Case Study Facebook : It's About the Money

 

INTRODUCTION

Facebook, a company grew up from a small network site to a $50 billion company, gets almost all the revenue from advertising. The only things Facebook has are the hundreds millions accounts. Because of the large database of customers, Facebook have so many valuable details information for advertising, which make Facebook earn a lot. Also, Facebook help people connect each other easily. However, this may not be good for Facebook user because Facebook grab users information with or without users’ allowance, and these may against users. Facebook wants users share more information so that they can earn more money from advertising. There are no laws says social networks like Facebook should show the users what do the network companies do.

Facebook was founded by 2004 by Harvard student Mark Zuckerberg and originally called thefacebook. It was quickly successful on campus and expanded beyond Harvard into other Ivy League schools. With the phenomenon growing in popularity, Zuckerberg enlisted two other students, Duston Moskovitz and Chris Hughes, to assist. Within months, thefacebook became a nationwide college networking website. Zuckerberg and Moskovitz left Harvard to run thefacebook full time shortly after taking the site national. In August of 2005, thefacebook was renamed Facebook, and the domain was purchased for a reported $200,000 US Dollars (USD). At that time, it was only available to schools, universities, organizations, and companies within English speaking countries, but has since expanded to include anyone.

 In Europe, the records of social networks are evidences on tax evaders and criminals. Sometimes the information will against the users, and most users don't like to change the privacy controls. The reason is that they don't figure out that their data of life details are collected and transmit rapidly, and the Facebook privacy policy is hard to understand. Facebook becomes more responsible about the data collection process. Then Facebook invites scrutiny to deal with these issues. 

In August 2012, Facebook was charged with cheating users that they told users they would keep their private information, but they made public. Facebook agree to ask users before they change user’s privacy preferences, and they should submit privacy audits. In American, it is hard that users get data that Facebook collect from them, but in other countries, like Australia and Ireland, the stringent law allow users access more data on Facebook. There is another database, which has more than 60 billion photos in Facebook. This also makes big benefit from advertising. In 2012, Facebook allow users control and see their actions on advertisements.

SWOT ANALISYS

STRENGTHS

1.       Facebook just recently eclipsed the 1 billion users mark, and the number of users Facebook possesses has grown explosively since its creation, as the chart below displays.

2.      One in seven people in the world are on Facebook, however that is only 14.29% of the total population so the company still has room to grow.

3.      In 2011, Facebook was the most visited website and most searched term on the internet.

4.     Near absolute monopoly in the social network sector.

5.      Momentous Barrier to Entry: Facebook has a distinguished and highly recognized brand, and for any competitor to even come close to matching Facebook would take a huge amount of money and time.

6.     Brand Loyalty: People using Facebook are locked into the ecosystem, all their friends are on Facebook, and they are very unlikely to change as it would be a huge undertaking.

7.      It can be used for marketing, advertising, recruitment & brand enhancement.

8.      Enormous and permanent data about all its users. Even if Facebook goes bankrupt tomorrow, it will still own all the user data and be able to sell it.

9.     Enormous and permanent data about all its users. Even if Facebook goes bankrupt tomorrow, it will still own all the user data and be able to sell it.

10.  The ability and interface to Connect with applications such as Travelocity, Digg etc., All this enables Facebook to gain more insight about the user and hence has more data which it can sell.

11.     Constant innovation of the site and its offerings.

WEAKNESSES

1.       Users are growing more concerned about privacy violation. It’s hard for Facebook to draw a line between providing great features to users and encroaching their privacy.

2.      Facebook is having a hard time monetizing its business beyond advertising. They have tried several ways of selling their users’ data, but since user’s value privacy on the site, there is the danger that selling users’ data will cause users to share less information or exit Facebook altogether.

3.      They went from zero to hero very quickly, they can go back to zero just as quickly.

4.     Before Facebook, MySpace was the premier social network, nothing is stopping anyone from inventing a bigger and better version.

5.      The company has no dividend, and has expressed no plans to begin paying out dividends in the future.

 OPPORTUNITIES

1.       The opportunity in the mobile sector is immense, as COO Sheryl Sandberg put it, “Mobile is a great opportunity to grow our users, to grow engagement and to grow monetization, and we’re at a very early stage.”

2.      Just in the past quarter ads brought to people on mobile devices produced $150 million, 14% of total advertising revenue, up from just $10 million in the second quarter.

3.      Because of the plethora of information Facebook receives from each member, it can send advertisements that are more likely to interest that specific person, and therefore they can charge more for ads than other companies.

4.     Facebook’s platform is engrossing and users usually spend a lot of time on the website, allowing Facebook to again charge more for advertisements, in the last quarter advertisement prices rose 7%.

5.      While it very unlikely with their huge valuation and Zuckerberg’s attitude regarding getting acquired, Apple may find that acquiring Facebook and integrating it into their ecosystem could be beneficial and profitable, again not probable, but Apple has the cash required.

THREATS

1.       Major publically-traded competitors of Facebook include Google (NASDAQ: GOOG) and LinkedI (NYSE: LNKD).

2.      Google is a much larger and more diversified company, however they recently released a social network, Google+, to get their feet into the market.

