Throughout the history of Facebook, Mark Zuckerberg has changed many aspects of his social network company, but in general, the business model has remained relatively consistent. In its simplest definition, Facebook’s business model is built upon data-driven advertising revenue. As more people adopt Facebook, the social network collects increased amounts of data that can be used to drive the advertising campaigns of Facebook’s paid advertisers. It is able to improve upon this business model by tweaking certain aspects of the technology and user interface of the network. For example, when the Facebook Exchange was launched, advertising had the ability to use data from users’ online browsing history. This created a more sophisticated and accurate advertisement targeting system that increased advertisement effectiveness and ultimately advertisement revenue for Facebook. Facebook’s business model depended on two key variables: user growth and advertising effectiveness. Through this realization, the methodology to increasing revenue was simply to increase both its user base and the effectiveness of the users connecting with the advertisements. Facebook increased its user base through a variety of ways that included improving the user interface, creating custom applications such as Facebook games and apps, and also through the simple method of the network effect. Facebook improved its advertising campaigns through improved targeting and increased data collection from its user base. Using these two methods in tandem, created the business model of Facebook.
Facebook has a few competitive advantages that enable it to remain the leader of all social networks. One key advantage includes the switching costs associated for users and companies that are currently using Facebook for Websites. These users and companies are now ingrained into Facebook’s interface as they connect through third party applications and websites through their Facebook credentials. Another competitive advantage is the data that Facebook has generated and continues to generate. This data is crucial for securing advertising revenue. Ads are more accurate and advertisers want to tap into Facebook’s vast array of data. Another important advantage is the integration of Open Graph with third party companies. Like Facebook for Websites, this creates another switching cost for companies that make it difficult for other social networks to gain control of.
2) Why did Facebook prevail over MySpace, even though it was substantially bigger and had greater resources?
At the start of Facebook, MySpace was the Goliath in regards to social networks. As with many large companies, the small tech environment was gone and Myspace was now run by professionals that NewsCorp had instated. Facebook on the other hand was open to change. Mark Zuckerberg started the company off small and drove the company in the path that led to the most growth. This included games, apps, and integration. This innovation was something that MySpace was beginning to lack. The bureaucratic nature of larger companies became the weakness that MySpace could not overcome. By launching Facebook through colleges in the manner that it was introduced, allowed Facebook to secure those early adopters. By the time Facebook was beginning to expand to the rest of the population, it had the right amount of capital investment to allow it to grow. This fast paced growth along with the ability to pivot direction quickly and overcome mistakes enabled Facebook to take over users from MySpace and ultimately become the new powerhouse of social networking.
3) Where does Facebook’s biggest competitive threat come from?
Facebook’s main competitors are Twitter, Google Plus, and Snapchat. They each offer a unique form of experience and possess different qualities that set them apart from each other. Facebook was able to…