The Facebook Continuous Quality Improvement
Facebook, Inc. was founded in 2004 by Mark Zuckerberg with his roommates and fellow students. The company operates in Computer Services industry, technological sector. The registered trademark of the company is Facebook, which is nowadays the biggest social network in the world with 757 million active users all around the world daily and 1.23 billion active users monthly. Total revenue of the company for the full year 2013 is $7.87 billion, which is more than twice higher than for the full year 2011 ($3.71 billion). A huge part of the company`s revenue is the revenue from advertising, which is near 90% of the total amount. As of December 31, 2013, company had 6,337 employees.
Facebook, Inc. is a rapidly developing company. Mission of the company is to give people the power to share and make the world more connected and open. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them. Key stakeholders are: customers (users); stockholders; a chief executive officer, other senior executives, the board of directors; employees; marketers and developers; competitors.
In spite of its success, the company has problems, the main of which are: a rapid rise of competition, especially with Google, Inc.; risky investment in new technologies; claims on providing the privacy to customers; and total control of the key decisions by the CEO Mark Zuckerberg. The main problem of Facebook, Inc. is the rapid rise of competition, especially with Google, Inc. This problem is the most critical and urgent.
Nowadays, there are four giants in the Internet industry – Google, Apple, Facebook, and Amazon. The main competitor of Facebook, Inc. is Google, Inc., the global technological leader. In social networking, Google is fighting Facebook with its Google+, which was announced in June 2011. The service seems to be exactly like Facebook. As of October 2013, the company had 540 million 30-day active users across Google properties. Comparing with Facebook, the number of Google`s monthly active users for the third quarter of 2013 was only 2.2 times less than Facebook`s one (540 million against 1.189 million). These data are troubling for Facebook. Thus, the problem has to be solved.
Facebook, Inc. has a few solutions of the problem. The number of potential solutions has been developed with a help of brainstorming. To have more understanding of alternative solutions, a ranking matrix has been presented. As the ranking matrix shows, the best solution for Facebook in terms of improving its competitiveness regarding Google is quality improvement.
Improvement of quality for Facebook includes: making a more useful interface; improving the privacy of customers` accounts and security of information; proposing different benefits to users; and giving them more possibilities in using the network. Facebook must combine all these measures to improve the quality of its services for being more competitive in the market and fighting Google. The solution meets certain ethical standards. Cost-benefit analysis shows that benefits of the quality improvement exceed the costs. As a result, solution will be effective for Facebook. In terms of feasibility, this solution is also effective. Facebook strategy, its recent development, and current approaches increase the chances that this solution could actually be implemented.
Facebook must develop an action plan to keep Google at bay. This action plan should be divided into steps, the main of which have been described. This solution should be evaluated at the end of each quarter and then at the end of each year. In this process, implementation of the plan can be revised when it is necessary for a better result and new approaches can be used due to a rapidly changing environment.
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Facebook Inc. was founded in 2004 by Mark Zuckerberg with his roommates and fellow students. The company operates in Computer Services industry, technological sector. Address is the following: 1601 Willow Road, Menlo Park, CA 94025. The registered trademark of the company is Facebook, which is nowadays the biggest social network in the world with 757 million active users all around the world daily and 1.23 billion active users monthly (Facebook, Inc. Quarterly Earnings Slides Q4 2013). In 2012, the company became public. Total revenue for the full year 2013 was $7.87 billion, which is more than twice higher than for the full year 2011 ($3.71 billion), almost four times higher than for the full year 2010 ($1.97 billion) and ten times higher than for the full year 2009 ($0.78 billion) (Facebook, Inc. Annual Report Form 10-K for the period ending 12/31/13).
