Facebook SWOT Analysis

Abhijeet Pratap
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Facebook is the world’s largest social media platform. Its parent company Meta also owns Instagram, WhatsApp and some other products. Facebook was founded by Mark Zuckerberg and quickly found immense popularity worldwide as the world’s leading social media platform. The social network has grown popular not just among the individual consumers but also among businesses of all sizes. Businesses of various sizes use the social media platform for marketing and promotions. Facebook’s main strength is its large global user base. The company generates substantially all of its revenue from digital advertising including mobile advertising. In the field of digital advertising, it is among the top players where its leading rival is Google.

By the end of 2022, the number of daily active users of Facebook had reached 2 billion and that of Monthly Active users 3 billion. The company has a large and global user base which it can monetize in several ways. However, the social media business has also attracted a lot of criticism related to management and leadership. Its rebranding initiative cost it a lot in terms of market valuation which dropped sharply after the rebranding. However, recently, its market valuation has again picked up.

In this swot analysis, we will analyze the strengths and weaknesses of Facebook based on its market position and performance in recent years.

Strengths:

Largest social media platform:

Facebook is the world’s top social media platform utilized by billions of users and millions of small and large businesses. It is a common and household name in most corners of the world. Users across the globe utilize the platform to connect with others.

Businesses of various sizes also use it for marketing and promotions since the platform allows them to connect with millions of customers without incurring enormous costs. It is why the platform has found equal popularity among individual users and marketers.

Global presence:

Facebook is a global brand with a global user base. The platform has acquired solid fame and popularity as a social media platform and has grown equally popular among both western and eastern audiences. Apart from some countries, where Facebook’s services are banned, the social media channel is popular among audiences in almost all markets across the globe.

Strong financial position:

Facebook is financially in a strong position, which allows the company to spend on marketing as well as other key areas like research and development that are significant for finding faster growth. The company generated $116.6 billion and $117.93 billion respectively in 2022 and 2021 in net revenue1. Its net income2 in 2021 and 2022 remained $39.4 and $23.2 billion respectively. The company has been performing well financially and its financial strength allows it to invest in areas where it can find superior growth. Its market capitalization exceeds $800 billion and the social media giant is expected to have crossed the $1 trillion mark within a few years.

Technological innovation:

Facebook’s parent organization Meta has maintained a strong focus on technological innovation, which is key to faster growth and acquiring a strong competitive edge in the technology sector. The main focus of its research and development activities is on improving its existing services as well as working on services that might be useful in the future.

Facebook’s parent company Meta invests a large sum each year in research and development. In 2022, the company invested $35.34 billion in research and development which also makes it one of the top R&D spenders in the world. Part of its success over all these years can also be attributed to the company’s focus on technological innovation.

Large user base:

As a social media platform, the company has a very large user base from across the globe. The number of Facebook’s Daily Active users at the end of 2022 was 2 billion while its Monthly Active users at the same time were also close to 3 billion. Its large and global user base makes it the most popular and largest social media platform in the world. Due to its large user base, marketers flock to the social media platform in very large numbers. However, its popularity also makes the business a frequent target of hackers and spreaders of fake news.

Meta is the parent company of Facebook and it does not own just Facebook but also owns other popular platforms like Instagram, messenger and WhatsApp. Through these other apps, the company has been able to penetrate deeper into several diverse user segments. In the future, it can monetize the other apps also to improve its revenue.

Leading position in digital advertising:

Facebook is among the leaders in the digital advertising industry globally. The only main rival of Facebook in digital advertising is Google. Together these two rule the global digital advertising market. Facebook is right behind Google in digital advertising market share followed by Amazon. Digital advertising is also the company’s leading source of revenue. According to Statista, Google held 39% market share in the digital advertising market in 2023, Facebook 18% and Amazon 7%.

Weaknesses:

Over-dependent on advertising revenue:

Facebook is not a diversified business like Google or other of its rivals including Amazon. Its main source of revenue is digital advertising. Compared to facebook, its rivals have successfully diversified into new areas . For example, Google has also built a strong position in the cloud industry which has helped it reduce its dependence to some extent on digital advertising. The company generated around 97.5% of its total revenue from advertising in 2022.

