Analysis of Business Models of Facebook and Alphabet

Analysis of Business Models of Facebook and Alphabet

MAF 702 Assignment

Student’s Name: Chih-Lin, Hsu

Student ID: 220055055

Table of Content

1. Executive Summary———————————————————————– 2
2. Introduction——————————————————————————— 3
3. Background———————————————————————————- 4
4. SWOT Analysis- Alphabet—————————————————————– 6
5. SWOT Analysis-Facebook—————————————————————– 9
6. Conclusion———————————————————————————— 14
7. Reference————————————————————————————- 15

Executive Summary

The report involved an analysis of the Google and Facebook Companies. The analysis revolved around the dissection of the earnings and revenues of the Google and Facebook companies. Besides, performing an analytical comparison for the earnings the specific years was also a primary goal of the report. Initially, individual companies were described based on their history and foundation. The revenue-generating activities of the companies were also expounded where advertising activities were identified as the major sources of earnings for both companies and revenue contributors. Following the analysis and interpretation of the performance trends of both companies, the underlying reasons contributing to the differences in performances were submitted. Among the prototypes identified included those involving company management, market segmentation, and overall company positioning. After outlining the different possible reasons for the variations, a SWOT analysis was performed to demonstrate the underlying key strengths, weaknesses, threats, and opportunities that may affect the overall performances of the companies. About Google, among the strengths identified included that Google is among the highly recognized brands among others. Legal and political issues are threats that affect the performance of the companies. Facebook Inc. too was analyzed using the SWOT tool where its dominance in all social networks was an outstanding strength of the company. Company management, the spread of fake information, and privacy concerns of the users were identified as among weaknesses of the Facebook Company uncovered. Furthermore, acquisition and increased competition were unearthed as among the opportunities and threats of the company respectively. Besides, identity and impersonation cases were among the threats associated with Facebook Inc., and the overall performance trends of the businesses were representative of the dynamism of the business world. Other than the performance factors identified, the companies’ performance trends and earnings are expected to be successful and portraying uniformity and of a similar time, offering a basis for growth and improvement of other organizations and the cross-sectorial performance of the companies to attain their other goals.

Introduction

Facebook and Alphabet are multinational companies; and as such, they have impacted the global business arena in divergent ways. For instance, Facebook Inc. is a social networking company that serves the world business corridors. Facebook Company involves itself in applications about social media and has made the world a small global village through mobile devices, personal computers, and other facets. It deals with products such as Facebook, WhatsApp, and messenger among other commodities (FB – Facebook Inc. Company Profile – CNNMoney.Com, 2018). The pioneering members of Facebook include Mark Zuckerberg, Dustin Moskovitz, and Chris Hughes among other personalities, and its headquarters are located in Menlo Park, United States. The alphabet was the parent company to Google. Google Company’s prime focus is revamping the connection between people and information. Google is an epicenter for a spectrum of tools and services for advertising agents of all magnitudes. Its tasks revolve around search, operating systems, platforms, enterprises, and hardware products among others (“Google (GOOGL),” 2020). Facebook Company has experienced stupendous growth since its foundation was laid in 2004. The growth has been characterized by the increment in the employees wherein the year 2015, the company had a total of 12.69K employees. Conversely, in 2019, the company registered a total of 44.94K employees which was a milestone compared to 2016(FB – Facebook Inc. Company Profile – CNNMoney.Com, 2018). The report will focus on a comprehensive dissection of Facebook and Google Companies as well as giving a thoughtful comparison of the earnings for the companies registered over the last 5 years for the Financial Year 2017/2018. The earnings and other dimensions are imperative of a particular trend of the operating performance of both of the companies as it will be submitted in the analysis. The trends in the company performance are exemplified by the analysis of the firms’ financial data including their incomes, expenses, financial ratios. The financial data of the companies unravel the overall performance of the companies since they represent performance in different sectors such as the sales, marketing, operations, accounting, and other departments within the organizations.

Background

Facebook and Google are major organizations in the globe that scholars and researchers consider rooting their studies on. Entrepreneurs take them as a reference in gauging the performance trends of their organizations as well as planning for activities such as expansions and other organizational dimensions. It is important to note that both companies are technology and communications giants. These companies are the largest owners of internet utilities. The companies make money and source their earnings from divergent sources and activities. For instance, Facebook majorly makes money by offering an advertising platform for businesses and other firms in its space. Facebook’s platforms comprise of websites and mobile applications (Harris, 2012). The spaces allow users to interact, share, communicate, and connect with friends and family. Facebook was primarily founded as a social networking site through ways such as a photo and video sharing, messaging, and WhatsApp. Besides, the Oculus virtual reality products constitute among the major revenue generators for Facebook Company. Google is a major competitor to Facebook Company in activities such as selling advertising to marketers as well in issues on the provision of communication platforms and content sharing in the social networks.

