Business Growth Strategy of Facebook: A case study
Facebook’s (NASDAQ: FB) astronomical growth as a social media network is nothing less than amazing. The company has seen its user base grow enormously over the past seven to eight years. Several factors drove the stellar rise of Facebook, but its popularity as the leading social media network is mainly due to its highly engaging and differentiated features. The social media firm has also faced several challenges and controversies in its history. With more than 2.5 billion monthly active users, Facebook has a strong user base and strong cash flow. As the user base of the company has grown, so have its costs and expenses. The core source of the company’s revenue is advertising. Facebook and Google together enjoy the lion’s share in digital advertising. However, Google’s share globally is close to twice that of Facebook. The share of mobile users or users accessing Facebook from mobile devices has grown over the years. The company has focused on improving the user experience on mobile devices to engage mobile users and grow its conversion rates.
Facebook’s growth strategy included achieving higher user engagement across its social media platforms and growing its international markets' penetration. Apart from the competition from other social media networks and mainly YouTube, the company faces more challenges, particularly those related to user privacy and data security. It has faced a series of investigations since the Cambridge Analytica scandal was unearthed. Facebook is currently operating in a difficult environment with growing pressure to control fake news circulation on the platform. Its main strength is its large user base. Instagram has also enjoyed a lot of success and growth in popularity over time. However, the company has not been able to monetize its Messenger and Whatsapp successfully. Still, financially speaking, Facebook’s performance is impressive as its profit margins are among the best in the S&P 500.
In this post, we will discuss the business growth strategy of Facebook and how the company has achieved stellar growth. However, before that we will analyse the target audience of Facebook.
Who is the Target audience of Facebook?
Facebook’s core target audience is millennial users, including male and female users. These users are also the largest segment of internet and smartphone users. These users lead the most digital lives and spend a large part of their day on the internet and social media channels. Apart from that, they are also the largest segment of online shoppers.
The largest demographics of users on Facebook include male users in the 25-34 age group. They constituted 19.3% of the Facebook users in July 2020 according to Statista. The second-largest user segment is that of male users aged 18-24 that formed around 14% of Facebook’s user base during July 2020. Overall, while male users formed 56% of facebook’s user base, the female users were only 44% of its user base.
Female users aged 25-34 were 13.2% of Facebook’s user base in July 2020 compared to 9.8% for women aged 18-24. Facebook has also achieved impressive penetration among the users in the 35-44 age group. 9.6% of its user base in July 2020 was made up of male users in the 35-44 age group, whereas 7.3% were female users in the same age group. Facebook users come from all classes, and Facebook does not target a particular economic class. Its largest market is India, which boasts over 290 million monthly active users as of July 2020. India is also the second-largest market for smartphones after China. However, Facebook does not have any presence in China because of the great firewall that prevents social media activity. Apart from India, the other markets with a significant Facebook user base include the United States, Brazil, and Indonesia, with more than 100 million users.
With the number of smartphone users growing each year, the number of users who access the social media network from smartphones or mobile devices has also surged. 96% of Facebook users accessed the site using a mobile device in July 2020, and 79.3% of the total Facebook users accessed it using only a mobile phone. Facebook’s app experience is different from the desktop experience and continued to find more popularity worldwide.
However, Facebook does not just target individual users, but it also targets corporate customers or businesses. It targets businesses of all sizes, including small, medium, and large businesses throughout the globe. Some of the leading advertisers using Facebook for promotions this year included Walmart, P&G, Home Depot, CBS, and wix.com. With its growing user base and targeting capabilities, the company has also experienced sharp growth in its advertising revenue. It targets a large base of small and medium-sized businesses that have their own pages on Facebook. The company attracts them through lucrative advertising programs that promise higher reach at lower costs.
Central Pillars of Facebook’s Business Growth Strategy:
Facebook is counted among the largest technology brands in the United States and globally. The core driver of growth for these brands is technological innovation. Its focus on innovation has continued to drive the platform's faster growth of user base and revenue. The company has continued to invest in improving the user experience to engage the users and drive conversion rates higher for advertisers that lay ads on its platform. The higher focus of Facebook on technological innovation is also because of the increased competition from the other internet and social media brands and mainly Google, YouTube, Twitter, and other digital entertainment channels like Netflix and Hotstar.
As the size of the smartphone user base worldwide grows, so has the competition to acquire users. While acquiring and retaining users requires the internet or social media brands to provide differentiated user experience, it also requires them to maintain a special focus on user engagement. All these things can be possible only if a brand maintains a consistent focus on innovation. As in Facebook's case, its success in social media has continued to grow with the widening base of both of its platforms, including Facebook and Instagram. However, the company has also continued to raise its research and development spending to grow its social media and messaging products' attractiveness. From 2017 to 2019, its research and development expenses grew by around $6 billion. In 2017, its research and development expenses equaled $7.8 billion, which grew to $10.3 billion in 2018 and then to $13.6 billion in 2019 (Facebook Annual Report, 2019). However, with increased spending on research and development, the engagement rates across its social media and messaging platforms also grew.
A complementary product range:
Facebook’s business has also found growth through acquisitions. While its messengers and WhatsApp do not generate revenue, they are still an important part of its product portfolio that has helped the company expand its user base and engagement rates. The company has expanded its product portfolio a lot through small and big acquisitions. Among all the small and large acquisitions that the company has made in its lifetime, the most prominent ones are Instagram, Whatsapp, and Oculus. Apart from these three, the company also made several smaller acquisitions in its history.