Lack of innovation beyond its core areas:

While Facebook has a very strong position in the social media sector, it has failed to expand beyond its core areas. Its innovation efforts have mainly been focused at its core business areas. The company needs to diversify and invest in new areas to grow its business.

Frequent target of hackers:

The social media platform has been a frequent target of hackers and fake news spreaders. The company has dealt with a lot of controversy related to fake news and loss of customer data due to hacking. While Facebook has adopted several measures to mitigate both these threats, it has seen only limited success in the two areas.

Opportunities:

Diversification:

Facebook’s business is mainly concentrated around social media and digital advertising. The company will need to diversify into newer areas to achieve faster growth and generate more revenue. It is a technology brand and in a strong financial position. The company can invest in new channels for revenue growth. Diversification will also help it reduce its dependence on advertising revenue.

Acquisitions for market expansion:

Meta, the parent company of Facebook is in a strong financial position. The company can also buy smaller businesses to achieve faster growth and to generate more revenue. Acquisitions can also help the business to enter new areas of business where it can buy established businesses to secure new revenue channels.

Invest in modern technologies:

Another key opportunity before tech businesses like Facebook lies in the form of modern technologies including AI and machine learning. These technologies can prove disruptive and investing in them can generate solid results for the business. Recently, the rise of Chat GPT is proof that investing in AI can be worth it for the leading tech businesses like Facebook.

Threats:

Competitive threat:

Threats abound in the tech industry. However, the biggest source of threat comes from none else but the rivals of a business. Facebook also faces intense competitive rivalry from several other businesses. In the social media sector, its leading competitor is YouTube. Twitter, which was recently acquired by Elon Musk and renamed X, is also an important rival of the company. However, its biggest rival is Google, which owns YouTube and also has the lion’s share in digital advertising.

Higher competitive pressure for Facebook translates into higher operating costs including higher costs of marketing as well as more intense focus on innovation. It is visible that the company has sharply grown its research and development expenses in recent years.

The entire technology sector is dealing with heavy legal and regulatory pressures. Around the globe governments have formed laws and regulations to deal with consumer privacy and other related issues. In some areas, these laws are also too stringent.

The laws and regulations that Facebook deals with involve matters including privacy, data use, data protection and personal information, biometrics, encryption, rights of publicity, content, integrity, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, data localization and storage, data disclosure, artificial intelligence and machine learning, electronic contracts and other communications, competition, protection of minors, consumer protection, civil rights, accessibility, telecommunications, product liability, e-commerce, taxation, economic or other trade controls including sanctions, anti-corruption and political law compliance, securities law compliance, and online payment service.

You can see that there are a large number of areas where Facebook is required to remain compliant with laws and government regulations. The company has already paid hefty fines in the past due to noncompliance in certain areas and it continues to remain a challenging area for its business operations globally.

Cybersecurity related threats and their severity have continued to escalate over the past several years. Worldwide, the internet companies like Facebook are dealing with several cybersecurity challenges. Cybersecurity is a costly area and Facebook has to make heavy investments to ensure proper security of consumer data on its platform. To deal with these challenges, Facebook has established a system that regularly investigates cybersecurity related threats. The company continuously monitors malicious activity on its platform. However, the hackers are also using more and more sophisticated techniques to hack into user accounts. The threat remains but is mitigated to a large extent by the countermeasures employed by Facebook.

Conclusion:

Facebook’s position as the world’s largest social media network is firmly established. The company recently renamed itself Meta and while it initially proved costly in terms of market valuation, the company has again gained the lost market cap in recent months. Facebook is financially in a strong position, but continues to face several challenges including those related to management and leadership. Other challenges are technological and legal in nature. Facebook faces intense competitive rivalry from Google and other sources. However, it has increased its investment in research and development to overcome the competitive pressure. The company can further expand its business by diversifying beyond its core areas. AI, Machine learning, autonomous driving, etc are full of opportunities for a technological brand with enough financial strength. It can also make acquisitions to establish itself in new areas of operation.