\fTable of Contents List of Figures R2 - Internal Competitive Analysis Internal Competitive Analysis of Top Tier Firms The social networking industry is split into two market segments: Consumer and Enterprise. Of all social networking services available worldwide, six firms has have garnered interest and market share based on the number of monthly active users or revenue directly related to providing social networking services. The six firms are: Facebook, QZone, LinkedIn, Microsoft (Yammer), IBM Connections 5, and Jive. Gathered below is anAn internal analysis of the six firms is conducted below. Discussions will include the profiles, functional areas, and financials for each of the firms mentioned earlieraforementioned. There will also be a brief description of the strengths and weaknesses across all firms. The internal competitive analysis will provide the support and analytical approach for use in strategic planning for one of the firms selected. This gathering of data will be further discussed and utilized in the subsequent section, 'Strategy Formulation, Implementation, and Evaluation' below. Facebook Company Profile Facebook was invented in 2004 by Mark Zuckerberg, Dustin Moskovitz, Chris Hughes, and Eduardo Saverin in Zuckerberg's college dorm at Harvard. In just ten months, Facebook accumulated its first one million users. Facebook moved its offices to Palo Alto, California later that year. As is illustrated in the film \"Social Network\" (and is for the most part, common knowledge) Facebook only increased in popularity and experienced exponential growth, to the tune of one billion active users on Facebook in 2012, only 8 years after it was created. 1 This growth has led to its dominance in the social media industry, and has made it a top tier firm in the social networking realm. As explained in the Industry Analysis, Facebook controls 42.1% of the social networking market. According to Facebook's own \"Facebook page,\" the mission statement is to \"give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what's going on in the world, and to share and express what matters to them.\"2 The viability of this tool, though offered free, extends beyond just staying connected with friends and family as it has global reach, and over a billion active users. Zuckerberg is, after all, running a business. In order to monetize this business but retain its market share of monthly active users, Zuckerberg has offered additional services outside of communicating with friends, sharing videos and pictures, and creating fan/business pages. Though Zuckerberg is given so much credit for founding Facebook and dominating the global social networking industry, he has hired a team of employees in many functional areas in order to sustain his growth and his business. Much can be said for the success of these teams in Facebook's expansion and accumulation of other product areas. Thanks to this structure, Facebook has been able to accomplish its mission statement and thrive as a business. 1 Facebook. (2012). One Billion People on Facebook [Press Release]. Retrieved from https://newsroom.fb.com/news/2012/10/one-billion-people-on-facebook/ 2 Facebook. About Facebook. Retrieved from https://www.facebook.com/facebook/info?tab=page_info MGMT 680 - Summer 2015 4 R2 - Internal Competitive Analysis Company Structure and Management As earlier illustrated in Figure 6 of the Industry Analysis,, Facebook does not waste company resources on hiring extraneous and unnecessary personnel. The revenue divided per employee at Facebook is well over $1 million (U.S.), even higher than Google. 3 This says a lot about the leadership's goal to conserve excess cash flow for other resources and tools of expansion which will be later discussed in this company profile. Indeed, when it comes to Facebook's company structure, there is a lot to be said for control. Zuckerberg was portrayed in a very negative light in the film \"Social Network.\" He was made out to be a controlfreak and a narcissist. But how much of that was really true, and how much of that can be seen in his business dealings? The company structure explains it allbacks this claim. Zuckerberg, unsurprisingly, is the CEO, Founder and Chairman. Zuckerberg also serves on the Board of Directors at Facebook, giving him a lot of power in the direction of the company. According to Forbes, \"Mark Zuckerberg set up the company so that Class-B shares (which he controls) carry ten times the voting power of the A-shares. That means he owns about 18% of the company, but controls more than 50% of the voting power.\" According to the same source, approximately 6% of U.S. companies have this structure. 