3.      LinkedIn also is an operator of a social network, however theirs is more focused on the business man or women as a device to link them to potential customers or employers, and unlike Facebook, LinkedIn offers a premium service which they charge for.

QUESTION 1 : Perform an ethical analysis of Facebook. What is the ethical dilemma presented by this case?

Facebook faces controversy over the handling and usage of the extensive information it collects from its users. FB user’s biggest concerns are the privacy and user controls over the information granted to Facebook. Facebook faces the dilemma of how to gain revenues from user information without violating their privacy. The management and organization failed to consider its users privacy concern when it introduced new software that users felt to be invasive. Facebook provides a free service that users pay for, in effect, by providing details about their lives, friendships, interests and activities.

 Facebook, in turn, uses that trove of information to attract advertisers, app makers and other business opportunities. Facebook occasionally isn't enforcing its own rules on data privacy. Facebook requires apps to ask permission before accessing a user's personal details. However, a user's friends aren't notified if information about them is used by a friend's app. Facebook provides people a specific social networking platform and facilitates contents sharing and communication. It targets global netizens, advertisers, and also application developers. Facebook partners with different parties in the functionality, application developing, and advertisers for enabling various features to meet users’ different social needs. To give better services to right customers, Facebook exploits and analyzes customer information, shares info with third party and provides ads to targeted ones. It meanwhile gives users control on privacy setting, enables a safe and trusted internet environment, which maintains a good relationship with customers.

QUESTION 2 : What is the relationship of privacy to Facebook's business model?

Talking privacy to Facebook is a bit ironic. Facebook’s entire business model is based on aggregation and sharing user information. They give people a free social media platform to use and in turn sell advertising and insights based on what they learn about user. Facebook has massive capabilities to collect, store and analyze data. This allows Facebook to sell very targeted advertising. Therefore, privacy is the Facebook business model. 

Facebook states its regulations concerning to the rights and responsibilities derive from the Facebook Principles, and govern the relationship with users and others who interact with Facebook. The relevant statements include Privacy Policy, Payment Terms, Platform Policies, Ads Guidelines, Promotion Guidelines, Claims of Intellectual Property Infringement, Claims of Copyright Infringement, etc. All Facebook parties must comply with this policies.

1. Individual Privacy

Privacy is defined as the state of being private or the condition of being concealed or hidden. In terms of Facebook, the privacy of the individual is how much information, personal or not is seen but other users than the creator or provider of that information. Facebook share information about the user over the internet, where it can be freely accessed by anyone. This is where issues of privacy to the individual arise.

2. Security of Data & Information

The security of data and information refers to how private the information on a Facebook page can be and if it can be accessed by others and the extent they can edit the information on that page.

3. Accuracy of Data & Information

With the internet being a free environment, there are no set rules about who you can be or act as whilst on it.

4. Data Quality

Data quality refers to the level of trustworthiness that information is susceptible to. For example data quality affects the large amount of games and applications on Facebook, where the level of trust for the game or application is not known. For all the user could know it may be misleading and result in identity theft or fraud through the use of the user’s information.

5. Changing Nature of Business

Businesses shifting in the way they operate as they have now come to embrace technology such as the internet and are embracing its advances and innovations. Social networking sites such as Facebook which see more than 350 million people using the site proves to businesses that this can be seen as a great opportunity for marketing over the internet through ads to be displayed on Facebook. This hence changes the way market advertisers work, having to also adapt to using the internet as their tool.

6. Appropriate Information Use

Appropriate information use refers to the correct usage of information and the adherence to privacy policy if any. Appropriate use of information on Facebook can refer to applications accessing the user’s information and correctly using it without distributing it to any external sources or companies.

7. Health & Safety

Health and safety on the internet applies to the mental health of an individual rather than the physical. For example the use of social networking site Facebook is associated with issues of cyber bullying and peer pressure.

8. Copyright Laws

Copyright laws on Facebook refer to the copying of original pieces of music or art, just as MySpace music works, where bands can post their tracks and pieces online, arises the issue of copyright and how much of the available information can be reproduced. Although this wouldn’t really apply to Facebook itself but rather the user who posted the information on a Facebook page.

9. Advertising Policies

Facebook's policies restrict app makers from using any ad companies that haven't signed an agreement with Facebook—an agreement that prevents the advertiser from collecting personal information. However some apps are also letting unapproved advertising companies track users, according to data collected from Privacy Choice, a start-up that offers privacy services. This could be a violation of Facebook's advertising policies.

10. Advanced privacy models

Facebook is considered to have one of the most advanced privacy models for its apps because it lists nearly every type of data sought—and provides users with the ability to reject apps' requests for some types of data. Smartphone apps often lack privacy policies and don't offer as much information and control over their use of personal data.

QUESTION 3 : Describe the weaknesses of Facebook’s privacy policies and features. What management, organization, and technology factors have contributed to those weaknesses?

