Facebook is the largest social media network in the world with around 2.8 Billion monthly active users as of the end of 2020. The social media platform has enjoyed a 12% year-on-year growth in its user base compared to the previous year.
The craze of social media has kept growing stronger with each passing year. While even the social media landscape is highly competitive, Facebook has remained the undisputed leader among all social media networks.
The social media giant enjoyed solid growth during 2020 compared to the previous year. Its net revenues grew by 22% as compared to the previous year. The main source of revenue for the company is advertising. However, its advertising revenue grew by 21% in 2020 compared to 2019.
In this swot analysis, we will discuss the main strengths and weaknesses of Facebook, as well as its leading opportunities and threats.
Largest social media network:
Facebook is the largest social media network in the world. Its popularity continues to grow faster with time. The company experienced a solid increase in its user base and net revenue in the year 2020. Its monthly active user base in 2020 reached 2.8 billion monthly active users. Its popularity has increased across all age groups. The platform is investing in research and development to make it more attractive for users across all age groups.
Facebook’s leading strength is technological innovation. It is also the key reason that the company has found immense success globally. Despite Google’s dominance in digital marketing and advertising, Facebook has continued to maintain its market position. The company invests a large sum each year in research and development to maintain its growth rate and the attractiveness of its platform.
It has added several new features in recent years to attract new users and engage existing users better. The company invested $16.7 billion in research and development in 2020. Over the last three years, its investment in research and development has grown rapidly. The company invested only $9.3 billion in R&D in 2018, which grew to $12.8 billion in 2019 and then $16.7 billion in 2020. Since the competition faced by the social media platform has grown stronger, Facebook plans to continuously grow its investment in research and development.
Strong advertising-based business model:
Facebook’s leading strength is the effectiveness of its advertising model. Due to its unique targeting capabilities, the company has been able to attract advertisers and businesses in very large numbers over the past several years. Based on its efficiency as an advertising platform, Facebook’s attractiveness for marketers and businesses has grown leading to superior financial results over time. In 2020, the company’s net revenue increased significantly compared to the previous year.
Advertising is its main source of revenue and constitutes a substantial part of the company’s net revenue. Of the total $85.97 billion revenue that the company generated in 2020, its revenue from advertising remained $84.17 billion. While its net revenue grew 22% year on year in 2020, its advertising revenue grew by 21%.
Global presence and technological capabilities:
Facebook is a truly global brand whose services are available throughout the world through a large number of data centers. the number of Facebook users around the world has grown with the proliferation of internet technology. A large number of these users are accessing Facebook through smartphones and other mobile devices. Apart from the regions, where Facebook is expressly banned, there is no problem for users trying to access Facebook.
Its matchless technological capabilities make it a true rival of Google. The company has continued to grow its technological capabilities through an investment in innovation. It owns seventeen data centers globally according to its latest annual report and plans to continue investing in data canter technology, servers, and network technology.
Fast revenue growth:
The company has experienced solid revenue growth in recent years driven by growth in user base and technological innovation. In just the last five years, the net revenue of Facebook has more than trebled rising from $27.54 billion in 2016 to $85.97 billion in 2020.
The net revenue of the company grew by 22% in 2020 compared to the previous year whereas its advertising revenue grew by 21%. The revenue growth of the company was primarily driven by the growth in its user base and an increase in the number of ads delivered.
While ad prices remained slightly lower in 2020, compared to 2019, the company achieved higher sales, which more than offset the lost margins. Facebook is a highly profitable company and experienced a sharp jump in its net income as well as in 2020 compared to 2019. Its net income was $29.15 billion in 2020 compared to $18.5 billion in 2019.
Large product portfolio:
Another key strength of the company is its large and diversified product portfolio. Apart from the Facebook platform, the company also owns Instagram, Whatsapp, Messenger, and Oculus. Its other products and mainly Whatsapp and Instagram are enjoying strong global popularity. In the future, if the company monetizes its other platforms too through advertising, it could experience a sharp growth in its revenue.
Dependent mainly on advertising revenue:
Despite being the leading social media network, Facebook is dependent on a single main source of revenue. Its business depends totally on advertising. However, the world of digital advertising is not as simple as it seems. It is also full of challenges and apart from the heavy competition from Google and the other leading tech players, other challenges including regulatory challenges are making Facebook’s task difficult in this area.