4 Essentially, someone with that much power can make a drastic change, fire or hire anyone they want without any restrictions from the other voting members. Board of Directors The Board of Directors oversees aspects of the company that influence stock price and affect stockholders. It is their job to represent the stockholders to the company's management. Facebook's structure is illustrated in the below figures. Starting with the Facebook Board of Directors figure, Mark Zuckerberg controls 50% of the power of the board. This means that even if there is an anonymous grievance, vote or agreement on a business issue, it can be overruled by Zuckerberg. With that said, Facebook has a strong board of directors including CEOs from distinguished organizations such as the Bill and Melinda Gates Foundation (Susan Desmond-Hellmann), Netflix (Reed Hastings), and Whatsapp (Jan Koum). Marc Andreessen, co-founder of Andreeseen Horowitz (a $4 billion venture capitalist firm) is also on the Facebook board of directors as well as Erskine Bowles, the president emeritus of the University of North Carolina, and Peter Thiel, a partner at the Founders Fund and co-founder of PayPal. The last member that serves on the Facebook board of directors is Sheryl Sandberg, who is also Facebook's chief operating officer. The board may have little voting power but they do have impressive backgrounds and contribute a lot to Zuckerberg's mission. Erskine Bowles and Reed Hastings both are chairs of board committees. The Audit committee's purpose is \"to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company, and the independence, qualifications and performance of the independent auditor.\" 5 The responsibilities and duties are outlined in the charter, and the committee should be formed of no more than 3 board members who are appointed by a majority vote (which would need Zuckerberg's backing). The other board 3 Leonard, H. (2013, March 19). Facebook Generates Over $1 Million in Revenue per Employee. Business Insider. Retrieved from http://www.businessinsider.com%2Ffacebook-has-high-revenue-per-employee-2013-3 4 Bigman, D. (2012, May 23). Facebook Ownership Structure Should Scare Investors More than their Botched IPO. Forbes. Retrieved from http://www.forbes.com/sites/danbigman/2012/05/23/facebook-ownership-structure-should-scare-investors-morethan-botched-ipo/ 5 Facebook. (2012, May 17). Audit Committee Charter. Retrieved from http://investor.fb.com/documentdisplay.cfm? DocumentID=10735 MGMT 680 - Summer 2015 5 R2 - Internal Competitive Analysis committee is assembled with Marc Andreessen, Peter Thiel, and its chair, Reed Hastings. The purpose of this committee is to \"assist the Board with respect to compensation and governance matters.\"6 This would include annual bonuses, pay raises and making recommendations for changes in executive compensation. Once again, all of the board members combined equate to 50% of the vote, so majority vote can only be attained with Zuckerberg's support. Corporate Leadership Moving on to the Facebook's corporate leadership structure, of course Mark Zuckerberg acts as Founder, CEO and Chairman for his company. Zuckerberg is essentially the \"idea\" man and it is the job of Sandberg, Wehner, Schoepfer and Cox to help implement these ideas and provide guidance for future courses of action. Facebook's management style is often depicted as lax and transparent, in that if a developer wanted to make a change, he or she could go straight to Zuckerberg with the proposed change. The leadership and the Board of Directors frequently discuss internal operations in order to have a constant flow of communication between stockholders and leadership. However, Zuckerberg is the ultimate decision-maker for Facebook. If he does not back a developer's idea or even a Board member's idea, it will not be implemented on Facebook. 6 Facebook. (2015, June 11). Compensation and Governance Committee Charter. Retrieved from http://investor.fb.com/documentdisplay.cfm?DocumentID=15046 MGMT 680 - Summer 2015 6 R2 - Internal Competitive Analysis Organizational Teams The company is further divided into functional teams. These teams are created by roles but are in nature multidisciplinary. The functional teams are illustrated below. These teams represent the division of labor within the company. Of course there are many legal matters to consider as well as financial, sales, marketing and recruitment. Outside of the typical functional areas, Facebook also has to consider the addition and acquisition of new products, as technology is constantly advancing. It also must retain a workforce of software engineers to update changes in code and have employees to monitor the data and the