This also places a higher limit on the ad load (the percentage of posts that are ads) on the FB platform the ad load was previously measured to be around 5 to 10% and we believe this represents an optimal level without compromising on user experience. The switching costs for users are low, making it easy for them to migrate to other platforms. This means ensuring good user experience is the key to attract and retain customers on social networking platforms. Given the large-scale competition, the bargaining power of users is high. Users on platforms including Facebook, Whatsapp, Instagram, Messenger, and marketers advertising on these platforms, represent customers for Facebook. Increased regulation in certain markets such as China is more beneficial to regional players.īargaining Power Of Customers: While users of social networking platforms hold high bargaining leverage, the same is limited for marketers There are several regional social networks, such as Renren in China, Mixi in Japan, vKontakte in Russia, etc., and these compete with FB for users in their respective geographies. This could also result in Facebook buying out upcoming competitors at steep valuations. In the event that any such app gains widespread popularity, it could lead to lower engagement on FB-owned platforms. We believe newer innovative apps could emerge providing one of these discrete services. Currently FB provides a vast range of services such as photo-sharing, messaging, etc. The mobile platform is inherently different, with apps being more targeted towards a specific functionality rather than a broad range of features. Apart from this, since desktop usage is being replaced with mobile usage, we believe rapid changes on the mobile landscape pose a potential threat to Facebook. 
We expect this trend to persist and hence Facebook could see competition intensifying within different user demographics. For example, Snapchat appeals to a younger audience and is more popular among females.
Further, a number of social networks are cropping up that target a niche user base. However, competition from Google+ and Twitter can cause a reduction in the average time spent by active users on the FB platform, as these platforms offer unique sets of features. Facebook commands a loyal user base across several user demographics and geographies. Competition stems not only from social platforms that vie for users, but also from companies that allow marketers with targeted advertising and new development platforms for application developers. Hence, Facebook’s massive user base cannot be taken for granted the company continuously needs to innovate and to adapt to changing customer trends Any failure to do so could potentially cause its user base to migrate to other social media networks. Social networking space is prone to innovation, swift change and the introduction of new technologies. #THREAT OF NEW ENTRANTS WALMART 2014 FULL#
The switching costs for users are low and hence they could easily shift to newer apps for sharing information and micro-blogging.Ĭompetitive Rivalry Within The Industry: A wide range of players from full featured platforms (Google +) to niche social networking sites and new mobile apps could hamper Facebook’s user base growth Moreover, Internet usage is increasingly shifting to mobile devices, where the landscape is quickly evolving hence we think investors need to keep an eye out for popular mobile apps as they could impact Facebook’s popularity. The low barriers to entry in the Internet business further intensifies the competition in this market. Facebook needs to continuously innovative and adapt to changing user trends to keep the engagement levels stable on the platform.
In this article, we analyze how Facebook stacks up along Porter’s Five Forces to understand whether there are factors which could hamper its growth story and cause its market valuation to drop.Īccording to our analysis, the social networking market is highly competitive and is prone to rapid change through the introduction of disruptive technologies. In many respects, the company has not even begun scratching the surface of this opportunity. In addition to its core platform, Facebook also has other platforms including Messenger, Instagram, WhatsApp and Search, each of which have the potential to become multi-billion dollar businesses. Its top-line has risen by over 60% during the last nine months, and this impressive growth is expected to continue in the future. The market values the company at more than $200 billion, with a P/E ratio of around 70. Social networking giant Facebook has shown tremendous growth in the recent past, resulting in almost doubling of its stock price from the IPO level of $38 per share.
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