The company`s products include a social network Facebook (mobile app and website), Messenger (a mobile-to-mobile messaging application), and a photo- and video sharing program Instagram (mobile app and website) (Facebook, Inc. Annual Report Form 10-K for the period ending 12/31/13). In 2014, Facebook has bought a messaging service WhatsApp and declared that it has brought to a definitive agreement to get immersive virtual reality technology leader, Oculus VR, Inc. The transaction has been expected to be closed in the second quarter of 2014 (Facebook to Acquire Oculus). In April 2014, Facebook, Inc. reportedly offers $100 million to acquire Secret, Inc. (Secret is one of the latest buzzy social apps) with an aim to develop anonymity services (Company Overview of Facebook).
Facebook`s mission is to provide people with the power to make and share the world more connected and open. People use Facebook to stay connected with family and friends, discover what happens in the world, and express and share what matters to them (Facebook, Inc. Annual Report Form 10-K). Top priority of Facebook, Inc. is to create engaging and useful products that enable people to connect and share with friends, discover and learn, express their self, and stay connected everywhere. Key elements of the company`s strategy are: expand its global community; develop great social products to increase engagement; increase the utility of its service and provide the most compelling user experience; improve its ad products; excel at mobile product development and make company`s mobile products fast, reliable, and easily available; enable developers to build, grow, and monetize their mobile and web applications; build a scalable infrastructure to provide the most compelling, robust, and reliable product experience (Facebook, Inc. Annual Report Form 10-K for the period ending 12/31/13). Important areas for the company are building and maintaining users` trust, competition, sales and operation, marketing, intellectual property, and government regulation.
Customers are main stakeholders, without whom the company would not exist. According to Facebook, Inc. data, as of December 31, 2013, the company had 757 million active users daily, from which 556 million were mobile users. Monthly, the company had 1,228 million active users, 945 million mobile users, and 296 million mobile-only users (Facebook, Inc. Quarterly Earnings Slides Q4 2013).
The company has dual class structure of common stock. As of December 31, 2013, there were 4,819 stockholders of Class A common stock and 102 stockholders of Class B common stock (Facebook, Inc. Annual Report Form 10-K). The voting agreements among certain company’s stockholders and the dual class structure of the common stock of the company have the effect of concentrating voting control with the company`s CEO and with certain employees, directors, and affiliates who limit the ability of ordinary stockholders to impact on corporate matters (Facebook, Inc. Annual Report Form 10-K). The company does not pay dividends.
Chief executive officer, other senior executives, the board of directors
These include: Chief Executive Officer, Chairman, and founder Mark Zuckerberg; Chief Financial Officer David A. Ebersman; Chief Operating Officer and Director Sheryl K. Sandberg; Chief Technology Officer and Vice President of Engineering Michael Schroepfer; Vice President of Business and Marketing Partnerships David B. Fisher (Company Overview of Facebook). The point is that the CEO Mark Zuckerberg has control over key decisions in the company as a result of his control over a majority of voting stock. The board of directors serves as a prudent fiduciary for shareholders and oversees management of the company`s business.
As of December 31, 2013, the company had 6,337 employees.
Marketers and developers
The main focus of Facebook is to provide value for all kinds of marketers, including direct marketers, brand marketers, medium and small-sized businesses, and developers. Facebook sells advertising placements to marketers, thus generating its revenue (Facebook, Inc. Annual Report Form 10).
Facebook, Inc. is working in a quickly changeable environment, which is characterized by huge competition. Main competitors of the company are companies that offer products that replicate the range of communications and related capabilities Facebook provides; companies that develop applications that provide social functionality; companies that provide web- and mobile-based information; traditional and online businesses that provide media for marketers for advertising. Besides, there are a lot of competitors in the local markets of countries in which the company operates.
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Facebook, Inc. is a rapidly developing company, the growth of which reflects both national and international environment. With this growth, the company has to pay more taxes, which are the source of income of a local budget. Local authorities can spend this money on satisfaction of people`s needs. Besides, along with its growing, Facebook needs to hire talented employees. This will reflect the unemployment rate and give more money from personal income tax to a local budget.
