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Pestle and Porter's Five Forces Analysis of Facebook Company

Updated on February 10, 2022
Facebook Logo
Facebook Logo | Source

Facebook is a social networking service that has its headquarter in California. The company was established in 2004 by one, Mark Zuckerberg with his fellow roommates, Andrew McCollum, Eduardo Saverin, Dustin Moskovitz and Chris Hughes. Initially, the membership in this website had been limited on Havard students. However, membership was expanded to students of the Stanford University, the Ivy League and the Boston area. The website continued to add membership of students in various other universities, as well as high school learners. Presently, anyone who claims to be over 13 years can become a registered member in this website.

The website allows its registered members to create profiles, add their friends, post status updates, exchange messages, share videos and photos and receive notifications on updates. By June 2014, face book had more than 1.3 billion users who were active. The company began offering a public offering in 2012, where it began issuing stock to the public. Three months later, market capitalization reached a peak of $104 billion.

FaceBooks Internal and External Environment


Political Factor

In essence, many governments and users have been expressing privacy issues, which may prevent the company from using the information of users in delivering or allocating various advertisements. Further, the class privacy lawsuit levered against the company has the potential of causing more financial damages on the company. In addition, facebooks capability of collecting data from the users could be greatly hampered and consequently, its advertising revenue. These concerns have been expressed in many other countries such as German which has issued warning on facebook investors that the operations of this social networking entity breach the privacy rules of Europe.

In addition to the legal aspects, Facebook’s users continue to regard the platform as a private space which could limit the company’s prospects. In a survey conducted, for instance, more than 50% of respondents said they felt “not safe at all” using Facebook to make purchases. Excessive advertising or privacy fears could lead to a mass exodus of users, which threatens the growth prospects.

Economic Factor

Over the years, facebook has continued to record a strong rate of growth in comparison to its competitors. During 2011, the entities revenue grew by 88% in comparison to the previous year. This growth was an indication of the company’s inherence capability of driving growth and making facebook undisputed leader in the world of social media advertising. Moreover, the company enjoys a low expense base which has facilitated higher margin returns in comparison to its competitors. During 2011, the operating margin for this company were 47.4% and the net margin was 18%. Owing to these factors, there is no doubt that this company is thriving well financially.

The Social Environment

Despite its success in the online networking environment, facebook is operating under a tight competitive environment. One of the largest competitor currently is Twitter which has attracted more than 200 million users. However, this number is only a quarter of what Face Book harbors. Alongside LinkedIn (NYSE: LNKD), twitter is continuously gaining users and this is one aspect which FaceBook must be warry of.

Technological Environment of Face Book

Among the most technological aspects of facing Facebook is that many facebook users would wish that the website reflects their personalities . However, this website has not been able to customize the website to reflect these personalities and are mandated to employ standardized templates for all users. On the other hand, Google+ harbors a more personalized network for its users.


FaceBook is currently passing through some legal aspects which it needs to leverage. Among these legal aspects is the identity theft that has become so prevalent in the present day perspective. These stealing of more identities have led to constant criticisms directed on FaceBook. Consequently, the criticism have had a negative impact on the brand for the inability to protect private information of its users.

5 FORCES OF Competition

Porter’s five forces of competition is a model used in analysing marketing opportunities for an organisation. The forces identified under this model are Threats of New Entrants, Rivalry among existing firms, Threats of substitute’s products or services, and bargaining power of Buyers.

Figure 1.1 Porters five forces

Source: Chau, Lusanaxay, Malik, Saelee and Saepharn, (2012)

Threat of New Entrants

Peng explains that suppliers do have high power especially in contexts with few numbers. In light of Facebook, suppliers include hosting service providers and also third party service providers. In essence, FaceBook has many suppliers and hence the supplier threat could be considered to be low.

Bargaining power buyers

Stonehouse et al (2004) explains that buyers do have high bargaining power especially when competition in the particular industry is high. In light of FaceBook, its buyers who are considered actual users are considered to have a low bargaining power because they are many.

Competitor rivalry

Any industry which have high level competition mandates each company to employ effective and unique strategies in order to compete in the market share(Abraham, 2012, p.62 ). Owing to many competitors to FaceBook such as Linked, Twitter, Myspace, Bebo, Hi5 among others, the competition threat on FaceBook could be considered to be high.

Threat of new entrants

In contexts where it is easy for an entity to create a presence any a particular sector, the threat of new entrants could be considered to be high Keegan & Green 2005 , p. 156 ). In regard to FaceBook, the threat which FaceBook faces could be considered to be medium. This is because, Facebook has effectively succeeded in positioning itself as an ideal social networking website with more than one million users. This implies that any new new networking site will find it hard to threaten the market position of FaceBook.


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