Founded in 2004 by Mark Zuckerberg, Facebook is the world’s largest online social networking platform, boasting roughly 2.89 billion active monthly users. Facebook is a social technology company with its headquarters strategically located in northern California, in the infamous Silicon Valley area. Silicon Valley is home to some of the world’s largest technologically innovative corporations. Facebook has been around for over a decade and has faced numerous privacy concerns regarding its revenue model, which involves selling personal information about its users to advertising companies, some of which will be discussed in this report.
The tech giant has revolutionized communication, influenced modern-day business development, and is viewed as a leader in disruptive innovation. Disruptive businesses provide innovative ideas and solutions to outdated processes. They destabilize old markets, rebuild them, and open a market that provides new value and growth. Once disruptive organizations become mainstream, they systematically reshape society socially and technologically. Through a series of mergers and acquisitions, the social media powerhouse continues to grow.
Over the years, Facebook has acquired several tech app and software companies since its first acquisition in 2005. To date, it has spent $23 billion on these companies. Some of which have remained secretive and not known to the public in the past. Nonetheless, some of Facebook’s parent companies are more known due to mainstream popularity, such as Instagram, a video-sharing social networking platform founded in 2010. And WhatsApp is an instant messaging app founded in 2009.
By acquiring these companies, Facebook has increased profits while also monopolizing the social, and technological sphere. In the third quarter, 2021, Facebook’s net income had reached nearly 9.2 billion U.S. dollars, while in the fourth quarter of 2020, Facebook’s net income had grown by 43 percent compared to the previous quarter, reaching a record high amount of 11.2 billion U.S. dollars for the comparative period. Statista. (n.d.).
As of 2021, Facebook rebranded as Meta Inc, a parent company of the social media platform, with Mark Zuckerberg appointed CEO. CEO Mark Zuckerberg and COO Sheryl Sandberg are among the company’s top key executives, with David Wehner appointed CFO. Meta was founded and began operations in February 2004 in Cambridge, Massachusetts, United States. Even though Facebook’s name has changed, the platform remains the same.
However, the company plans to expand its brand by offering other products, services, and platforms such as Metaverse. A metaverse is a network of virtual worlds primarily focused on social interaction. This project can be described as a hypothetical implementation of internet-enhanced virtual and augmented reality applications.
Mark Zuckerberg’s vision for Metaverse is connecting businesses, offering meta-services, and incorporating economic sustainability into future business development. Meta services integrate technology and apps under one brand to connect businesses and people. Moreover, Facebook expects to be 100% powered by renewable energy by 2020, which would produce net-zero emissions. The goal of the rebranding is to solidify Facebook as a social media company, which connects people and businesses under one brand. The missions of the corporation are listed on their website as.
Mission: “The metaverse is the next evolution of social connection. Our company’s vision is to help bring the metaverse to life, so we are changing our name to reflect our commitment to this future”.
Vision statement: “It will let you share immersive experiences with other people even when you cannot be together — and do things together you could not do in the physical world. It is the next evolution in a long line of social technologies, and it is ushering in a new chapter for our company.”
Suitability Goals: “At Facebook, we believe sustainability is about more than operating responsibly. It is an opportunity to support the communities we are a part of and make a bigger impact on the world”. Meta (2021).
History of Facebook
Mark Zuckerberg founded Facebook while still a sophomore computer science student at Harvard University along with his classmates, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes. Before Facebook, Zuckerberg created a website called face smash that invited users to rate each other’s photos. Zuckerberg hacked into Harvard’s security system, enabling him to access the personal information of many student profiles.
However, Zuckerberg decided to shut the site down since the website violates people’s privacy. “Issues about violating people’s privacy do not seem to be surmountable. The irony of his statement is that Zuckerberg later went on to create Facebook, the world’s largest online platform, which provided the company with billions of personal data. An interesting fact about Mark Zuckerberg is that he had originally decided to go to Harvard to study psychology, not computer science.
In addition to psychology, Zuckerberg also took computer science classes. The choice to study psychology may seem contrast in comparison to the passion he had for coding and computer science as a child; however, once you begin to analyse Facebook’s success, you soon understand that much of it is due to Zuckerberg’s understanding of human behavior and the addictive nature of the mind since much of Facebook success is attributed to the platform’s addictive nature.
Facebook expanded to the rest of the Boston area, attracting students from different Ivy League universities. By the end of 2005, it had 1 million users and received a $500k investment from Peter Thiel, its first major investment. Thiel was aco-founder of PayPal, the digital payment service, and the first outside investor in Facebook. Thiel later went on to co-found Palantir, a government-supplied data-intelligence company. Shortly after, Zuckerberg dropped out of Harvard to run Facebook from its new headquarters in California.