Facebook, Inc. is a rapidly developing company. It can be expressed by the following data. For the full year 2013, the company`s revenue was $7.87 billion, an increase of 55% year-over-year. Income from operations for the full year 2013 was $2.8 billion; net income was $1.5 billion. For the fourth quarter of 2013, the company`s revenue totaled $2.59 billion, an increase of 63% compared with $1.59 billion in the fourth quarter of 2012. A huge part of this revenue is revenue from advertising, which was $2.34 billion, i.e. 90% of the total. Revenue from advertising is increasing with time. In the fourth quarter of 2013, this increase was at the level of 76% compared to the data of the fourth quarter of 2012. In this period, mobile advertising revenue represented approximately 53% of the total revenue from advertising. Earnings per share of the company for 31 Dec. 2013 were $0.62, which is $0.60 more than for 31 Dec. 2012 (Facebook, Inc. Facebook Reports Fourth Quarter and Full Year 2013 Results). These numbers tell about quick development of the company. Nowadays, it is highly profitable and challenging. Besides, the company is investing a lot of money in new technologies.
Nevertheless, the company still has problems, which can be divided into four categories. The first is the problems that are mission-critical and urgent. They have the highest priority. These problems must be solved first. Other problems are those that are mission-critical, but not urgent. These problems have to be solved, but can be postponed in time. The third category is the problems that are not mission-critical and urgent. These problems are important for the organization, but have no relation to its mission. The last group is the problems that are not mission-critical and not urgent. These problems are not critical for the organization for some time.
It is necessary to prioritize problems of Facebook, Inc. for the determination of the most valuable of them.
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Thus, Facebook has the next problems:
- Mission-critical Rapid rise of competition, especially with Google, Inc. Risky investment in new technologies.
- Not mission-critical Claims on providing the privacy to customers. Total control over key decisions by the CEO Mark Zuckerberg.
Mission of Facebook, Inc. is to give people the power to share and make the world more connected and open with Facebook.
- Today, this mission cannot be realized completely because of a huge competition in the industry. This competition is present in the U.S. market and other geographical markets where the company operates. This problem is very serious and urgent. The main competitor of Facebook, Inc. is Google, which offers similar products and develops quickly.
- The second problem the company faces is risky investment in new technologies. This problem is mission-critical, but not urgent. “Facebook has been on a shopping spree, spending $19 billion on messaging service WhatsApp and $2 billion on goggle maker Oculus VR. The deals call to mind Facebook’s surprise $1 billion deal for Instagram two years ago” (Gottfried). In 2014, Facebook, Inc. is planning to acquire Oculus VR, Inc., and Secret, Inc. Thus, investors may be puzzled about the company’s future. This problem is topical for many companies, which need to make risky investments for being more competitive.
- Another problem Facebook faces is providing of privacy to customers. The company has the Data Use policy, which governs questions of collection and use of information the company receives. Nevertheless, there are a lot of claims and legal cases relating to this issue. In May 2012, Facebook was involved in a $15 billion class-action lawsuit in California for alleged violations of privacy tied to tracking of Web users. The case was caused by accusations that Facebook tracks activity of users even after they have left the site (Weiss). In 2014, two Facebook users claimed about the company’s practice of scanning their personal, private messages so the company could then target users with personalized on-screen advertisement based on keywords used in their posts (Weiss). This problem could damage the reputation of the company and its brand.
- There is also the problem with decision-making in the company. Key decisions in the company depend on one person who is the CEO Mark Zuckerberg. He controls the company`s management and strategic investments. This control can lead to unpredictable consequences, such as sale of assets when other stakeholders are against this decision or purchase of high-risk assets with no rational reason.
After going through all the problems, it is time to consider the most critical one. In this situation, the most urgent and mission-critical problem is the one of the rapid rise of competition, especially with Google, Inc.
The main problem of Facebook, Inc. is the rapid rise of competition, especially with Google, Inc. This problem is the most critical and urgent one.
Nowadays, there are four giants in the Internet industry – Google, Apple, Facebook, and Amazon. They are growing quickly. Apple`s most profitable product is iTunes online store. Google makes money from Google`s search engine and online advertising. Google`s Android software is used by three quarters of smartphones. Amazon operates online retail and e-book markets. Facebook is the world`s most popular social network (Atik).
