Facebook is the leading social media network with a huge base of loyal users worldwide. The social media network has experienced enormous growth in recent years despite the tough competition from YouTube and other social media websites. Apart from its focus on innovation, the increased smartphone usage worldwide and proliferation of internet technology have also triggered faster growth of the social networking platform.
Facebook generates substantially all of its revenue from advertising and is among the most favorite platforms of digital marketers. Its unique and exclusive targeting features make it the most suitable digital marketing platform. While the company has faced a large number of legal and political concerns in recent years, its popularity worldwide has continued to climb. It has achieved a strong competitive edge against its rivals. In 2021, its number of monthly active users climbed to 2.85 billion in the first quarter. Facebook has also increased its investment in research and development to maintain its market leadership. Google is the leading competitor of Facebook in the global digital advertising market.
Globally, a new set of challenges have emerged before Facebook. The toughest challenge is related to user data and privacy. Apart from that, a set of other challenges which are mainly political in nature have also emerged before the social media giant.
In this pestle analysis, we will analyze how the various macro environmental factors are affecting the growth of facebook’s business worldwide. While Facebook is a technology brand, the challenges it faces are not mainly technological in nature but emerge from diverse sources. The pestle factors can give rise to both opportunities and challenges for a social networking brand. Let’s take a look.
A PESTEL ANALYSIS OF FACEBOOK
Political:
How can political factors impact a technology brand? That is an important question that frequently comes to people’s minds. However, in recent years, the relevance of political factors in the technology industry has grown a lot. Big tech is facing heavy government regulation worldwide. All the big tech brands face heavy government scrutiny, from Apple to Amazon and Facebook or Google. In 2021, the government in the US has grown its oversight of the technology leaders. The federal government and the state governments in the US are also seeking higher transparency from the technology players. Facebook has been facing the highest government pressure in the United States, apart from Google. How it handles user data and user privacy is especially the most critical area. Governments are seeking Facebook to make its data management practices public.
However, the problem is not limited just to the United States but is all-pervasive. Outside the US, including the Asian and European markets, Facebook is facing a similar set of challenges. Some nations have completely banned Facebook. Internet censorship is especially very high in China, which has completely banned Facebook and several more social media networks. The Chinese government has established The Great Firewall, which prevents China from viewing or posting socially or politically sensitive content. While China is a very large market for technology, advertising, and social media brands including Facebook and Google, Facebook has completely lost its footprint in China. Google has been forced to agree to the government’s demands to continue its Chinese operations.
In this way, political factors can take a heavy toll on leading technology brands like Facebook. The trade wars between the US and China are also why US-based technology brands are facing growing challenges in China. China is still a very different case than Europe, other Asian markets, and the United States. It is an isolated case in itself, but there are some other countries too where the government controls access to Facebook.
In its domestic market, Facebook’s challenges have continued to grow. According to a report by Reuters, the Federal Trade Commission and a big group of U.S. states asked a federal court in April, 2021 to deny Facebook Inc’s request to dismiss major antitrust lawsuits filed against the social media giant in December 2020. The US government believes that the big tech in the US is growing too big to control and therefore the number of concerns against Facebook and other leading tech players raised by the government has grown. Facebook, Google, and the other leading tech players have already paid huge fines to the governments of the US and several European nations.
India is also a leading market for social media players. The government of India has recently released new guidelines for the social media companies operating there to appoint chief compliance officers for their operations in the country and to create methods through which the first or original source of a post, tweet, or text can be tracked on the social media platforms, according to Mint.
Overall, political factors present the largest set of challenges before Facebook and other leading tech players. Its future growth may also be obstructed to a large extent due to political factors and compliance issues.
Economic:
The condition of the global economy and other economic factors can also have a significant impact on the business and profitability of large tech firms like Facebook. While the impact can be comparatively lower than in the case of international businesses in the other industry sectors, Facebook is not totally immune from the impact of the fluctuations in the global economy. Its business model has advertising at its core and during periods of economic decline can be impacted negatively.
Facebook generates substantially all of its revenue from advertising. It depends on the millions of small and large businesses worldwide that advertise on its platform for earnings. However, during the recessionary periods, businesses generally cut down their spending on marketing and advertising. As a result, the social media network’s revenue can be hurt.
When the world economy is performing well, companies tend to invest more in advertising and promotions. As a result, advertising platforms like Facebook and Google can see a growth in revenue during such periods.
However, the growth of digital technology has changed a lot of things about the global market. For example, the dependence of businesses on digital advertising has grown a lot. People’s use of social media worldwide has also grown. As a result, the marketers are flocking to Facebook in larger numbers to promote their brands and target their preferred audiences. Apart from that, the cost-efficient targeting model of Facebook also allows the marketers to achieve more while spending less.
Overall, Facebook has a strong competitive edge in the market which helps it mitigate the threat of economic downturns. In the longer term, if its competitive position grows stronger, the threat from economic fluctuations could minimize. However, the changes in the world economy still reflect in the balance sheets of the tech brands.