The company spread across the world in subsequent years, becoming one of the most influential, disruptive, and high-value companies of the 21st century. Currently, Facebook has over2.89 a billion active monthly users and 58,604 full-time employees, which covers all 82 Facebook offices worldwide. The social network was responsible for the emergence of user-generated content, also known as Web 2.0. As of today, it has an estimated 2.89 billion active users and continues to be controversial due to data privacy issues and resulting in a generation of people addicted to social media. Several opinions have been expressed about Facebook. When the movie “The Social Network” was released, it had been criticized for omitting or distorting crucial information. While some criticism is to be expected, the company’s rapid rise to success is undeniable. With billions of users, the power and social influence of Facebook cannot be disregarded. In encapsulating the philosophy of zeitgeist, Facebook represents power, dominance, and control in the 21st
Understanding Facebook’s business model
Facebook’s power is fundamentally based on its primary source of revenue – advertising. Although Facebook has over two billion users, it does not make any money from its content or user base. Based on its business model, Facebook provides its tools and services primarily for free to billions of users, then charges businesses to advertise to those users. Facebook advertisers pay for their ads, and the cost is determined by auction. By using supply and demand, Facebook determines the prices of auctions. (Brooks, 2017)
Small businesses make up most Facebook’s customers since they typically advertise on Facebook and other parent platforms like Instagram. To encourage small businesses to promote on Facebook, Facebook also introduced its first version of its e-commerce tools called Facebook Shops. Facebook Shops facilitate the creation of an online store that allows customers to access both platforms, Facebook, and Instagram. Announcing its annual ad revenue in 2019, Facebook ranked second after Google with 23%.
Moreover, Facebook only serves as a database for companies to target consumers on one platform. By targeting users based on the profile information they provided, Facebook ads made targeted advertising cheaper and more profitable than traditional forms of advertising, such as tv commercials and print ads, which are often expensive. Facebook’s algorithms collect information and data based on users’ profiles, allowing it to show advertisements to specific demographics with greater accuracy, something previous advertising models could not do. Additionally, this is one of many ways Facebook has disrupted previous advertising market models.
“Facebook’s vision is to continue building communities and connecting people,” and it accomplishes this by constantly updating its platforms to encourage people to use its applications, such as Instagram Messenger, WhatsApp, and many others. However, to keep the focus of this segment on Facebook’s business model, we will analyze their current business model and explore their business canvas model with a specific focus on how money is generated through advertising. (Pereira, 202
The current business model of Facebook
The Facebook business model is Multi-layered and uses Business to customer (B2C) and customer-to-customer (C2C) marketing structure. The B2C and C2C marketing structure maximizes profit via user engagement and is structured around the canvas business model. A canvas Business model is a strategic management tool that allows a company to visualize and evaluate its business concept. Canva is divided into nine boxes, each representing a fundamental aspect of a business. Weintraub, M. (n.d). An example of the consumer-to-consumer model is third-party companies facilitating transactions for products or services between private consumers without the participation of a business. Online businesses make up the majority of C2C transactions.
While some B2C businesses utilize their platforms to market and sell their products, others monetize by connecting buyers and sellers using content traffic to advertise. Since rebranding to Meta, Facebook, for example, will be doing both. It will continue to offer targeted advertisements to users and promote its features, such as the metaverse.
For Facebook, a value proposition is essential. Multi-dimensional business models need to consider the value proposition to all sides of the platform to provide the best possible platform that caters to all its cross users, for example, Business and personal users. The business model also uses CPM and CPC, which are further explored by analyzing Facebook’s canvas business model.
Facebook canvas model
By utilizing the Canvas business model, Facebook provides its users with visualizing and evaluating business ideas. Facebook’s business model is multi-layered and structured around user engagement, and a significant part of the business model focuses on maximizing profit through target advertising to those users. According to Facebook’s canvas model, the number of impressions or actions users take, such as clicking on an ad, determines how an ad product is bought by marketers, either directly or through agencies.
By looking at the model, we can see that Facebook’s advertising payment model operates by auction, using CPM. The advertising acronym CPM stands for “cost per thousand impressions,” a measurement of how much money it costs to reach 1,000 views. It also makes use of (CPC) cost per click. An advertiser pays a publisher for every click on an advertisement in paid advertising. For a Value proposition aimed at businesses and advertisers, Facebook assists corporations by showing ads to the billions of people who use the platform worldwide, reaching mass amounts of people through target-based advertising. Businesses were able to reach many customers organically in the past. Today, however, advertising is vital to reaching the majority of their audience.
Facebook business strategy
Porter’s Five Forces of Competitive Position Analysis
To counter and determine risk factors that pose a threat to an organization, Facebook uses both Porter’s Five forces framework Model and PESTLE Analysis. However, PESTLE and Porter’s Five Forces Framework differ in examining internal and external influences, even though Facebook uses both tools for this purpose.
PESTLE provides insight into how macro-environmental factors affect an organization and its competitive position, while Porter’s 5 Forces examines how power is divided in a competitive environment. Using Porter’s Five Forces Framework model, Facebook can analyze its operating environment and assess internal and external technological, demographic, and socioeconomic threats.
In 1979, Harvard Business School Professor Michael E Porter developed Porter’s Five Forces of Competitive Position Analysis to determine a company’s competitive position and strength. According to the theory, a business’s competitive intensity and attractiveness are determined by five forces. (Wright, 2018). One of the most critical aspects of Business is establishing strengths and weaknesses. When you apply Porter’s five forces to a business situation, a business can determine where power lies or is lacking. Jurevicius, O. (2021). In line with the model presented, Facebook’s main objective is to evaluate the competitive landscape and develop new strategies to reposition itself in a leading position.