Besides, Facebook faces competition from messaging services such as WeChat, Viber, LINE, Kik, and others. As stated by Olson: Messaging services aren’t really about messaging anymore. They’re a new breed of social network. WeChat, LINE and Kik have become platforms for games, third-party apps and digital stickers, while on the Beijing subway you can buy a snack from special vending machines through the WeChat app.
Thus, an important decision for the company was the purchase of WhatsApp, which was the most widespread social messaging service in 2013. The Value Walk correctly concluded: “it isn`t as important to measure WhatsApp break-even income, as it is to gauge the potential loss to Facebook`s income from not owing WhatsApp” (ValueWalk Staff).
The strongest competitor of Facebook is Google, Inc., which was founded in September 1998. It is a global technological leader. The company has over 85 offices in over 50 countries. The United States accounted for approximately 45% of the company`s revenue in 2013. As of December 31, 2013, the company had 47,756 full-time employees (Google, Inc. Annual Report Form 10-K).
Google`s mission is to organize the world`s information and make it universally accessible and useful. The company generates revenue primarily by delivering relevant, cost-effective online advertisement. Google`s business is primarily focused on such key areas as advertising, the Android operating system platform, consumer content through Google Play, enterprise, commerce, and hardware products (Google, Inc. Annual Report Form 10-K).
The main Google`s products are: Google search; AdWords (advertising program); consumer content and platforms, such as Android, Chrome, Google+, Google Play, Google Drive (including Google Docs), Google Wallet; Motorola (mobile segment). On January 29, 2013, Google entered into an acquisition agreement with Lenovo (China) to sell Motorola.
The most profitable business for Google is advertising. Mostly, customers pay on a cost-per-click basis, which means that the advertiser pays only when a user clicks on one of its ads. The company also offers payment on cost-per-impression basis, which means that advertisers pay for the number of times their ads appear in Google or are affiliated with the Google website, which are a part of Google Network (Google, Inc. Annual Report Form 10-K). 91% of Google`s revenue in 2013 was from advertisers.
In social networking, Google is fighting Facebook with its Google+, which was announced in June 2011. Google+ allows users to share online just like users do in a real world, sharing different things with different people (Google, Inc. Annual Report Form 10-K). The service seems to be exactly like Facebook. Users can share photos and updates with friends, chat with people, follow friends’ activities, sort individuals into different groups, etc. Only the vocabulary seems to have changed in some cases (Bosker). Google has tried to distinguish its product from Facebook by proposing a privacy-centered approach and giving users more control over accounts (Bosker).
As of October, 2013, the company had 540 million 30-day active users across Google properties. Compared with Facebook, in the third quarter of 2013 the number of Google`s monthly active users was 2.2 times less than the Facebook`s one (540 million against 1.189 million). These data are troubling for Facebook. Firstly, Google+ has attracted the mentioned number of users in just 2.5 years. Secondly, this company has a huge client base of users of its other products. This client base makes potential users of Google+. The matter of fact is that “the more Google learns about its users, the better it can target them with advertising, the more customized it can make its products, and the more money it can make” (Bosker). These are serious signals for Facebook.
Other similar product of Facebook and Google is connected with virtual reality. Facebook has purchased Oculus Rift, while Google uses its Glass prototype. Moreover, Gottfried stated that:
For every Oculus, WhatsApp and Instagram, Google has a Nest Labs, a Waze and a YouTube, for which it paid $3.2 billion, just over $1 billion and $1.65 billion, respectively. Both firms have invested in artificial intelligence and have projects devoted to expanding Internet services to underserved populations.
Main income of both companies is income from advertising.
Facebook, Inc. has a few solutions to the abovementioned problem. The number of potential solutions can be developed with a help of brainstorming.
