the company already had 450 million customers.
Supplier Power
The high number of clients that WhatsApp serves makes it have a high supplier power. As 0f 2011, experts had predicted that the company would be having 1 billion customers
Competitive Power
The company’s services can be easily substituted by other online text messaging service providers such as Cyworld, Mixi, Orkut, and vKontakte. Therefore, the company is vulnerable to competitive rivalry power.
Macro Environment of Internet Publishing and Broadcasting Industry
On the overall, the Internet Publishing and Broadcasting Industry has been expanding exponentially. As a result, new businesses continue to be created in order to have a share of this booming market. Generally, the rise in residential internet connections and also the increase in income levels in most of these countries has resulted in an increase in the boom in this industry. This industry is expected took keep on going due to the increase in 3G and 4G internet connection (IBISWorld, 2016).
 
Financial Analysis of Facebook
(The year 2013)
Return on Assets
Total assets= 17.9 Billion. Net Income = 1.49 billion
1.49/17.9= 0.08324
Return on Equity
Total Equity= 15.47 Billion
1.49/15.47= 0.0963
Profitability Ratio
Sales= 7.87Billion
1.49/7.87= 0.1893
Debt to Equity Ratio
Debt= 2.43Billion
2.43/15.47= 0.157078
SWOT ANALYSIS
A SWOT analysis shows the strengths, weaknesses, opportunities, and threats in a business.
Facebook
Strengths

  • The company has a lot of capital to market its self.
  • The company has a lot of customers in most countries.

Weaknesses

  • The company has been unable to monetize its operations
  • The company has been unable to attract many return customers to its platform (Parda et al. 283-309)

Opportunities

  • The acquisition of WhatsApp will enable it to access the many repeat customers who use this text messaging up on a daily basis.
  • The company can be monetized to enable it to make more income from its operations.

Threats

  • There has been an emergence of many regional websites such as Cyworld, Mixi, Orkut, and vKontakte that may reduce the company’s presence in their home markets.
  • Facebook is facing court sanctions in some major countries such as India due to anticompetitive laws.

Tows Matrix Facebook

  External Opportunities
·         Capacity to monetize most of its operations
·         Business opportunities from new acquisition of WhatsApp
External Threats
·         The emergence of regional websites.
·         Possible sanctions in major markets like India
Internal Strengths
·         Lots of capital
·         Lots of customers
SO “maxi-maxi strategy” ST “Maxi-mini strategy”
Internal Weaknesses
·         Unable to monetize operations
·         Unable to attract repeat customers
WO “mini-max strategy” WT “Mini-mini strategy”

Facebook should use the mini-maxi strategy (WO)
WhatsApp
Strengths

  • The company has a huge number of repeat users.
  • The company has a regional acceptance even in foreign and restricted markets such as China, where it is ranked as 5th.

Weaknesses

  • The company does not monetize its text messaging system. Therefore, it does not make a lot of income
  • The company does not have any innovative ways of making income besides its annual text messaging fee.

Opportunities

  • The increase in consumers’ disposable income presents the company with a lot of users since most individuals can now afford smartphones.
  • The company can monetize its system by having a daily charge and also introducing adverts and other income generating products (Renk 54-73).

Threats

  • The company faces competition from businesses such as Cyworld, Mixi, Orkut, and vKontakte that have more sophisticated text messaging system.

 
Tows Matrix WhatsApp

  External Opportunities
·         Increase in demand for text messaging services
·         Possible source of income from advertisements
External Threats
·         Competition from new regional entrants as Cyworld, Mixi, Orkut, and vKontakte.
Internal Strengths
·         A huge number of repeat users.
·         Regional acceptance even in foreign markets
SO “maxi-maxi strategy” ST “Maxi-mini strategy”
Internal Weaknesses
·         Lack of monetization of its messaging platform
·         Has only one service, messaging system
WO “mini-max strategy” WT “Mini-mini strategy”

 
WhatsApp should use the max-maxi strategy (SO).
Risk Assessment of the Companies
Facebook Risk Assessment Matrix

Risk Assessment Matrix
Probability//Severity Catastrophic (1) Critical (2) Marginal (3) Negligible (4)
Probability of hacking   2    
The probability of loss of personal data.   2    
Probability of failure of the system       4

 
Probability 6 (4+1+1)
WhatsApp risk Assessment Matrix

Risk Assessment Matrix
Probability//Severity Catastrophic (1) Critical (2) Marginal (3) Negligible (4)
Probability of hacking   2    
The probability of loss of personal data.   2    
Probability of failure of the system     3  

 
Total score 7 (4+2+2)
Low scores show higher levels of severity and risk. Since WhatsApp has a lower score that Facebook, its operation is riskier.
Did Facebook Pay too Much for WhatsApp?
Facebook paid too much for WhatsApp. To begin with, the company had not yet monetized its operations. In addition, it WhatsApp did not intend to monetize its operations and the eventual its takeover of did not result in more profits for the company.
Alternative Option
Facebook would have marketed its text messaging platform “messenger.” This system is similar in many ways to WhatsApp. It would have used some of the money used in acquiring WhatsApp to market its text messaging system.
 
Decision Matrix
WhatsApp Acquisition Decision Matrix

 
Problems
Criteria
Effects on Other Activities Cost Number of New Customers Repeat Customer
Increased competition from text messaging (decreased motivation on Facebook Staff) (Very High) (Negligible increase) (negligible change)
Inability to monetize operations   (Very High) (Negligible increase) (Negligible increase)
         

 
The acquisition did not result in any positive change for the company (increase in repeat customers or ability to monetize operations). Therefore, the acquisition was not appropriate.
These results conform to my earlier assumptions.
Implementation of my Option
Step 1: Develop the text messaging system
Step 2: Put it in a pilot project.
Step 3: Make appropriate modifications and link it with the Facebook.
Step 4: Market the new text messaging program using the Facebook page and by automatically adding it in the updated version of Facebook.
Step 4: Add the application in Google Play Store to ensure most users can access it.
Conclusion
To sum up, Facebook should increase its investments in research and technology so that it can always develop new and innovative products. In addition, it should monetize all its products so that they can be of benefit to its shareholders. With regards to the acquisition of WhatsApp, the company made a mistake since these acquired company cannot generate income for it.
 
 
 
 
 
 
 
 
 
 
 
 
Works Cited
Lonial, Subhash and Robert, Carter. “The Impact of Organizational Orientations on Medium and Small Firm Performance: A Resource-Based Perspective.” Journal of Small Business Management, vol. 53, issue 1, 2015, pp. 94-113.
Parda Vinit, Mats Westerberg, and Johan, Firshammar. “Inbound Open Innovation Activitiesin High-Tech SMEs: The Impact on Innovation Performance.” Journal of Small Business Management, vol. 50, issue 2, 2012, pp. 283-309.
Renko, Maija, Ayman, El Tarabishy, Alan, L. Carsrud, and Malin, Brannback. “Understanding and Measuring Entrepreneurial Leadership Style.” Journal of Small Business Management, vol. 53, issue 1, pp. 54-74.