market for emerging trends. Facebook prides itself in a \"hacker\" culture, and hacking is exactly what the software engineering team focuses on daily. Mike Schroepfer, Facebook's CTO and VP of Engineering (depicted in figure above) discussed the team structure at Facebook. According to Schroepfer, any changes made to Facebook are done by one or more of the 500 developers employed in Facebook. The 500 developers are often broken into teams of 3 or 4 to work together on code and formulate new ideas. Sometimes, however, one developer can work on their own project. At any given time, there can be anywhere from a dozen to 100 projects going on simultaneously. Some projects do take longer than others, but for the most part projects do not last much longer than two months, as upgrades and updates are constant in the cyber world. 7 The data team monitors how long users remain on the site, what they look at while they are logged in, and what functions of the site they are using. The data team then shares this information with the developers and engineers so that they can better understand what they are doing right, and what is not being received as well. The infrastructure is divided between gaining popularity and increasing users (80% priority) and increasing revenue and ad use (20% priority).7 The two do not always go hand in hand, as popularity may go down while the amount of ads on the site goes up. A lot of subtasks fall under gaining popularity, such as implementing new functionality and acquiring new apps. Increasing audience will ultimately add to revenue which is why the emphasis is on expansion and growth. Schroepfer also discusses the concept of machine-learning, which is being implemented by Facebook as a technique to appeal to its users. By analyzing the interests of the users, they can decide what to show or not show on any given newsfeed. They can also monitor the amount of friend requests a person sends or receives, and fight spam which may deter users from logging on. Schroepfer also discusses the implementation of new ideas, and management approval. He explains that the developers are given a task, and they decide how they want to complete it. If they have any new ideas, they share them with Mark Zuckerberg directly; who once again has the final say on additions or deletions of functionality on his site.7 The high-level workflow is illustrated in the following graphic. 7 Arthur, C. (2010, November 22). Life Inside Facebook: How Head of Developers Organizes 500 People. The Guardian. Retrieved from http://www.theguardian.com/technology/blog/2010/nov/22/facebook-developer-life-inside MGMT 680 - Summer 2015 7 R2 - Internal Competitive Analysis The process is very important because a lot of Facebook's success is attributed to their workflow. They pride themselves on a \"flat management structure\" which makes it easier for people to come together and share ideas and invent new applications and products. 8 All and all, the processes are immensely important in the social networking industry, but even the processes are worth nothing if the right employees are not hired. This extends to upper management as well. Zuckerberg credits Sheryl Sandberg, Facebook's COO with a large share in the company's success. This partnership allowed Zuckerberg to express his ideas and Sandberg helps implement them. Schroepfer then helped with the technical execution of the projects and every single developer effectively played a role. If it weren't for Facebook's human resources department, the process could not be executed by talented and passionate individuals. Human Resources Almost every company has to have some sort of human resources department to sustain its employees and guide them in career growth. Facebook also incorporates this idea, labeled as \"People & Recruiting\" in the Facebook Functional Teams figure above. The sustainment of personnel is particularly important in the social networking world, where the employees must be talented, passionate, and intelligent to keep up with not only emerging trends but understanding coding languages and maintaining online databases. Not only must social networking employees possess technical skills, they must be creative, out of the box thinkers as well. Recruitment. Along with LinkedIn, many recruiters use Facebook to reach potential job candidates. Facebook does not have the issue of a shortage of applicants. Facebook's strategy is to hire the brightest, most intelligent minds and then worry about fitting them in the company in a role.8 This assists with 8 Walter, E. (2013, January 7). Lessons about Building a Team from Zuckerberg and Facebook. Entrepreneur. Retrieved from http://www.entrepreneur.com/article/225369 MGMT 680 - Summer 2015 8 R2 - Internal Competitive Analysis hiring the most talented minds without wasting any time with traditional hiring approaches. Facebook does not focus on background, resumes, and age; it focuses on ideas, attitude and competence. The recruitment process has evolved as Facebook has expanded to multiple regions. Now instead of recruiting solely out of Palo Alto, California, Facebook is recruiting all over the world. Richard Cho, one of Facebook's recruiting leads explains how every Facebook office has recruiters, and they are not centralized in one location like many other companies. 