Google Inc. on the other hand engages in an array of income-generating activities. The company’s earnings can be attributed to its engagement in activities such as its search engine popularity, email services, web browsing as well as other various online tools that are used daily by human beings. Importantly, a large portion of its revenues is gathered from advertising service in the form of Google ads. Other cloud-related businesses such as Google Cloud programs also generate large amounts of earnings for Google Company. The marketers pay Google once a visitor clicks on the advertisement notifications. Google Inc. also carries out other online and offline businesses that contribute to their high revenues and performance. These services are offered in applications such as Play Store, Google Apps, and Android. Since its birth, the company has registered comparatively strong revenue growth and overall performance. The gigantic performance can be attributed to the stupendous levels of innovation in the company as well as robust management systems among other paramount factors (Girard, 2009). Conspicuously, doing a comparative analysis of the earnings registered by Facebook and Google Inc. with a span of the last 5 years is a prerequisite. These earnings and revenue levels would uncover the performance trends of both of the companies. They would also unearth among the most viable reasons underlying the performances of the individual companies.

According to Consumer News and Business Channel (2020), Google Inc. beat its expectations for the second-quarter earnings. The company witnessed a drop in its earnings for the first time in its history. The decline was attributed to the outbreak of the coronavirus which coerced the advertisers to limit their expenditures. The bulk of the company’s earnings are sourced from advertising. Google’s advertising revenue and earnings for the FY 2017/ 2018 show a comparatively rising trend. For instance, the 2015 earnings were approximately $10B. The trend is rising were in 2016 and 2017, the revenues yielding from Google advertising stood at $20B and $30B respectively (Elias, 2020). This increasing trend signifies the great performance of the company. Elias (2020) submits that the trends in the performance of Google are likely to drop during this period when the globe is fighting the pandemic as a result of the reluctance of the marketers to use Google advertising sites. Businesses are striving through all possible means to reduce expenditures to increase the profit margins during this period. Besides, Google Inc.’s revenues are bolstered by other sources such as EPS, cloud revenues, and traffic acquisition costs.

Facebook on the other hand has recorded significant growth in its operations. By the end of the 2017/2018 Fiscal year, the company’s revenues registered a great rise. For instance, in 2018, the company recorded revenues amounting to $55.838B compared to 2017 where it recorded $40.653B earnings (Facebook: Annual Revenue | Statista, 2019). Comparing Facebook’s 2017 and 2018 revenue performance, an improvement index of 37.35% is observable. The trend of revenue growth demonstrates a rapid increase in revenues each year. The revenues also increased from $17.928B in 2015 to a total of $27.638B in 2016. Comparing this trend with that of Google, Facebook’s performance based on earnings is greatly impressive. When we compare 2016 and 2017 years, Facebook Inc. gathered relatively higher revenues than Google where Facebook registered an improvement index of +$13.015B while Google Inc. recorded an index of +$10B. Computing the financial rations, expenses, and incomes of both companies explicitly explain the differences in the performance indexes and trends. Other variables such as pricing strategies, management systems, marketing strategies, innovative power, and market segmentation of the companies can be used to explain the differences after analysis. Performing market segmentation and management analysis uncovers myriads of reasons underlying the differences in the performances of both companies.

SWOT Analysis

Google’s parent company, Alphabet is rightly one of the leaders in the global technology industry. As showcased by SWOT analysis, Google maintains a dominant position in online advertising thus according to the company’s significant competitive advantage within the industry. Alphabet’s operations are tremendously affected by its key Strengths, Weaknesses, Opportunities, and Threats. Through vibrant independence and leadership, the Alphabet’s structure supports the collection of businesses to flourish besides improving their financial performance. The core products of Google, including Gmail, Google Play, YouTube, Chrome, Maps, Android, and Search get more than one billion active users every month (Alphabet Investor Relations, 2020). Furthermore, the business is ambitious to remain an incredible center of innovation and creativity that is focused on solving enormous challenges through the use of technical expertise. With the latest innovations being increasingly driven by artificial intelligence and machine learning, Google has heavily invested in new technologies in anticipation of building more useful and smart products.

1. Strengths

Supremacy in Browser Usage, Online Advertising, Video Content Sharing, and Web Search: Google as an internet-based company principally competes in online advertising markets and web searches. Despite the diverse product portfolio of Google, the company has dominated many of the markets in which it conducts business. Succinctly, the advertising businesses of the company are the cheap source of revenue of the company. 87% of Google’s total revenues were generated from advertising, correspondingly 86% of the aggregate revenue of Alphabet was realized as a result of such advertisements. In 2016 and 2017, Google earned a total of 32% and 42% respectively in the digital advertising market. Through the Android operating system, YouTube, and AdSense, Google maintains its dominant position in digital advertising.