Threat of new entry
As social technology continues to grow, new platforms emerge along with a new demographic, which can cause a platform like Facebook to lose its relevance and attractiveness to users causing it to become irrelevant or obsolete. As the global force behind many social media trends, Facebook has been around for a long time. Nevertheless, with new emerging platforms like tick-tock, Facebook must assess the threat posed by new competition. TikTok, founded in China in 2008, is owned by Byte Dance and poses a threat to Facebook since Facebook is constantly under pressure to increase its user database for advertisers.
According to Google Search Trends, there has been an increase in interest in ads on platforms such as TikTok during the last two years. Researchers have found that consumers may be more receptive to advertising on smaller channels like TikTok, Snapchat, and Pinterest than the more extensive social networks like Facebook. In a study conducted by Kantar on TikTok, consumers rated TikTok ads as more inspiring and entertaining than ads on other apps. Six Degrees, Napster, AOL, Myspace, Yahoo, and MSN, were once platforms that dominated the online social sphere but eventually became obsolete as times changed. If History has taught us anything, no defined industry, hierarchy, or monopoly lasts forever.
A threat posed by a new entrant is the risk a new competitor poses to existing industry participants by offering a similar product to that sold by a company that previously dominated that market. While Facebook dominated social networking for a long time, new emerging competition has caused a social shift, with people becoming interested in other platforms. The main reason is that Facebook users have become aware of the risks associated with sharing personal information and data harvesting. Facebook has been involved in several data leak scandals, such as the Cambridge Analytica data scandal, where personal data was collected without the users’ knowledge and used for political advertising.
Developing consumer trust and competing with other companies are a few challenges Facebook faces. Furthermore, the social networking niche involves many competitors such as Twitter, Snapchat, and Google. Social networking is a highly competitive market with a tendency to undergo rapid change due to disruptive technologies. Maintaining relevance, ensuring data protection for its users, and keeping up with rapidly changing micro trends require Facebook to evaluate its competitors constantly.
Bargaining of suppliers
Several Facebook suppliers provide servers, storage, power, software, data centers, and technology. An industry’s competitive environment and profit potential are affected by the bargaining power of suppliers. Due to Facebook’s reliance on other suppliers, bargaining power can significantly affect the profitability of Facebook since Facebook must compete with other competitors when it comes to utilizing services provided by external suppliers. As new platforms emerge, suppliers can increase their prices for using their services based on supply and demand.
Bargaining power of buyers
Facebook users have a great deal of bargaining power because of the high level of competition the company experiences with new emerging platforms like tick-tock and Twitter. Facebook is no longer the only social media platform. Thus, it cannot charge its users; even if the site ceased generating revenue through advertising, users would switch to another platform, increasing the power of the buyer, or in Facebook’s case, the user.
Facebook also needs to constantly improve online user experience to keep them on the platform, so it has expanded towards meta-services. Keeping users entertained by offering more inn1ovative advertising is how Facebook manages the bargaining power of users. However, because metaverse is relatively new, it might soon present unforeseen threats that negatively impact society.
In addition, Facebook (meta) will have to compete with other companies such as Epic Games, Niantic, Apple, Microsoft, and many others to stay competitive, which will be challenging. META is not likely to enjoy the same monopolized success as Facebook since there is established competition. However, socioeconomic factors are constantly changing, thus making the future of social technology unpredictable. Only time will tell whether META will grow in dominance to become a social, technological leader.
Threat of substitutes
A threat of substitutes is a term in Porter’s framework that refers to the company’s competition regarding new products or services entering the market. Substitute products and services can sometimes displace a company’s own if they turn out to be cheaper or provide something new and exciting. When competitors or non-industry companies offer better or lower-priced products, the risk of substitution is high. As of right now, TikTok is one of these risks.
Facebook had previously underestimated the platform, but tick-tock has grown in popularity and attracted new social media users. In terms of growth, engagement, and advertising, TikTok poses a growing threat to Facebook. Because most of Facebook’s revenue is generated through advertising, the company may have difficulty convincing companies to advertise since advertisers are attracted to platforms with high user engagement, which tick-tock currently generates through creative and entertaining short video clips.