9 The recruiting teams are divided by job function (such as engineering) and each team works to find the most talented individuals for their group. For example, the Engineering and Product team has 3 recruiting leads and 35 recruiting professionals.9 The Facebook careers page has its own \"University Students and Grads\" section, which shows the importance of young hires (there are 320 open positions for university students/grads as of 6/24/15). 10 Many Gen Y individuals are attracted to the idea of working for a growing company like Facebook, and they are more attracted to career growth than making money. Indeed, the flexibility and non-traditional atmosphere of tech companies attracts Gen Y to Facebook, making recruitment to college-aged candidates even easier.11 Hiring Process. The hiring process for Facebook is similar to other tech companies. The average length of interviews per candidate is 4 hours. 12 Will Barnett, Facebook's Engineer Recruiter described what Facebook looked for in a candidate, \"people who can display their actual skills by building real things beyond class projects are very frequently the stronger candidates.\" 12 This comment shows that Facebook values more than just structure and someone who can follow class projects. Facebook is also looking for candidates to demonstrate their creative ideas during the interview process. Mark Zuckerberg explained that his hiring strategy is to only hire individuals he could see himself working for. 13 This reveals the emphasis on self-sufficiency and leadership in potential candidates. Facebook is also known to have asked questions such as \"Should Facebook be available in China?\" 14 These questions address the importance of not just day-to-day self-sufficiency, but global awareness as well. Facebook interviews are not just about creativity, however. Technical competence is also a priority for Facebook. According to Forbes, there are a lot of interview questions involving producing lines of code and formulating solutions for Facebook's biggest issues. 14 There are also questions about the candidate's 9 Hale, A. (2010, September 30). Facebook's Hiring Strategies. Ere Media. Retrieved from http://www.eremedia.com/sourcecon/facebooks-hiring-strategies/ 10 Facebook. Facebook Careers. Retrieved from https://www.facebook.com/careers 11 Fox, E. (2012, August 21). Best Companies for Generation Y. CNN. Retrieved from http://money.cnn.com/2012/08/21/pf/jobs/gen-y-jobs/ 12 Rawson, R. (2013, June 13). Hiring Strategies of Google, Facebook, Apple and other Tec Giants. Staff.com. Retrieved from http://www.staff.com/blog/hiring-strategies-of-google-facebook-apple-and-other-tech-giants/ 13 Bercovici, J. (2015, March 4). Mark Zuckerberg Shares His Secret for Hiring the Best Employees. Inc. Retrieved from http://www.inc.com/jeff-bercovici/mark-zuckerberg-hiring-rule.html 14 Smith, J. (2012, February 2). Ten Things to Know Before Interviewing at Facebook. Forbes. Retrieved from http://www.forbes.com/sites/jacquelynsmith/2012/02/02/ten-things-to-know-before-interviewing-at-facebook/ MGMT 680 - Summer 2015 9 R2 - Internal Competitive Analysis background working in teams and better understanding how they would fit in the company's laid-back culture. For instance, one thing interviewers observe is how distracted a candidate may get during an interview. The candidate's reaction is telling because if the candidate is easily distracted in an interview, they may also be easily distracted in the fast moving environment surrounding Facebook employees on a daily basis.14 Performance Evaluation. Molly Graham, Facebook's former culture and employment branding manager worked to institute performance measurements for each employee. According to Graham, \"Facebook has a performance management review every six months.