Google Is One of the Most Recognized Brands: One of the broadly used search engines across the world is the Google Search Engine and in 2018, it recorded 73.73% market share. Archetypically, many people across the globe prefer to use Google search engine.

Outstanding Acquisition Proficiencies: On average, Alphabet acquires 1.6 companies monthly. The company has a robust history of acquiring innovative companies and between 2012 and 2017, Alphabet made 188 acquisitions. The company is capable of refining the services and products it offers, gain patents, new technologies, and skills through the acquisition of other firms.

An Enormous Amount of Information: Though massive information collected regarding preferences and habits of the users via Chrome browser, Android OS, YouTube, Google Analytics, and Google Search the company is in a better position of targeting advisements to consumers in comparison to its challengers, thus cultivating its brand recognition through its expansive publicity.

Strong Financial Position: The company has recorded impressive performance recently with 2017 recording $110.8 billion in its revenues.

Innovation and Creativity: Alphabet’s skilled workforces provide innovative products that are capable of meeting the needs of the consumers. Correspondingly, boosting customer satisfaction and the cash flow of the company.

2. Weaknesses

Legal and Privacy Issues: Google has suffered considerable legal actions as a result of the misuse of users’ data. Consequently, digital advertising has been made riskier considering the company relies on consumer data to facilitate advertising services and advertisements.

Overreliance on Income from Advertisements: The market environment is undergoing unending legal and economic turbulence and Alphabet’s overreliance on ad revenues makes it susceptible to uncertainties.

Google Relatively Lags in the Cloud Industry: Alphabet has not been capable of leading in clouds, and Amazon and IBM presently dominate the leading position in the clouds.

A Minimal Investment in Research and Development: Despite the fact that Alphabet dominates online advertising, considerably low investment has been done by the company in relation to other companies in the industry. Thus the company has faced a stiff challenge when it comes to innovating business products.

3. Opportunities

Wide Usage of the Internet Across the World: With many businesses turning online, Alphabet has been accorded an opportunity to magnify its online presence thus smoothening interactions with consumers.

The Emergence of Electronic Commerce: As businesses shifts from customary ways of engaging in commerce, Google is accorded a chance to enhance its advertisements besides opening online stores to enhance their revenues.

Technological Development: As technology becomes the order of the day, Alphabet can automate its products as well as services thus reducing the cost of operation. Through technology, Alphabet can improve marketing efforts from data collected from clients.

Government Tax Policy and Subsidies: The tax rate has been reduced thus benefiting the company as the tax expense is lessened. Furthermore, the government has offered a subsidy to businesses that are environmentally friendly; thus, unlocking an opportunity for Alphabet.

4. Threats

Intensified Competition: Alphabet has experienced cutthroat competition from Facebook, Amazon, and Apple among many other companies. Profoundly, Facebook has threatened stiff competition with more than one billion active users every month (Alphabet Investor Relations, 2020). The same platforms offer advertisements, promotional posts, and content sharing thus reducing the market share of Alphabet.

Regulatory and Legal Pressures: Stringent measures have been applied by many nations preventing bigger organizations from engaging in the misuse of data of the users and infringement of privacy rights.

Increasing Costs: The cost of marketing, sales, and research and development are incredibly increasing. Despite the force arising from the innovation of competitors pushing the company to innovate, the expenditure of marketing, research, and development and been continually rising to threaten the decline of the revenue of the company.

Facebook

1. Strengths

Dominance in the Social Media Networks: Facebook’s leadership in social media networks offers striking opportunities for connecting and advertising products and services. Facebook receives millions of visitors on a daily basis which is a great strength considering the business model of the company (Facebook – AnnualReports.com, 2019).

Strong and Recognized Brand: Forbes Magazine ranked Facebook as one of the reputable and valuable brands in the global social media sector.

The Ability of Facebook to Integrate with Other Applications and Websites: Facebook has acquired numerous companies including WhatsApp, Instagram, and Oculus.

Reputable Position in the Digital Advertising Industry: Together with Google, Facebook leads the digital space as far as online advertising is concerned.

Creativity and Innovation: Facebook continually innovates and builds new products that are aimed at meeting the needs of users and affording them an outstanding experience. The ability to understand the need of users accords Facebook’s competitive advantage.

Visionary Leadership: Facebook has visionary leadership focused on research and development. Correspondingly, the company’s effectiveness in marketing strategy is enhanced.