Socio-economic trends affecting Facebook’s business model
Societal dynamics are constantly changing, and sometimes these changes adversely affect a business. PESTLE analysis, for example, can be used by companies to analyze these changes to help them avoid and counter challenges. The “S” represents socio-cultural factors such as political, and economic. Since Facebook is a multinational conglomerate, it is no stranger to shifting social and economic trends, explored, and highlighted below. Facebook uses PESTLE analysis to counter potential threats to changing socio-economic trends. PESTLE refers to (Political, Economic, Social, Technological, Legal, and Environmental factors) Gerts, E. (2021). Through tools such as PESTLE, companies can assess their brand positioning and productivity risks caused by economic changes, such as a pandemic or shifting social trends. In addition to facilitating an understanding of external threats, the PESTLE model also encourages strategic thinking
COVID-19 (Environmental and economic factors)
Coronavirus (COVID-19) is affecting companies around the globe. Companies today must manage a variety of interrelated issues, from protecting their employees and customers to increasing cash flow, reorienting operations, and dealing with complex government initiatives. As part of the effort to stop the spread of the Coronavirus, many companies have had to halt their business operations, which has had an unprecedented impact on the U.S. economy. However, some companies like Amazon, Netflix, and Facebook were not impacted as severely as brick-and-mortar businesses. In the first quarter of 2020, Facebook reported higher revenue and profit but warned that its advertising business might be impacted by the ongoing Coronavirus pandemic (Covid-19), with drops in advertising declining significantly at the start of the pandemic.
Unemployment (economic factors)
Unemployment is another issue that has adversely affected the Us economy. From January 2020 to April 2020, 22.1 million jobs were lost, contributing to the increase in unemployment; however, Facebook has taken steps to alleviate some of the pressure felt by its employees by allowing them to work from home. The initiative provides full-time employment to employees while minimizing their risk exposure and financial benefit to Facebook.
Globalization (political factors)
Globalization is characterized by the availability of a greater variety of goods and services to the public worldwide or by the effects of social and economical influences. In this regard, Facebook has been viewed as a pioneer and front-runner in promoting social, technological globalization. Individual users and businesses can create profiles and grow their networks through social media, connecting with people worldwide. It has proven to be an effective way to market a global product for many companies.
Technology (Technological factors)
Technological evolution is a theory known as the Radical transformation of society through technological development. A theory first introduced by Czech philosopher Radovan Rishta. Mankind In Transition; A View of the Distant Past, the Present and the Far Future, Masefield Books, 1993. Radical transformation is undoubtedly the appropriate word to use when describing the exponential technological growth that we’ve experienced on a global scale. Today, billions of people use social media and various online platforms to communicate. Nevertheless, technology is changing exponentially, and social trends are shifting along with it. Facebook needs to continually innovate its platform to ensure enjoyable user engagement, challenging since many more competitors have emerged.
Mental health (social factors)
We define social impact as the effect of an activity on a community and the well-being of individuals and families within it. It is impossible to ignore the significant impact social media has had on society without discussing the global effect social media has had on mental health. Facebook published an article in 2017 admitting that it posed a threat to society’s mental health. As of 2022, Facebook or (meta) still faces growing criticism over its role in society and its contribution to hate speech, online bullying, political advertising, and various issues related to mental health.
Research has found a strong correlation between heavy social media use, depression, anxiety, self-harm, and suicide. Social media is often responsible for promoting unrealistic beauty standards and lifestyles, leading to feelings of inadequacy about your life or appearance. Despite attempts to ethically regulate personal data and control inpatriate content shared on the site, Facebook has not found solutions to the mental issues caused by using the platform.
Due to the addictive nature of Facebook, it does not appear to counter mental health issues or offer long-term sustainable solutions. However, society evolves toward social sustainability that values businesses and brands that support sound business ethics, solidarity, and better data protection. Support mental projects invested in improving mental health, people may begin to limit their use of social media, which could threaten Facebook. Karim, F., Oyewande, A., Abdalla, L.F., Chaudhry Ehsanullah, R. and Khan, S. (2020).
Economic sustainability (economic factors)
Social media has played a considerable part in promoting overconsumption and encouraging microtrends that negatively impact the environment. If we do not develop more sustainable strategies, we cannot maintain our Earth’s ecosystems. Thus many companies have begun taking initiatives to limit their carbon footprint, Facebook being one of them. Facebook has begun its transition towards encouraging a zero-carbon economy with its operations powered by 100% renewable energy.
Social sustainability (social factors)
Additionally, sustainability applies to learning and development opportunities and social sustainability. Facebook has started emphasizing sustainable labor, equality, and ethical business practices in light of this.
Global warming (Environmental factors)
Businesses around the world face genuine risks due to climate change. Climate change and extreme natural disasters such as droughts, floods, and hurricanes can be highly disruptive to a company’s day-to-day operations and cause significant financial and physical damage. In addition to the risks to their operations and business models, companies are also forced to formulate strategies that effectively counter climate change-related problems. Thus, Facebook has worked to limit the environmental damage it causes by reducing carbon emissions.
Meta knowledge-based economy
The growth and development of knowledge-based economies rely on high-level intellectual skills (human capital)—more than natural resources since information and knowledge can determine a country’s growth and progress. Over the years, humanity’s production patterns and lifestyles have changed profoundly since each significant technological revolution. Throughout history, there have been up to ten technological eras that have influenced modern-day technological advancements, such as the Neolithic, Chalcolithic, Bronze, and Iron Ages, all of which contributed to modern-day technological advancements and medical discoveries via transferring knowledge.
Today, IT, artificial intelligence, and self-learning technology have enabled people to break free from conventional means of transportation and communication to expand their professional and personal horizons. Businesses and the government need easy access to knowledge, information, and skilled labor in knowledge-based economies (KBEs). KBE’s also view knowledge as a competitive advantage against countries that innovate in education, research, and technology. Hayes, A. (2019).