Facebook Australian government friction:
Recently, the standoff between the Australian government and Facebook over a law that favors the Australian news agencies had the social network in a tight spot. Facebook even banned Australian news sources from posting on its platform. Such laws if also become applicable in other regions could affect the revenues and profits of Facebook negatively.
User privacy related issues:
Facebook has been battling with user privacy-related challenges for the past several years and while the company has repeatedly asserted that it will do its best to address all these loopholes and challenges, reports of data breach and loss of user data keep surfacing. In 2019, FTC imposed a $5 billion fine on Facebook and subjected the company to new restrictions regarding the decisions it makes related to user privacy and its protection.
Technological innovation is a key factor that will continue to drive faster growth for the social media giant. The tech industry is marked by an intense level of competition and accelerating growth momentum requires a higher focus on research and development. In recent years, while the company has invested a large sum in research and development, it will need to maintain a continuous focus on technological innovation to maintain a higher growth rate and its competitive edge in the industry.
Facebook can also find faster growth through acquisition of new brands. It has expanded its product portfolio mainly through acquisitions. From Whatsapp to Instagram and Oculus, all these brands were acquired by Facebook. The social media giant has a healthy cashflow and can use it for acquiring more businesses that can help it cement its position and grow its revenue faster.
Changing advertising trends:
The world of advertising has changed a lot in recent years. Changing advertising trends require big businesses like Facebook to research these trends and respond accordingly. A lot of online traffic is now being generated from mobile devices and there has been an enormous growth in the number of smartphone users worldwide. Apart from focusing on its advertising strategy and altering it according to the latest trends, the company must study the changing consumer preferences in terms of media consumption.
Expanding into new business areas:
The company is facing a lot of competition from unconventional resources. Apart from social media and the search giant Google, there are a large number of gaming and online streaming brands also that compete with Facebook. Apart from YouTube, Netflix is also a competition of Facebook. If the social media giant expands into new business areas like online streaming, it could expand its revenue sources and also increase its market influence overall.
Facebook is the social media king. However, that does not mean the company is not facing intense competition from various sources including the technology giant Google, which is its primary competitor in the advertising business. Other social media brands including YouTube (owned by Google), Twitter, TikTok as well as online streaming brands like Netflix and Hotstar also compete with Facebook. gaming businesses are also competitors of Facebook. With higher competition, the costs and expenses of the company are also growing higher.
For example, the total costs and expenses of the company stood at $30.9 billion in 2018 and grew to $46.7 billion in 2019, and again jumped to $53.3 billion in 2020. The company has to invest more in m research and development as well as marketing and traffic acquisition. All these factors affect the company’s profitability and create other types of pressures as well for the business, making the market environment overall highly challenging for it.
The tech industry has grown highly regulated but its woes are not coming to an end soon. Not just in the US, but in the other markets too, the level of regulation faced by Facebook including the EU, Canada, and Australia is very high. Facebook has already paid hefty fines in various markets including the US and EU. It has also faced a large number of litigations.
Several governments including the US government are planning to grow the level of regulation faced by Big tech and Facebook to regulate how it uses, stores, and shares user data. Apart from that, in other areas too including media, governments are growing stricter in their approach to regulating Facebook. The case of Australia was the latest example. Overall, the high level of regulatory pressure can make growth highly challenging for Facebook.
Data breaches. can be a real pain for any tech company. However, it seems even the largest tech brands have not remained immune from it. Once a breach occurs, it leaves the user data of millions of users exposed and the company a target of criticism and government action. Facebook has experienced several data breaches in the past three to four years. The recent breach exposed user data from 533 million accounts. It means the company is going to face higher government scrutiny and more backlash from the watchdog agencies worldwide. Such breaches have also left the image of the company tainted.
Image and reputation management:
Emerging taxes in the EU and other regions:
Governments and government agencies worldwide have been aggressively watching Facebook’s business practices. In some regions like the UK and the EU, new digital taxes have been applied on Facebook. According to Reuters, Canada is also planning a new digital tax for Facebook and other large tech brands from 2022.
Bans applied by various countries:
While Facebook is globally popular, it has been banned by some countries. One of them is the largest global market China. Apart from China, Iran, North Korea, and Syria have also banned Facebook. Several other countries have also applied short-term bans on Facebook in the past.
Originally published at https://cheshnotes.com.