Three highlights on Facebook’s privacy policies

•  User decides how much information they feel comfortable sharing on FB and user control how it is distributed through their privacy settings.
• FB is also a service for sharing information on FB enhanced applications and websites. User can control how they share information with those third party applications and websites through their application settings.
•  FB allow advertisers to select characteristic of users they want to show their advertisement to and FB use the information users share with FB to serve those advertisements.

Describe the weaknesses of Facebook’s privacy policies and features.

• Allowing user’s information to be shared and made public. Continued to let other users know what you were doing until disabled it manually.
• The incorporation and handling of its news feed feature. The news feed feature provided other users that you are friends with updates of actions that you performed while logged into FB.
• Unable to delete FB account or any of the information that is on user account. FB keeps a copy of user entire account even after they deactivate it and no longer wish to have any affiliation with FB.
•  FB’s privacy policy is difficult to comprehend. Users normally don’t quite understand the options on Privacy Setting. Facebook states its regulations concerning to the rights and responsibilities derive from the Facebook Principles, and govern the relationship with users and others who interact with Facebook. The relevant statements include Privacy Policy, Payment Terms, Platform Policies, Ads Guidelines, etc. All Facebook parties must comply with this policy. The company has encountered more than its fair share of controversy along its path to success, mostly concerning its handling and usage of the extensive information it collects from its users.

What management, organization, and technology factors have contributed to those weaknesses?

Management:

 

• Facebook assumed it had the consent of users to share information about them that it collected through the Beacon advertising service if they did not use the opt-out feature. Facebook changed Beacon to be an “opt-in” service and gave users the ability to disable it completely.
•  The company utterly failed to grasp the extent to which the service violated its users’ privacy as well as the uproar such a service was likely to cause. The same thing occurred when Facebook introduced its News Feed feature.
• Generally, it is a strategic management of FB’s to get its user to share as much data as possible so that FB can serve relevant advertisement to users. This is because FB revenue comes almost entirely from advertising.

Organization:

• The personal information collected on the site represents a mother load to advertisers, but one that will remain largely untapped if Facebook users do not feel comfortable enough or have sufficient incentive to share it.
• Users that attempted to delete their accounts were met with resistance and often required outside assistance from watchdog groups.
•  FB wants the world to be more open and connected, because it stands to make more money. However, the privacy controls over the personal data is far from what FB currently offers. Moreover, most of users are not really aware of the privacy setting in their FB’s account.

Technology:

• Privacy and user controls over the information granted to Facebook are the biggest concerns most users have with the site. Facebook grossly miscalculated user privacy demands when it launched the company’s Beacon advertising service because it shared information about users that they had not explicitly intended or agreed to share.
•  The service originally began as an “opt-out” feature. Even after users opted-out, the service continued to send information to Facebook regardless of whether or not the user was logged into Facebook at the time. The company’s servers maintain copies of information indefinitely in accounts that have been deactivated.
• A FB user’s friends are not notified if information about them is collected by that user’s application. Many of FB’s features and services are enabled by default when they are launched without notifying users.

 QUESTION 4 : Will facebook be able to have a successful business model without invading privacy? Explain your answer. Are there any measures Facebook could take to make this possible?

• No, we don’t think that FB will be able to have a successful business model without invading privacy.
• Facebook currently is serving as much to advertise and reach people as it earns from those advertisements.
• There are no fees that are to be paid to join FB or for its use, it all seems like they threw in a few advertisements and hoped that its exposure would bring in consumers.
•  Obviously, the backbone of FB’s business model is advertisement. As a result, FB needs more users data to customized its ads and indirectly invading individual privacy.
•  It is a critical challenge for FB to avoid offends user’s privacy.

Positive indicators:

•  It’s one of the largest social networking sites in the world and is growing.
•  Facebook’s interface is simplistic and clean and tends to attract those looking for a crisp, more structured social networking environment.
•   It represents a unique opportunity for advertisers to reach highly targeted audiences based on their demographic information and narrowly specified criteria.
•   It represents a gold mine of opportunity because of the information the site has gathered and because of the richness of the social networking environment.
• Part of its status as a first-mover in the social networking marketplace helps attract more users

Negative indicators:

• It has created large numbers of hostile users because of its privacy violations
• Facebook’s own popularity will injure its chances to attract advertisers to its site, claiming that the engaging and immersive environment that draws visitors to the site makes users less likely to click on ads.
• Skeptics also believe that the current application system, where applications tend to support one another via advertising through other applications without the aid of extensive outside advertising, is an unsustainable model over the long term. So far, only 200 Facebook applications have attracted more than 10,000 users per day and 60 percent failed to attract even 100 daily users.
•  It remains to be seen whether or not the company can turn its heavy site traffic and trove of personal information into new revenue streams.

Are there any measures Facebook could take to make this possible?

•  To alert all the members of FB with an electronic detailed letter stating that for advertising purpose information that is submitted to your information pages will be used by Fb company.
•  To give the users the options to either accepts or reject this offer in order to install a legal standing that with the users of the site as well as protect the integrity of the company.
•  To offer applications that could be put on their pages in terms of interactive games and trivia, in return for allowing FB to access users account for advertising purposes.