A knowledge-based economy involves an economy capable of producing and disseminating knowledge and utilizing it effectively. Knowledge, therefore, is a crucial component of this type of economy. Additionally, A human capital-driven economy relies on ICT (Information and Communications Technology) to generate new ideas and innovations (Sagiyeva et al. 2018). In today’s knowledge society, knowledge interacts and positively correlates with a “Knowledge-based economy.” Knowledge-based economy points to the importance of knowledge in the global economy.
The contemporary drivers of global economic growth have changed dramatically based on international practices, experience, and theory. Firms operating on a global market like Facebook must be aware of the changes the current economy is experiencing and adapt to various models presented by a knowledge-based economy to continue surviving in the market. Kefela, G. (2010).
Triple helix model
The Triple Helix model is one of the approaches used in the knowledge-based economy. In this kind of KBE model, the primary institutions are government, industry, and university. These are the institutional carriers of the innovation system; however, they can be expected to acknowledge a dually layered network (Puangpronpitag, 2019.). One layer involves functional relations, and another one involves institutional relationships in which the expectation of each layer is shaped by the other. The institutional relationships offer a network of data, but knowledge-based economy functions should be analyzed regarding transformative dynamics. Dr. Vidya Hattangadi. (2019). The economy’s knowledge base can be termed as a particular configuration in the expectations structure feeding back as a mechanism of transformation on the arrangements of institutions.
Innovation can be described as the process of turning an invention or idea into a service or a product to come up with a value that is attractive to customers and the one, they are willing to spend on. Innovation is the key to a knowledge-based economy since this is a new approach that does not rely on old traditional ways of doing business. The knowledge-based economy is coined to explain trends to depend more on high skills, information, and knowledge. Olopade et al., 2020). Today, there is increasing complexity in technology and knowledge. Thus, Facebook would need to develop constant innovations to acquire specialized knowledge to evolve and meet consumers’ changing needs. In advanced economies, this has been paralleled by the rise of innovation of services to facilitate economic development. The future ground can only be established through improving processes, teamwork, and knowledge. Changing how individuals think about organizations needs radical mind changes for all people.
Organizational results and balances are affected by changes ranging from acceptance to certainty of diversity and complexity. Innovation includes shifting from manual work and embracing mental work to acknowledge the organizational process’s need. The innovative model does not focus on strict management, but it seeks to achieve self-governed teams within different levels. Jablonski et al. 2018 pg. 10). Knowledge becomes imperative as it converts tacit knowledge into explicit or codified knowledge to become more productive and innovative. When knowledge becomes explicit, it is easier to respond, transfer, and store. Intangible capital is regarded as the most valuable asset in the global economy. For Facebook to be successful, it needs to have several entrepreneurial and innovative cultures (which value specialized knowledge and encourage rapid response. There must be shallow hierarchies, decentralization in making decisions, adapting robust initiatives, outsourcing, favoring alliances, and flexible boundaries.
A business system is how a company defines its assets and services, chooses the activities that correspond to its business strategy, allocates its resources, enters the market, creates value for actual and potential customers, and turns that value into profits. Oprean-Stan et al. 2018 pg. 47)”. Today, business systems have evolved from traditional approaches, and they have gone through many phases of innovations. Generally, electronic contexts are the means used to develop these activities with networks used to drive linked phenomena, boosting the effects of networks, and increasing returns. The integrated knowledge economic model has brought new value proposals, new rules and procedures of competition, more sophisticated and new market models, new capabilities, and resources. Since this business system is strongly internetworked, they have created new value sources for shareholder’s wealth and customers value. This approach has been successful due to the participants’ core competencies.
According to (Nicolescu and Nicolescu, 2019 pg. 460), b-web can be best described as “A distinct system of suppliers, distributors, commerce service providers, infrastructure providers, and customers that use the Internet for their primary business communications and transactions.” The integration model also partly involves innovation, which creates a new preposition that renders the old business approaches. Companies like Facebook operating within the social media industry and social networking advertising benefit more from the electronic infrastructure; this creates a new way of sharing knowledge, information, and data. The integrated approach involves proper innovation management to capture a vast database of application ideas. The integrated knowledge economy model innovation enables organizations to become more virtual and volatile; this involves more use of b-web structures, facilitating the use of the internet as a primary structure. Ashmarina & Mantulenko, 2020. Complex innovation chains are required to create more value within the social media industry. These knowledge-based economic models present intrinsic forces and require participation from multiple parties. The integrated economic model presents the best opportunity for firms like Facebook to grow as they develop multiple approaches effectively integrated.
The accounting model
The knowledge-based economy is a digital economy with highly flexible boundaries, and businesses in this economy require a high level of intelligence when managing their finances. Financial management is critical in every organization, and companies need to be vigilant, especially when it comes to emerging economies like the knowledge-based approach. The knowledge capturing process is not transparent since it is very complicated, especially from an ethical viewpoint. Firms need to match their accounting periods with the costs incurred and potential returns; this requires adjusting accounting methods to effectively reflect the business process transformations (Orlovska et al. 2020 pg 119). There is a need for new methodologies and principles that incorporate hybrid methods and consider intangible assets one of the most significant sources of value.