Social:
Sociocultural factors too have an impact on the global tech and social media businesses like Facebook. The degree of popularity and acceptance of a social media brand can vary from society to society and culture to culture. Worldwide, the level of internet penetration varies from society to society and market to market. Apart from it, the female population in some nations may not have the same privileges as their male counterparts. The demographic changes sweeping through globally have also somewhere aided the growth of the social media platform across the various markets.
The millennial population is the leading user group of Facebook. Apart from that, Gen Z is also highly digitally inclined. The millennials grew up with technology and therefore, they are the largest part of Facebook’s user base. Together the millennials and Gen Z constitute the largest target market for social media brands including males and females. Across various cultures and societies, the younger generation is more technologically inclined and spends a large part of its daily time using online services like Facebook, Netflix, and YouTube.
Culture also has a major impact on consumer behavior. It is why the level of Facebook usage can vary from culture to culture even among millennial users. Its usage is particularly higher in Western societies and cultures. However, with time as smartphones and the internet became ubiquitous, the acceptance and popularity of Facebook grew worldwide cutting across cultures.
Apart from that, sociocultural factors can also have a limited impact on how businesses like Facebook market themselves across various markets. In terms of marketing, culture plays a very special role and also affects customer perception. The culture can vary greatly from Australia to the Middle East and Asia. However, technology is now everywhere and the growing need and use of digital technology and technology tools have led to the growing use of Facebook everywhere and not just the Western markets.
Technological:
Technology has become a key driver of competitive edge and growth in the business industry worldwide. However, Facebook is one of the largest technology brands worldwide and has enjoyed enormous growth in recent years driven mainly by its focus on innovation. The social media and advertising industries are also witnessing intense competition. To maintain its competitive edge and market leadership, Facebook needs to maintain a continuous focus on innovation.
YouTube, Twitter and several more rivals of Facebook are operating across the global market. Every social media brand wants to engage its customers to gain superior results. To achieve a higher level of engagement, companies invest in innovative technological features that can grow the attractiveness of their products.
Facebook’s research and development expenses have risen fast in recent years, driven primarily by the growth in user base and revenues. It has more than doubled its research and development expenses in just four years. Its R&D expenses in 2017 stood at around $7.75 Billion and grew past $18.4 billion in 2020.
Competition is a key factor that is driving technology brands to spend more on research and development. Google, the leading competitor of Facebook in advertising, spent more than $27.5 billion in 2020.
Facebook uses php, Linx, MySQL and other custom written systems like Haystack, and Scribe. The platform has evolved a lot with time and offers its users mouch more than some years ago like the ability to stream live videos from the platform. This has benefitted the platform immensely as a large number of marketers can easily find the customer demographics they are trying to target on the platform. The result is faster growth in user base and revenues.
Overall, technology is among the core factors affecting Facebook’s business and shall continue to remain the main force sustaining Facebook’s dominance in social media.
Environmental:
Environmental concerns have also taken center stage in the technology world and the tech brands are among the leading spenders on climate concerns and sustainability. Facebook has already achieved net-zero emissions in its global operations and plans to reach net-zero emissions in its value chain by 2030. Apart from managing its own environmental footprint, the company is also working to help others find the information they need to manage theirs.
It’s working to drive change across the various communities globally. The sustainability action plan of the company is based on three core pillars.
- Minimize its carbon footprint through operational excellence.
- Leverage its platform to develop innovative solutions that can catalyze climate action.
- Collaborate with others to drive understanding around the issue of climate change and scale the impact of its solutions.
The key focus areas for Facebook in terms of sustainability and environment include climate, energy, water, responsible supply chain management, and biodiversity. Facebook is also working to engage various stakeholders on the issue of climate change.
Legal:
Legal factors are now more or less one of the most critical concerns for big tech players like Facebook. Compliance is essential or rather indispensable for Facebook, which is already hounded by many legal concerns worldwide in several of its leading markets. User privacy and user data are among the most critical areas in the technology sector. However, in this area, Facebook has been caught off guard many times. The latest data breach at Facebook exposed the personal data of more than 500 million users. According to an April 2021 report by business insider, 533 million Facebook users from 106 countries had their personal data including phone numbers, locations, birth dates, bios and emails posted online by a hacker. Facebook has faced and is facing several privacy lawsuits including one in which it agreed to pay $650 million to users in Illinois for using photo tagging and biometrics without their permission.
Facebook’s worries related to anticompetitive concerns have also continued to grow with time and this is an area where the state governments and the FTC have worked against Facebook particularly aggressively. While Facebook has tried desperately to get the antitrust lawsuits dismissed, the government has kept growing legal pressure on the social media giants. Around the world, countries including the US and several members of the European Union have brought new laws related to the collection, sharing, use, and storage of users’ personal data that Facebook is required to copy with. India has also finalized new guidelines under which social media businesses are required to appoint local citizens as Chief Compliance Officers.
In this way, there is a large web of laws that will continue to impact the global operations of Facebook. Legal factors and compliance have become a very critical concern for the social media giant, which is battling many legal issues worldwide.