Knowledge @ ESCP Europe

Strategy

Facebook: about to lose 80% of its users by 2017?

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Jean-Marie Ducreux is Associate Professor of Marketing and Strategy in particular for the Master in European Business (MEB)

Claudia Kientzler (MEB Class of 2014 - Paris / Berlin track)

During the MEB’s first semester Corporate & Business Strategy course, students at the Paris campus discussed the future of Facebook using several of the strategic concepts and notions developed throughout the module.

Here is an excerpt of the discussion:

Is strategy an important input to a student’s understanding of business life?

The answer was an unequivocal ‘yes’. One of the objectives of the course is for students to face real life situations: each student starts by writing down the names of three former companies and to discussing why they failed. On the basis of their analysis, they are then asked to write down the names of three companies which are likely to disappear in the future and three likely to remain in operation.

In a more and more competitive world, elephants have to learn to dance. Since what is on offer seems to outstrip demand at all levels, companies have to find ways to differentiate themselves by constantly maintaining a competitive advantage. Through the business strategy lectures, students will be able to understand the rise and fall of companies. Indeed, many organisations expire after gathering a huge amount of power – for example, Andersen or Lehman Brothers. The lectures give an extensive knowledge of the numerous parameters that need to be considered by a CEO during its decision making process.

According to a recent study by Princeton University (USA), Facebook has spread like an infectious disease; but we are slowly becoming immune to its attractions, and the platform will be largely abandoned by 2017.

How can this be the case, given the massive success of Facebook on the financial markets?

The research is based on the number of times Facebook is typed into Google as a search term, using a tool named Google Trends. However, it does not take into account the 870 million people using Facebook via their smartphone, which raises the question of the relevance of the results. Even though the methodology can be criticised, it points out the lost of interest from the young generation, something confirmed by Facebook itself.

Facebook was created in 2004 in a growing market and had one vision for its users: "stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them”. According to business strategy lectures, vision is fundamental; it defines the aspirations of the company and has to be followed on the long term. Even if more and more competitors are entering the market, it doesn’t mean that the vision has to change; instead, Facebook has to adapt its positioning.  

How are strategic concepts and analyses useful in understanding what is going on?

In a mature market like the one in which Facebook is currently evolving, customers’ expectations are heightened by the complexity of the offer. Markets tend to bipolarize upon reaching maturity, and customers ease their decision-making process by focusing either on ‘no-frills’ value offers or on high-end offers. One of its implications, the U curve concept (first identified by Professor Michael Porter), shows two opposing ways to make profit: by decreasing the costs and producing massively, or by differentiating the company from the competitors. Those who are not able to position themselves are left behind and doomed to disappear.

MacKinsey produced a study on those unable to position themselves: the vanishing middle. During the business strategy lectures, students learn how to locate companies on the Porter curve and why these choices have been made.

So what is the future for Facebook? Does it mean the end for Marc Zuckerberg’s company?

With these projections in mind, Facebook should drive its image into something more attractive and focus on its original vision in order to offer something different from its competitors. From an academic point of view, Facebook could be placed in the middle where all companies are offering the same services; this is called ‘banalisation’.

Non-specialised, targeting everyone and, thus, no-one, Facebook is now surrounded by competitors who have understood the need of positioning i.e. offering specific services for specific needs.

More and more people, especially the younger generation, are now attracted by other social networks such as Snapchat or Whatsapp, considered more user-friendly and less intrusive than Facebook. Indeed, by transforming the platform into a massive network of data collection either to sell to other companies or to give to the US federal government, Facebook is increasing the suspicion of its users.

The recent acquisition of Whatsapp by Facebook for the stupendous price of $19bn clearly shows its willingness to focus on external growth rather than on its organic development. By diversifying its offer, Facebook is hoping to attract those disappointed by the complexity of its initial system. Nevertheless, the obvious overpricing of Whatsapp is a reminder of the Internet bubble and its disastrous consequences. It is important to note that the sales revenue of Whatsapp is only estimated at around $50mn per year...

From a strategic point of view, Facebook seems to follow the direction of multi-branding rather than renewing its ties with its original vision of allowing people to stay connected without the fear of being tracked. 

While examining a company, both internal and external factors have to be taken into account: the consistency with its inspiring vision, and its positioning on the market to face the competition.

Thanks to the business strategy lectures, MEB students will be able to comprehend the need of a strategic vision for every company, as well as constantly questioning the best positioning and the ways in which this positioning can be implemented.