Valuation of intangible assets should be supported by reasons such as license agreements: brand management taxation, fundraising, and acquisition. The main thing to keep in mind is that intangible assets, such as knowledge-based activities, must be evaluated concerning their costs; this depends on certain essential conditions, such as the prospects for obtaining future economic benefits and the possibility of measuring the cost correctly. Although Facebook is a well-established firm, the organization faces stiff competition from other social media platforms in their services, like social media advertising.
After firms enter the initial recognition, the basis of entering the intangible assets should be either through their cost historically less accumulated impairment and amortization. This involves “the amount by which the carrying amount of an asset exceeds its recoverable amount) losses (based on a benchmark approach and annually tested as per IAS 36)”. The base of entering intangible assets can also be based on a revalued amount less possible impairment and amortization. The knowledge-based economy requires firms to properly know the financial impact presented by the new approach, which is best ascertained through the accounting model.
Meta approach to knowledge-based economy
Facebook CEO Mark Zuckerberg has stated that the company’s vision is to provide low-cost and low-data versions of basic Internet services even to the poorest people. The internet serves as a critical foundation for improving the world, although it cannot build itself. Therefore, this requires coalitions to achieve the vision of global connectivity. Facebook has collaborated with many phone manufacturers to include the Facebook app. This feature enables people to connect, and currently, it has more than 100 million users. The next century will be characterized by a transition from a resource-based- economy to a knowledge-based one. Unlike the industrial economy, which is zero-sum, the knowledge economy works differently. The knowledge economy enables people to share knowledge others do not have, making the world richer. On the other hand, the resource economy does not allow sharing. Currently, the world is facing a considerable disparity in terms of wealth distribution, and this can be solved by getting everyone online through the knowledge economy.
Understanding microeconomic dimensions
The term macroeconomics refers to a branch of economics that focuses on studying the behavior of the overall economy. The overall economy involves systems operating on a large scale, including the market. The dimensions of macroeconomics include unemployment changes, gross domestic product, national income, economic growth rate, price levels, and inflation. As the term implies, Macroeconomics focuses on the economy’s big picture scenario. In simple terms, Macroeconomics examines the economy’s performance and analyzes how different economic sectors relate to one, such as inflation, GDP, and unemployment.
The role of macroeconomists is to develop models that explain how various economic factors are related. Various entities of government use such models of microeconomics and the forecast they come up with to facilitate the evaluation and construction of fiscal, monetary, and economic policies (Hassler, 2021). On the other hand, businesses use such models to create global and domestic strategies, and investors use them to plan how to move their assets in different classes. Considering the size of budgets in which governments operate and the impact of economic policies on businesses and consumers, macroeconomics deals with numerous issues. When economic theories are appropriately applied, they can illuminate how economies function and the long-term impact of specific decisions and policies.
Drivers of change for Facebook
Demographics and socioeconomic drivers of change affecting Facebook
Younger emerging demographic
Demography plays a significant role in determining a nation’s long-term social, economic, and political fabric. Demographic trends strongly influence many complex societal sectors and an organization’s growth and development. The “demographic dividend” is a term used to describe the process by which a changing age structure can stimulate economic growth. The average demographic for a company like Facebook has a significant impact on how the company should innovate to meet the needs of both young and older users. In the United States, Facebook has received negative growth since 2019, declining by 13%, with the projected decline within the next two years being forecasted to drop by 45%. Since many teenagers are not interested in using the app, it has caused an overall decline in the ad market, which is the most lucrative (Gil-Clavel, & Zagheni, 2019). The study revealed that young people between the ages of 20 to 30 are expected to fall by 4% within two years. This means that Facebook is losing fast traction with the younger generation. The main concern is the “aging up issue,” as fewer teens use Facebook as they advance in age. Therefore, the company has to adopt a new strategy of courting the young generation not to lose an entire generation of audience.
Women’s economic power aspirations
There is a rising call for women’s empowerment in the United States and worldwide. Women have been facing many obstacles in their journey to achieve economic power and prosperity. They usually have minimal access to production resources like information, finance, and land to grow their business. Today, the aspiration of women to gain economic power is on the rise, and this provides a growth opportunity for Facebook. The company is faced with the challenge of delivering more information resources to women to facilitate economic prosperity. As a result, Facebook requires new strategies to engage women fully and provide the necessary information to grow their businesses and engage with the entire world.
Technological Drivers of change affecting META
Mobile internet and cloud-based technology
Today, there is the increased use of cloud-based technology and mobile internet. Cloud computing allows individuals to be connected with the entire world. Cloud Computing involves high integration and development of computer technologies like reliable system architecture, high-speed networks, colossal memory, and high-speed microprocessors. Facebook needs to develop new architecture systems in designing their networks to address the challenge brought up by rising cloud-based technologies and recent trends of mobile networks.