\" 15 Employees rank the performance of their managers, and the managers rank the performance of the employees. Managers are asked to keep in mind the performance of other team members for every individual ranking. A list is compiled which outlines the highest ranked performers and the lowest ranked performers and this list is then sent to upper management (Mark Zuckerberg and Sheryl Sandberg) for their review. Bonuses and raises are allotted to the top performers, and if work output is below expectations, some employees are either criticized, let go, or demoted.15 Career Growth. Career growth is essential in retaining employees. Usually companies with more career growth opportunities have smaller turnover rates. Facebook is a non-traditional tech company, making career growth difficult because of the flat management style described earlier. Career growth for software engineers within Facebook is limited. Even if a software engineer is talented and one of Facebook's top performers, the chances of them becoming an upper-level manager are small. Career growth within Facebook usually amounts to raises, bonuses, and sometimes becoming a project lead.7 Interns at Facebook make a shocking $74,700 per year. Interns receive this high salary for Facebook to compete with other tech companies such as Google for young, talented employees to grow within the company. 16 Marketing Facebook's marketing strategy has evolved tremendously since Mark Zuckerberg created the site in 2004. What started as a service offered exclusively to Ivy League college students has become a service offered to the world (countries with unrestricted Internet). Facebook has worked since 2004 to make its service accessible to nearly everyone. One of its largest moves was allowing users to send invites through their address book to recruit more users by shared connections. Price. Facebook is a free service offered to anyone with an Internet connection and an email address or phone number. The only costs associated with Facebook are for businesses looking to advertise on the website. Facebook ads are fully customizable. Businesses looking to use Facebook ads can choose the amount they would like to spend and individual smaller amounts are taken from that budget each month depending on how many users interact with the ad.17 The estimated daily reach for a business spending $350 for one 15 Graham, M. (2013, October 5). What does Facebook's Performance Review Process Look like? Quora. Retrieved from http://www.quora.com/What-does-Facebooks-performance-review-process-look-like 16 Moses, H. Facebook's $74,000-a-year INTERNS: Website lifts the lid on salaries at social network. Daily Mail. Retrieved from http://www.dailymail.co.uk/news/article-2154036/Facebook-employee-pay-packets-revealed-Even-interns-cashed-up.html 17 Facebook. Facebook Ads and Billing. Retrieved from https://www.facebook.com/business/learn/facebook-ads-billing MGMT 680 - Summer 2015 10 R2 - Internal Competitive Analysis month averages 3,000 to 7,900 Facebook users. 17 Businesses can have a budget as small as $5 per day. 17 Facebook guarantees that ads are marketed to select users who may have interest in the business being advertised, increasing the amount of site views. Facebook also receives added revenue from users who pay through Facebook for social media games. According to the 2013 Annual Report, \"Currently substantially all of our Payments revenue is from users' purchases of virtual goods used in social games on personal computers. We receive a fee of up to 30% when users make such purchases from developers using our Payments infrastructure.\" 18 The price for developers in this case is 30% of the payment acquired through Facebook. Place. Facebook's company offices are centrally located in Palo Alto, California but its services are available internationally wherever the Internet is unrestricted. Facebook has worked to make its services accessible to everyone, regardless of Internet speeds and Internet fees. In Africa, for example, where the Internet speeds are very limited, Facebook has launched a new product that requires a lot less data usage called Facebook Zero. Since Facebook Zero was introduced in 2010, the amount of Africans using Facebook increased to 114%.19 The concept of Facebook Zero is to limit the amount of data and limit the dependence of the Internet to access the functionality of Facebook. Facebook Zero is essentially a stripped-down version of Facebook that allows users to set up Facebook accounts and receive updates just as they would on the mobile application, but without all the graphics and icons. Facebook continues to expand its dominance in the social networking industry by catering to users all over the world, and not allowing itself to be restricted by the resources it requires (the Internet). Product. Facebook's products are listed in their 2013 Annual Report, they are depicted below. Figure 1 - Facebook Products18 Facebook acquired Instagram in 2012 for $1 billion. 