When you want to take social media into your company strategy it is always important to compare and measure how it will work in an well known and tested framework. This is the way you as a marketer can ratify towards your management that this is not just a new “buss word” this is a sustainable part of the marketing platform.
To do this in a sustainable way I will use Michael Porters “five forces framework” on an online social network media – FaceBook - as an illustration of how the framework may be used in analysing the business model of online social network/media. This is also an illustration of how the “old” paradigm can be used in the illustration of the new social media and communication from one to many over to many to many. FaceBook provides its users with a free service for creating and hosting their own social networks on the
FaceBook media. This free service however can be considered limited as there could be limited disk space. As of most of the network sites online ads are placed on the user created social network pages, in order for FaceBook to earn some revenue from the advertisers. Another model used or could be used by FaceBook is to provide optional “premium services” to the users by charging an extra monthly fee. As shown in the framework (figure 2.1) the main buyers are advertising companies and the subscribers of “premium services”. The buyer power is high since the advertisers and the premium users may get the same services from other Social networks/ Medias.
It is interesting to see that the main supplier to FaceBook is the visitors who visit FaceBook sites, mainly because the number and types of people visiting the site determine how attractive the site is to potential advertisers. In comparison, other types of suppliers that supply the server hardware, Software, or network bandwidth to the site play a relatively less significant role. With respect to the Suppliers being the visitors, the supplier power is high, mainly because the existence of many orders to reduce the supplier power, FaceBook will need to provide attractive services to its users, to allow them to create attractive social networks to attract more visitors. The number of members has grown substantially on FaceBook and the fact is supplier power has reduced, this is due to most people prefer to join a social media/network site where his or her friends are already members.
The threat of substitute products or service is high as there are many other alternative services available to the buyers. The switching cost will be the “social networks” hosted on FaceBook. Currently it is not possible to move the whole network from one service provider to another provider[1]. This makes the switching cost high when a member of a FaceBook social network decides to switch media site and join another provider network site. The threat of new entrants in this case is medium. Lots of online social networking sites are been launched even though few is as popular as FaceBook even though the young generation starts to move towards other sites as these continue to be launched and the trend continues.
Due to the popularity FaceBook has created a position which looks like an entry barrier for other social media sites. As the number of people who are using FaceBook is as high as it is in comparison to other sites the entry barrier lies in the quantity of “followers” on the FaceBook site.
Since many similar online social network sites exist, the rivalry among existing competitors is fierce.
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| Figure 2.1: Source: Michael Porters “Five forces model” |
Revenue generated to FaceBook comes from online ads and subscription to premium services. What is interesting for FaceBook is the cost of gaining new costumers is very low as users join voluntarily and provide their own content through their profiles. In addition the cost of running the sites of FaceBook and the web servers is also relatively low. So a fast conclusion could be using a classic advertising and subscription revenue model will gain substantial profitability due to low cost social network sites. The idea that marketing and communication activities in information-intensive environments must be transformed and reconstructed has been recognized by numerous researchers (e.g. Glazer 1991, Reid 1991, Blattberg, Glazer and Little, 1994). Most important from a marketing perspective, however, is the manner in which the Social Media network changes the marketing and communication structure.
[1] From October 2010 FaceBook has made it possible to move your site from FaceBook to another provider without any cost. This is to soften the critic from the users of FaceBook being a monopolistic in handling collaboration.
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