Ai and robotics
Moreover, robotics and artificial intelligence are magisterial fields that naturally overlap with Facebook, often expanding social technologies towards new innovative ideas. In addition, Facebook is a company that emphasizes knowledge-based developments, and what better way to expand globally than through self-learning technologies and robotics? Using Artificial Intelligence, Data analytics can produce measurable data and variables for studies to be analyzed much more quickly. Not only will this benefit Facebook’s technological developments, but it can also contribute to its environmental sustainability efforts.
Many businesses face high energy costs every year, which is not just a financial burden but also an environmental issue thus. Facebook is committed to making its business decisions based on economic and social sustainability to reduce costs and provide more sustainable solutions. The mission of Facebook is to have all operations run-on renewable energy-producing net-zero emissions.
Legal and political factors affecting META
American political factors that influence Facebook
Facebook has gained much popularity, becoming among the most prominent social networking sites in the USA in terms of the size of the audience. Since its creation, the platform has also been used for political purposes by allowing political advertising throughout the United States. Due to its massive involvement in political matters, many people have blamed Facebook for inflaming political discourse around the US (Thorson et al. 2021 pg 185). However, some measures have recently been taken to reduce political content in its user’s news feed by changing its algorithm due to increasing pressure from various political persuasions. Many people have come forward to accuse the network of allowing hate speech and being complacent, spreading wrong information and fake news. Facebook has an enormous reach within the United States, and therefore it can easily influence how people view specific policies, elections, and the government.
New data protection laws
After Facebook’s data leak, people have increasingly demanded greater transparency regarding the use of user data; therefore, Facebook has been required to implement and adhere to strict data protection laws. It is common for social media platforms to harvest and sell data to third parties. Due to Facebook’s data leak scandal, which exposed the personal information of 87 million users, the company was forced to update its privacy and data policies to be more transparent about how it operates.
Ad tracking regulations
In addition to the new privacy controls Apple promised in April, Facebook faces other challenges. Facebook has had to adjust its revenue forecast due to new privacy laws that prohibit advertisers from tracking iPhone users without their knowledge. Apple introduced an “opt into ads tracking” option for all Apple users. As a result, the new iOS 14 updates pushed many companies to diversify their online advertising strategies, seeking out alternative social media platforms like TikTok. A large part of Facebook’s revenue is generated through targeted advertising. Thus, the new changes have adversely impacted its ability to target a significant portion of its audience.
Online safety regulations
Technology is still a murky area of ethics, so it is essential to view the evolution of technology through the lens of promising innovation and evaluate the pros and cons of its use. The use of technology can improve economic efficiency, but it can also disrupt social structures if not regulated. Nevertheless, in recent years YouTube and Facebook have implemented stricter regulations for posting content on their platforms by banning specific activities, such as: “Violence and Criminal Behavior,” “Safety,” “Objectionable Content,” “Integrity and Authenticity,” “Respecting Intellectual Property,” and “Content-Related issues.” In addition, Facebook, and other platforms such as YouTube allow viewers to flag or report any illegal content and report bullying or online harassment. Furthermore, to protect the privacy of children online, the Children’s Online Privacy Protection Act (COPPA) imposes specific requirements for online platforms. With Instagram’s age demographic as young as 9, using the platform puts children at risk for revealing personal data, leaving them vulnerable to online predators. Consequently, Facebook has announced plans to create anti-predator strategies to help reduce online risk exposure.
Long term implications
The legal and political environment could hinder Facebook’s growth in the long run since the company has access to private information about its users, putting it at risk of fines for violations of privacy laws. Data privacy in the United States is governed by Section 230 of the Constitution, and if violated, it can lead to enormous fines and be detrimental to the company. Currently, Facebook is increasingly becoming known for breaching data, negatively affecting the organization’s reputation. About political implications, some countries have moved to restrict the use of Facebook since it interferes with elections.
Facebook has become known for data breaches in recent years, which negatively affects its reputation. In terms of the implications for politics, some countries have limited the use of Facebook due to the interference with elections it causes; for example, China has significantly reduced the market share of Facebook. After Facebook allowed political advertising on its platform, they now need to be monitored and regulated by the government. Facebook played a significant role in interfering with the US presidential elections, which could force the country to institute regulations to reduce the impact of Facebook on political affairs, thereby slowing the company’s growth.
In the United States, Facebook operates under the legal framework of data protection and legislation. The US has recognized the importance of privacy and its role in the value of information. Considering that Facebook contains much private information on many citizens, it must ensure it operates within the legal framework established by section 230. As a result, this law has been in place for 25 years. It has contributed more to protecting Facebook and other social media organizations from lawsuits that might result from content posted by their users (Iosifidis & Nicoli, 2020 pg. 70). In recent years, there has been a growing call to modify section 230 so that the power of Facebook can be limited. Among the measures proposed is holding the company accountable for all algorithms used in content ranking.