20 Instagram, a popular photo sharing mobile application has over 300 million monthly active users. Though it is not close to Facebook in term of MAUs, it does beat out Twitter's 284 million MAUs. 21 Instagram appeals to the younger generations because of its instant accessibility. It is a simple application with no clutter or information overload. It is simply photos shared among friends on a news feed similar to Facebook. Though Instagram had no revenue when Facebook bought it in 2012, it has increased in value as the number of users has increased. According to Fortune, Instagram could be worth as much as $35 billion now. 22 18 Facebook. (2013). Annual Report 2013. Retrieved from https://materials.proxyvote.com/Approved/30303M/20140324/AR_200747/#/8/ 19 Mims, C. (2012, September 24). Facebook Plans to Find Its Next Billion Users and Convince Them the Internet and Facebook are the Same. Quartz. Retrieved from http://qz.com/5180/facebooks-plan-to-find-its-next-billion-users-convince-them-theinternet-and-facebook-are-the-same/ 20 Hill, K. (2012, March 11). Ten Reasons why Facebook Bought Instagram. Forbes. Retrieved from http://www.forbes.com/sites/kashmirhill/2012/04/11/ten-reasons-why-facebook-bought-instagram/ 21 Oremus, W. (2014, Decembter 10). No, Instagram is not Bigger than Twitter. Slate. Retrieved from http://www.slate.com/blogs/future_tense/2014/12/10/instagram_hits_300_million_users_bigger_than_twitter_not_really.html MGMT 680 - Summer 2015 11 R2 - Internal Competitive Analysis Like Instagram, Facebook's Messenger application is a separate application outside of Facebook. Facebook Messenger allows users to make phone calls, text and message other users through the app. Facebook users were once able to perform these actions on the Facebook mobile app, but Facebook decided it would be more efficient to have two separate apps. The messenger app is generally used to communicate privately whereas the Facebook app is intended to share information with a specific \"friend\" base. According to USA Today, communications on the Messenger app increased from the old Facebook messages by 20%. 23 Despite this claim, many users are skeptical of the app because they are afraid their conversations are being recorded. In an attempt to allay these fears, Facebook issued a news release explaining that all applications for mobile devices require use of the microphone, the camera and address book in order to make calls, send photos or text friends.24 The final application outside of Facebook is the recently acquired WhatsApp mobile application. Facebook acquired WhatsApp in 2014 for $22 billion. 25 The app was only making $10.2 million in revenue when it was bought out by Facebook. However, it has half a billion users and the subscriptions to the app are only increasing.25 Zuckerberg explained that his goal for WhatsApp is to solidify its place in the social networking industry by attaining one billion users, and then attempt to legitimize it as a business and monetize it in order to increase revenue. This follows the same business plan Zuckerberg had in place for Facebook. While WhatsApp has similar functionality as the Messenger app, it differentiates itself in that users can connect to anyone on the app instantly, without being friends on Facebook. Also, WhatsApp users can invite friends in their address book to create a WhatsApp account and save money by making calls through the app rather than through the phone. Facebook's mobile application and online site are the most popular of its product line. According to AdWeek, Facebook has over 1 billion monthly active users and over 800 million daily active users making it Facebook's most popular product. However, there is room for improvement as only 341 million of the MAUs are mobile-only.26 Position. As illustrated in Figure 7 of the Industry Analysis, Facebook dominates the U.S. social networking industry, beating out its closest competitor (YouTube) with 3 times the number of monthly active users. Facebook is even number 1first in the global market, as depicted in Figure 9 of the Industry Analysis, beating China's popular QQ social networking site. 22 Kell, J. (2014, December 19). Picture this: Instagram Could be Worth $35 Million. Fortune. Retrieved from http://fortune.com/2014/12/19/instagram-could-be-worth-35-billion/ 23 Graham, J. (2014, August 6). 