- In this process, the following solutions have been developed:
- To improve the quality of services, give benefits to customers, give them more possibilities in using the service;
- To decrease prices for advertisement;
- To increase the company`s advertising and marketing budget;
- To give more benefits to marketers and developers;
- To find a very new technology and use asymmetrical competition;
- To be a more sustainable company and a corporate citizen;
- To introduce a teens-oriented product;
- To buy other social networks, for example, local networks abroad;
- To make an agreement with Google about common activity in the market (not really a legal solution).
Brainstorming is the technique that provides a wide range of solutions, from which the most available ones can be chosen. The most available solutions for Facebook are: to improve the quality of services; to buy other social networks; to increase the company`s advertising and marketing budget. The solution of doing nothing is not good in this situation because Google will develop further. It will be a huge problem for Facebook in future.
Solutions to problems are important on the way to the company`s success. To find a right solution is crucial for problem solving. The best solution for Facebook in terms of improving its competitiveness, especially regarding Google, is quality improvement. On the one hand, it is quite expensive and needs time to be implemented. On the other hand, it can save money for the company and is beneficial. Belohlav insists: “the more quality increases the more costs go down” (60). It can give the company a competitive advantage in future.
The company is competitive when it has better performance than others. Usually, competitiveness is expressed by a price gap for the same product. Negassi and Hung claimed that:
The enterprise is competitive when it sets a price less than others for the same product. This is called “price competitiveness”. However, it is obvious that competitiveness is not just a question of reducing the price gap. Non-price competitiveness or structural competitiveness also exists and is based on product quality. (p. 88)
For Facebook, Inc., the best way to be more competitive is to use a strategy of non-price competitiveness. The quality is one of the core factors of this kind of competitiveness.
Facebook has to be well-focused. “Anyone can prosper in a growing market but only well-defined, clearly focused companies can do well in mature, more competitive markets” (Belohlav 58). This focus for Facebook concerns the quality of its services.
Improvement of the quality for Facebook includes: making a more useful interface; improving the privacy of customers` accounts and security of information; proposing different benefits to users; and giving them more possibilities in using the network.
- Firstly, Facebook has to continuously improve its interface. The matter of fact is that Google+ these days has an interface that is almost similar to the one of the Facebook network. Facebook can use this fact as a competitor`s weakness and find a new innovative solution for its own interface. It can be with a help of virtual reality and Oculus or other tools. In this respect, it will be quite useful to make different surveys among users about the quality of services. Moreover, users can be involved in the process of network improvement by providing advice and suggestions.
- Secondly, Facebook has to pay more attention to the privacy of its users` accounts and security of information they share with friends. The company has to provide continuous software improvement with a wide range of security tools. That is an issue relating to tracking of users` accounts for defining the target audience for advertising. It has to be made anonymous with a high level of protection of users` information. Purchase of Secret, Inc. announced in April 2014 can help to develop the anonymity of services.
- Thirdly, the company can improve the quality of its service by proposing different benefits to its users and giving them more possibilities in using the network. They can use not only free connection through Facebook, but also be preferred users in other Facebook`s products, such as Instagram, WhatsApp, and Messanger. Facebook has to pay attention to the Google`s approach where with one account a user has access to the entire range of the company`s services. It seems to be more convenient for users. Today, an ordinary Facebook user has different logins and passwords for Facebook social network, Instagram, WhasApp, and Messanger. It would be more rational to connect all these accesses into one Facebook account. In other words, “recognizing the importance of the competition, the quality company not only wants to know what products and services their competitors are providing, but also how they are providing the products and services” (Belohlav 64).
Facebook must combine all these measures to improve the quality of its services for being more competitive in the market and fighting Google.
To be more competitive, Facebook, Inc. has to follow a strategy of non-price competitiveness. The quality is one of the core factors of this kind of competitiveness. Improvement of quality for Facebook includes: making a more useful interface; improving the privacy of customers` accounts and security of information; proposing different benefits to users; and giving them more possibilities in using the network.
To apply the solution, it is necessary to be confident that the solution meets certain ethical standards. On the one hand, the problem of a rapid rise of competitiveness, especially with Google, Inc., is not seen as “ethical”. There is no ethical dilemma for implementing the proposed solution.