Federal Trade Commission (FTC)
Antitrust laws across the United States support capitalism; thus, global governments have the power and responsibility to ensure that their corporations do not become monopolies. According to government officials, Facebook Inc (FB) is becoming a social, technological sector monopoly. Consequently, the FTC tried to force Facebook to undo two significant acquisitions by filing an antitrust lawsuit in December 2020, alleging that Facebook acquired competitors to liquidate competition among social media platforms. Smith, KA (2021) Congressional antitrust laws were created to encourage competition among businesses and prevent monopolies from developing. According to the Federal Trade Commission (FTC), in a competitive market where monopolies are restricted, companies are encouraged to conduct business efficiently, keep prices low, and provide quality goods and services. Federal Trade Commission (2017)
Below are the laws implemented by the American constitution to govern fair trade and competition and promote ethical business conduct. As of 2021, the Federal Trade Commission filed a new antitrust complaint in federal court in Washington alleging that Facebook violated antitrust laws by purchasing Instagram and WhatsApp to rid the market of their competitors. Regardless of the outcome, these laws will impact investors and present a problem for the company’s future acquisitions.
Sherman Antitrust Act
Under this law, businesses are prohibited from merging or collaborating to control prices in a single market through monopoly power.
The Federal Trade Commission Act
The Federal Trade Commission Act was passed in 1914, creating the Federal Trade Commission (FTC) as an independent government agency charged with enforcing antitrust and consumer protection laws.
The Federal Trade Commission Act
Also passed in1914, the Clayton Act identifies unethical business practices and regulates their activities.
Despite the profound impact social media has had on society both negatively and positively, it may be fair to say that Facebook is not entirely to blame for many of the problems associated with its use. Despite being criticized for giving away user data to corporations and attempting to regulate data protection better, many people continue to give their personal information to Facebook in return for using the platform. Therefore, due diligence must be done using Facebook or other free social networking sites.
In 2004, Peter Thiel invested $500,000 in the company, valuating Facebook at $4.9 million before it hit virality and became a global phenomenon. That is a substantial investment for a company promoting itself as solely a free social media site. Facebook is both a social media and advertising platform and has always been a vehicle for advertisers to reach prospective customers as far back as 2004. Based on research, it appears that one of Facebooks biggest problems is the way the business is structured, marketed, and promoted. Even though Facebook is often considered a social media platform, it is a social media and an advertising platform.
To address privacy and data protection concerns, the company would need to place the needs of its users before those of its advertisers. However, this would contradict Facebook’s business model, which has often compromised users’ data for the benefit of advertisers. Furthermore, In doing so, Facebook has made millions from something advertised as mostly” free.” To gain the trust of its users, Facebook would need to reduce its dependence on advertising revenue and create a transparent platform about how its users’ data is utilized.
Additionally, Facebook’s use of personal data needs to be monitored to ensure they are compliant with consumer privacy laws. Further, the company needs to ensure that it is protected from various threats by establishing strategies. Management of the company should devise measures to cope with government crackdowns and associated regulations on the collection and processing of online data. Nevertheless, Facebook would still need to change its old business model, reduce its dependence on advertising, and find new ways to make money. Unless the company changes with the times, it will become obsolete like Myspace, which failed to adapt to changing social trends.
The use of social media in business development has grown considerably, and Facebook has dominated this social, technological sphere for a long time. Due to the many opportunities offered by online sharing platforms such as Facebook, the knowledge-based economy has dramatically benefited organizations considering the value of information facilitated by the US economy. Facebook’s new venture, Metaverse, is focused on creating meta-services and augmented reality applications; however, the company could invest more in start-up companies to develop technology that could provide sustainable solutions for current economic problems. Society still faces many challenges, such as global warming, poverty, and unemployment.
As a result, Facebook needs to stop monopolizing competition and instead work with other tech companies to develop products beyond social technology. Additionally, collaborating with emerging companies can pave the way for new innovative approaches to enter a knowledge-based economy driven by social technologies. Essentially, by removing the need for monopolies, other companies can help grow the economy by providing jobs, which reduces unemployment.
As of 2021, According to estimates, there are approximately 2.89 billion Facebook users worldwide. To date, Facebook remains controversial because of data privacy issues. However, it is undeniable that the company has experienced rapid growth and success over the past few years, despite criticism. Fundamentally, Facebook is a 21st-century expression of zeitgeist, symbolizing strength, global dominance, power, and control that surpassed the expectations of a platform that started out as just an insignificant and innocent website, developed in a dorm room in Cambridge on Harvard’s University campus in 2004.
- History of Facebook
- Understanding Facebook’s business model
- The current business model of Facebook
- Facebook canvas model
- Facebook business strategy
- Threat of new entry
- Competition Rivalry
- Bargaining of suppliers
- Bargaining power of buyers
- Threat of substitutes
- PESTLE analysis
- Socio-economic trends affecting Facebook’s business model
- COVID-19 (Environmental and economic factors)
- Unemployment (economic factors)
- Globalization (political factors)
- Technology (Technological factors)
- Mental health (social factors)
- Economic sustainability (economic factors)
- Social sustainability (social factors)
- Global warming (Environmental factors)
- Meta knowledge-based economy
- Meta approach to knowledge-based economy
- Drivers of change for Facebook
- Technological Drivers of change affecting META
- Legal and political factors affecting META
- Long term implications
- Legal frameworks
- Conclusion and recommendation