6 Tips for Facebook Messenger: Talking Tech. USAToday. Retrieved from http://www.usatoday.com/story/tech/columnist/talkingtech/2014/08/16/6-tips-for-how-to-use-facebook-messenger--talkingtech/14014659/ 24 Facebook. Facebook Messenger Facts. Retrieved from https://www.facebook.com/messengerfacts 25 Frier, S. (2014, October 28). Facebook $22 Billion WhatsApp Deal Buys $10 Million in Sales. Bloomberg. Retrieved from http://www.bloomberg.com/news/articles/2014-10-28/facebook-s-22-billion-whatsapp-deal-buys-10-million-in-sales 26 Lafferty, J. (2014, April 23). Facebook in Q1 2014: More than 1 Billion Mobile MAUS. Ad Week. Retrieved from http://www.adweek.com/socialtimes/facebook-in-q1-2014-more-than-1b-mobile-maus/298975 MGMT 680 - Summer 2015 12 R2 - Internal Competitive Analysis Facebook hopes to aggressively acquire social networking applications and sites in order to expand its growth and someday increase its revenue. Its position has transformed since its release in 2004 from an exclusively young service catering to college students to a universal service for everyone. With this transition, public reception has impacted Facebook's position in the social networking industry. Public Perception and Reputation. Trust is listed as the \"cornerstone\" to Facebook's success in the 2013 annual report.18 Trust is so important because individuals who have access either to a smartphone or Internet and do not have a Facebook account claim that it is due to privacy concerns.share so many personal details on their Facebook accounts, and many of the people without Facebook claim they have not registered due to privacy concerns. Facebook has worked aggressively to change its public perception, but so much damage has already been done. It was impossible to permanently delete a Facebook account until 2010. Users had to go through every single post and every single picture to delete them in order for their information to be removed from their sites.27 Then in 2011, Facebook introduced Beacon, which told user's friends what they bought at other websites. Users were so disgruntled over what they claimed was an \"invasion of privacy\" that Facebook had to pay $9.5 million to the lawsuit. 27 Another controversial moment in Facebook's history was when Facebook pulled user's photos to feature in ads without their permission and without compensation for their sponsorship. Facebook paid out $20 million in 2011 in another lawsuit. 27 Despite this negative public perception, Facebook has continued to push the limits when it comes to privacy. Facebook attempted to release \"Moments\" a new application that pulls images directly from camera rolls on mobile devices and shares them with contacts based on facial recognition technology. This technology is similar to that used by the FBI for law enforcement purposes. Earlier this week (June 19, 2015) the European Union banned \"Moments\" from being released due to privacy concerns. 28 Competitive Advantages Facebook's biggest competitive advantage is its impressive user base. As stated earlier, Facebook has over 1 billion monthly active users, making it the top competitor in the social networking industry. It has consistently worked to increase these numbers by developing new technologies and acquiring already established mobile applications. The large user base opens the potential for data collection, metrics, marketing and sales. According to Forbes, Facebook has a competitive advantage even over Google for data collection. Google is limited to searches whereas Facebook maintains better records for the interests and \"likes\" of its users. 29 As will later be discussed in the Technology section, Facebook also has its own data centers which reduce the leasing costs that other start-ups may incur. 27 Luckerson, V. (2014, February 4). 7 Controversial Ways Facebook has Used Your Data. Time. Retrieved from http://time.com/4695/7-controversial-ways-facebook-has-used-your-data/ 28 Keating, L. (2015, June 19). Privacy Concerns Stop Facebook 'Moments' from Coming to Europe. Tech Times. Retrieved from http://www.techtimes.com/articles/61994/20150619/privacy-concerns-prevents-facebook-moments-coming-europe.htm 29 Kogan, R. (2012, October 31). Dear Mark Zuckerberg, Here's How You Double Facebook's Share Price. Forbes. Retrieved from http://www.forbes.com/sites/realspin/2012/10/31/dear-mark-zuckerberg-heres-how-you-double-facebooks-share-price/ MGMT 680 - Summer 2015 13 R2 - Internal Competitive Analysis Technology The technology that supports Facebook is constantly evolving and is nearly unrecognizable from what it was when Zuckerberg released it in 2004. According to the MIT Technology Review, \"Facebook maintains data centers in Santa Clara, CA; San Francisco; and Northern Virginia. The centers are built on the backs of three tiers of x86 servers loaded up with open-source software, some that Facebook has created itself.