2. Weaknesses

Dependence on One Source of Revenue: Facebook overly relies on advertisements to generate its earnings. Over 90% of Facebook revenues emanate from advertisements.

Privacy Concerns Among Users: Facebook has been continually negligent to protect the privacy of users, as a result, the popularity of the company has been declining recently.

Fake Information: Facebook has been known to spread misleading and fake information. The inability of Facebook to regulate fake news has attracted proliferated criticism because of the damage caused to society by the same.

Issues in Managing the Company: Management challenges on Facebook have been associated with unending data scandals in the company. Friction in managing the company has triggered accountability weakness since the top leaders of Facebook usually pursue distancing themselves with any scandal that arises.

3. Opportunities

Acquisition Opportunity: Facebook is capable of purchasing already established companies through its impressive financial performance. Facebook has acquired Instagram and WhatsApp hitherto.

Increasing Usage of Smartphones and the Internet: Intensified use of devices that are capable of using the internet has the possibility of motivating Facebook’s success and intensification of advertising and market targeting.

Diversification of Revenue Sources: Facebook is one of the widely recognized social media networks in the world that can launch new channels of generating revenue and exploiting market opportunities.

4. Threats

Increased Competition: Facebook has faced stiff competition from Google, Apple, Amazon, and many other firms which depend on advertising to generate the significant value of its revenue.

The Increasing Popularity of Ad-blocking Extensions: Many users of Facebook are increasingly becoming aware of ad-block and usually install them to prevent popping of ads while browsing social media platforms and other browsers.

Impersonation and Identity Theft: Some people use the identities of others on social media and sometime they may pretend to be agents of the companies thus ending up committing a crime and this has the potential of ruining the credibility of social media networks.

Based on current ratio and acid-test ratio, Facebook has been in better position of meeting short-term obligations as they fall due for the last five years as compared to Alphabet. Debt financing of Facebook has been increasing for the last five years while that of alphabet has been declining. Both companies epitomize increasing capability of generating sales from assets as showcased by the efficiency ratios. Alphabet demonstrates increasing profits, which are showcased by the company’s ability to generate income from assets employed and equity financing. Similarly, Facebook’s income is greatly increasing over the past five years up to 2018 (Facebook – AnnualReports.com, 2019). Based on basic and diluted earnings per share, Alphabet’s stockholders have generated much higher returns on their shares in comparison with Facebook Stockholders.

Conclusion

As derived from revenue and financials analysis for both Facebook and it is conspicuous that both companies have demonstrated a rising trend in their earnings performance. On comparison, differences are noted in the amounts of revenues for each company.  These differences can be as a result of factors such as company management and the expenses and incomes incurred in the company. It is important to note that company’s management is a determinant of many aspects of the businesses including the output and performance in diverse departments, the marketability of the company’s products, the rate of customer retention as well as the whole package of organizational performance. Different companies display diverse strengths and weaknesses. The companies are as well faced by different opportunities and challenges in both their internal and external environments during their operations as discussed. Both companies engage in a variety of revenue-generating activities, where they both source a large percentage of most of their earnings from advertising in their platforms among other wide sources. Based on the financial details outlined for the last five years, Alphabet has tremendously performed better compared to Facebook, consequently, the earnings of the company are exceedingly hire than those of Facebook.

Reference

Alphabet Investor Relations. (2020). Alphabet Investor Relations. Alphabet Investor Relations. https://abc.xyz/investor/

Elias, J. (2020, July 30). Alphabet reports first revenue decline in company history. CNBC; CNBC. https://www.cnbc.com/2020/07/30/alphabet-googl-earnings-q2-2020.html

Facebook – AnnualReports.com. (2019). Annualreports.Com. https://www.annualreports.com/Company/facebook

Facebook: annual revenue | Statista. (2019). Statista; Statista. https://www.statista.com/statistics/268604/annual-revenue-of-facebook/

FB – Facebook Inc. Company Profile – CNNMoney.com. (2018). Cnn.Com. https://money.cnn.com/quote/profile/profile.html?symb=FB#:~:text=Facebook%2C%20Inc.,videos%2C%20and%20other%20activities%20online.

Girard, B 2009, The Google way : how one company is revolutionizing management as we know it, No Starch Press, viewed 9 September 2020, <https://search.ebscohost.com/login.aspx?direct=true&db=cat00097a&AN=deakin.b3577369&authtype=sso&custid=deakin&site=eds-live&scope=site>.

Google (GOOGL). (2020). Forbes. https://www.forbes.com/companies/google/#2fbd9a595d28

Harris, A. R. (2012). Facebook: The Company and Its Founders: The Company and Its Founders. ABDO.