On the other hand, its implementation can influence the company`s values and the company`s stakeholders.
- Firstly, the influence of the solution on the company`s values has to be analyzed. The mission of Facebook, Inc. is to give people the power to share and make the world more connected and open. The values of the company for people who are using Facebook include building of useful and engaging products that enable people to connect and share with friends, discover and learn, express their self, and stay connected everywhere. Improvement of the quality of services will comply with both the company`s strategy and values. Users will be satisfied with better services, the level of connection among people will increase. Thus, the solution to improve the quality of services is ethical.
- Secondly, the influence of the solution on the company`s stakeholders has to be analyzed. Customers (users) of the network can only benefit from the quality improvement. The number of users will increase. The price of the company`s shares will increase, which is a good thing for stockholders. It will be a long-term benefit because in the short term the company pays no dividends. Through this solution, the number of company`s employees will rise. It will influence the external environment because more personal income tax will go to a local budget. The number of marketers and developers will rise, which means more profit for the company from advertisements. As for competitors, their market share will decrease. They will be forced to make more investment in their quality improvement for being competitive.
The benefits correspond to the company`s mission, which is to give people the power to share and make the world more open and connected. With this solution, the main asset of Facebook – its users – will be satisfied. This will lead to the rise of the Facebook`s client base, number of marketers and developers who are working with the company, and accordingly the company`s profit in the long-term perspective. In terms of numbers, it is very hard to determine the cost of the quality improvement because Facebook does not make the information about internal processes and expenditures public and any information found in outside sources can be estimated.
Doing nothing is not an option because the company will lose its current position, users, and reputation. “While some costs are fairly visible, other costs, such as the lost customer, are usually more obscure or ill-defined within many organizations” (Belohlav 60). The consequence of this policy is the loss of the company`s profit.
It is important to know that:
High quality not only puts a company on a much different competitive plain than its competitors, but it also makes a wider variety of strategic options available to the company. That is, attaining high levels of quality creates the potential to pursue not only a differentiation strategy, but also a low cost leadership strategy within a market. (Belohlav 62)
In conclusion, the benefits of the quality improvement exceed the costs. As a result, a proposed solution will be effective for Facebook. In terms of feasibility, this solution is effective. Facebook strategy, its recent development, and current approaches increase chances that this solution could actually be implemented.
Facebook must develop an action plan to keep Google at bay. This action plan should be divided into steps.
- Firstly, Facebook has to collect data about the competitor, its products, approaches, and plans if it is possible. Then, the company has to do all necessary researches on customers` needs. It can be online surveys, tests, and other social methods. Also, different opinions about the company`s activity should be collected and analyzed, including experts` opinions. It has to be done by July 2014.
- Secondly, after collecting and analyzing the information, ways of the quality improvement have to be discussed and an action plan is to be approved. In this process, the costs of improvement have to be calculated, needed specialists are to be identified, and technical facilities have to be discussed. It has to be done by August 2014.
- The next step is the beginning of work, including software, hardware, and design development. After that, the pilot project has to be improved. This pilot project will be launched among users of different categories and status. The experiment will last for two months, i.e. August and September. After the project is over, its results have to be analyzed and corrections are to be done. The results have to be analyzed by November 2014.
- After this, a new approach has to be announced, while the marketing and advertising campaign is to be established. It would be easy for Facebook to implement and promote a new approach because of its popularity and reputation. Announcement will be made in the beginning of December 2014. The marketing and advertising campaign will be run during December. An improved Facebook network will be working from January 1, 2015.
This solution should be evaluated at the end of each quarter and then at the end of each year. Evaluation has to be done on the basis of actual data about a number of users, a number of claims and legal cases, information about revenue and its growth, especially from advertising, and a number of marketers and developers who are working with the company. In this process, the action plan can be revised when it is necessary for better results and new approaches can be used due to a rapidly changing environment. It is important to pay attention to the fact that “even a perfect adaptation to a given global business environment would be of little use as this environment constantly changes” (Pudelko and Mendenhall 465).