The company acquired Instagram in 2012, which is perhaps its most important acquisition till now. Then, the company had acquired Insta for $1 billion, and later it acquired Oculus and Whatsapp for much larger sums. The photo-sharing app has grown highly popular and boasts of a large user base of around 1 billion monthly active users as of July 2020. Just two years after the acquisition of Instagram, Facebook acquired WhatsApp and Oculus. It acquired the messaging application Whatsapp for a whopping $22 billion. It is still the largest acquisition that Facebook ever made. The user base of Whatsapp has surged faster in recent years, rising to 2 billion. While the company was criticized heavily for having paid a whopping $22 billion for Whastapp, the staggering size of the Whatsapp audience is enough to justify the purchase. In the same year, Facebook also acquired the Virtual Reality Tech company Oculus VR for $2 billion. Mark Zuckerberg wanted to acquire Oculus VR to develop immersive VR gaming. Overall, through these large and small acquisitions, the company has expanded its services a lot. However, many smaller acquisitions that Facebook made in its history were meant to strengthen its business model and advertising.
Higher penetration of existing markets:
The company's focus has also remained on deeper penetration of the existing markets where it has a major presence. Apart from China, the company has a strong presence in the other leading markets. India is specifically its largest market and boasts of an audience size of above 290 million. The US, Brazil, and Indonesia also have more than 100 million Facebook users. With passing time, Facebook has continued to improve its social media platform and its services to engage the users more and acquire more users. The company has also been advertising its services to gain more users. Over time, its penetration among the internet-using middle-aged and elderly population has also grown. While the company continued to improve its features to increase the amount of time each user spent on the platform, growth in the user base across various ages was also driven by its focus on innovation and marketing. The company marketed its products and services locally in its various markets to acquire more users. It kept optimizing its platform to make it attractive for the users across all age groups. Higher user engagement also led to higher penetration of various markets. The growth in its user base did not come suddenly, but the company has grown in phases.
The base of smartphone users has grown a lot in the past few years. It is now at around 3.5 billion and is expected to rise to 3.8 billion in the next year. However, with increased access to smartphones and the internet, users worldwide are also accessing a large web of services online. Facebook has proved highly aggressive at acquiring smartphone users. As the number of people accessing the platform via its smartphone app continued to grow, the company has also optimized its app to suit the smartphone users. Facebook focused on a mobile-first experience since the percentage of people accessing the platform only through smartphones was much higher than those accessing it on other devices. If around 80% of Facebook users access the platform only via a mobile phone, it means at least 2 billion monthly active users accessed Facebook on their smartphones. However, it also means that Facebook’s revenue share from mobile devices has grown very large in just some years. The crucial thing was to focus on the mobile app experience and to design it for higher user engagement, which Facebook successfully did. Accessibility and customer experience are important factors that have helped Facebook win globally in the social media industry. While the network can be accessed from nearly all internet-enabled devices, its focus on customer experience on small screen devices has driven popularity and engagement rates higher for the platform.
Targeting the emerging markets:
The company has placed a strong focus on the emerging markets, which account for a substantial part of the company’s user base globally. For example, India and Brazil are two major markets that account for 290 million and more than 100 million Facebook users. As the company's user base from these markets rose, their contribution to the overall revenue has also increased. As a result, Facebook’s focus on these markets grew. Some years ago, the users in emerging markets like India were accessing Facebook over low-speed 2G network connections. However, to ensure that more and more people could access its services from the emerging markets, Facebook needed to make sure that the app was loaded on smartphones without a considerable lag time even over low-speed connectivity. In the US, the users would make a few clicks on their smartphones, and the app would load without considerable lag time. However, the case was not the same across many more markets, including India. So, Facebook decided to make changes to its app to offer a fast loading experience even when the connectivity was poor. The app figured the network speed and accordingly loaded the right newsfeed stories. It was different from how the app loaded on a high-speed network. The result was that in the emerging markets, users accessing the platform on slower connections could still access the app without a considerable delay. The quality of images could be slightly poorer than high-speed networks common only in developed nations until some years ago. With time, the internet quality in the emerging markets has improved a lot and has also expanded Facebook’s user base there. However, the company also optimized its ad experience for the emerging markets to grow the revenue it generated from these markets. Facebook’s strategy worked after all, and the company achieved strong growth in revenue and user base from these regions.
Marketing is also a critical pillar of Facebook’s business strategy. While the company gained strong brand recognition just a few years after its foundation, it could not achieve faster growth without investing in marketing. Facebook has focused on strengthening its brand recognition and gaining user loyalty by focusing on superior customer experience. However, apart from these things, it also invests in digital advertising and promotions and other brand-building activities. To drive the user acquisition rates higher, the company invests in digital ads. In just the last three years, the company has nearly doubled its expenses on marketing and sales. Its marketing and sales expenses were $4.7 billion in 2017, which grew to $7.8 billion in 2018 and then $9.9 billion in 2019. The rapid growth in the brand's marketing and sales expenses also indicates the growing competitive pressure on Facebook. However, it also shows that marketing is now a core focus area for the social networking giant.
A few last words:
Facebook’s stellar growth as the social media giant of the world results from its consistent focus on customer experience and technological innovation. The company has expanded its user base vastly over the years. In recent years, the portion of the user base accessing its services only from smartphones has grown a lot, and it has brought the focus on mobile ads. While the company invests a large sum in research and development each year, its investment in marketing also grew rapidly in recent years, driven mainly by the higher competitive pressure. The emerging markets present growth opportunities, and so the company has consistently been focusing on these markets and mainly India and Brazil. Facebook’s profitability is high, and its operating margins are impressive. In the coming years, as the smartphone user base continues to expand worldwide, Facebook’s focus will remain on smartphone users to grow its user base and revenues faster.