Facebook boasts some incredible statistics that highlight why it has been very successful. A Porters five forces analysis of Facebook shows that the California based social network wields immense power over some vertical forces primarily its buyers and suppliers whose bargaining power is low or moderate at best. This is predominantly because Facebook has achieved strong network effects from economies of scale and scope, which have ensured the social media network continues to enjoy high switching costs and strong lock-in effects over users.
But while these factors have ensured Facebook’s dominance over rivals in the social media industry, the company remains vulnerable to the 3 horizontal forces of competition namely substitutes, new player entry and intensifying rivalry between current players. As a porters five forces analysis of Facebook reveals, the social media industry is highly competitive with a rising number of substitute services such as Reddit, Digg, EyeEm, Next Door, or Family Wall, many of which can offer similar performance benefits to Facebook such as sharing photos, videos and messages even though they are not direct competitors.
So though Facebook has created barriers that currently protect its market share, it remains vulnerable to new players who could take advantage of its privacy issues to exacerbate an exodus of more than 3 million teens that’s already underway in the core markets of the UK and US. It is already locked out of the world’s most populous country, a situation exacerbated by China-USA trade war tensions. So while Facebook still wields power over the forces of vertical competition (power of buyers and suppliers), the horizontal forces of competition (competition from rivals, substitutes and new entry) exert enough pressure on the industry to limit profitability and further dominance of Facebook in the future.
Jonathan Kush & Patricia Nanjekhe Last Updated