\" The technology used to maintain Facebook did not exist prior to its role in maintaining Facebook servers, mainly because there was no site in existence that has over 1 billion hits a month. 30 Facebook was only using one core, and are now investing in the research and development of implementing a multicore processor for the billions of requests it may service in a given day. 30 Below is a depiction of the technological infrastructure that supports Facebook. Facebook spent an estimated $50 million per year on data center leases prior to 2009. Since that time, it has begun investing in building its own data centers in Oregon, North Carolina, and Sweden, all together around $1.8 billion in capital expenditures.31 Despite the amount of money spent on this investment, its revenue has increased as the amount of monthly active users has increased.31 Value Chain Analysis The value chain analysis of any social networking company revolves around design, development, procurement, marketing and production. Each piece in the value chain is essential to the success of the social networking site and/or application. The challenge most social networking sites face is producing an output that will translate into revenue for the firm. 30 Zeichick, A. (2008, June 23). How Facebook Works. MIT Technology Review. Retrieved from http://www.technologyreview.com/featuredstory/410312/how-facebook-works/ 31 Leber, J. (2012, May 16). The Biggest Cost of Facebook's Growth. MIT Technology Review. Retrieved from http://www.technologyreview.com/news/427941/the-biggest-cost-of-facebooks-growth/ MGMT 680 - Summer 2015 14 R2 - Internal Competitive Analysis Facebook had a difficult time creating revenue while it catered to its initial users. There was a time when Facebook had no ads, as Zuckerberg placed immense value on establishing a strong user base before making any profit. Once the user base was established, Facebook was virtually untouchable in the social networking industry. This allowed Facebook to monetize the site, and create enough revenue to acquire new applications and build its own data centers to support its exponential growth. The value chain is further illustrated below. Financial Analysis Facebook is a social media interface which is broadcast to people throughout the entire world, allowing them to connect and be more open than any technology or improvement has allowed in the past. Facebook's goals for people who use Facebook are as follows: Connect and Share with Friends, Discover and Learn, Express Yourself, and Stay Connected Everywhere. 32 Facebook has continuously seen an increase in Daily Active Users (DAUs) over the years, and this is where they create more demand for the services that they offer. Consumer social networking is in the forefront right now as it is a way to keep everyone throughout the entire world connected, and Facebook is the leader in that service currently. Figure 2 - Facebook Value Chain Process33 Revenues. In Figure 3 Figure 1 below, from the period January 1, 2009 through December 31, 2014, Facebook has managed to maintain a continuously growing revenue stream throughout the time period. Revenue has reached its' highest point in 2014, where Facebook saw a record number of $12.4 billion dollars in revenue over the past year. Every year it appears that Facebook is looking to outpace themselves from the year beforeprevious year., Ffrom the time of their initial IPO in 2012, they have seen a continued improvement in Earnings per Share (EPS) year over after year.34 As there has been a continual improvement in EPS, Facebook has also seen a jump in profit over the past few years as they have looked to make improvements and purchases outside of the company to continue to expand their reach and impact. Figure 3 Figure 10 below doesn't hesitate to give illustratesa good look how into the way these revenues have grown exponentially as time has progressed. It is safe to say they have managed to make a mark in the consumer segment of the social media industry, and they continue to profit from the position they are intheir positioning. With these 6 years' worth of data to look over, you would be hard pressed to say that you are not impressed by the ability of Facebook to consistently improve and top itself from year to yearit would be difficult to deny Facebook's dominance in the social networking industry, and their steady growth over the years. But with theEver since the initial startup of the company and the eventual IPO, Facebook was putting its best efforts into creating a long sustaining company with ever improving revenues. has put its efforts in maintaining strong revenues and increasing its user base. 32 Shared Publication. (n.d.). Retrieved June 17, 2015, from https://materials.proxyvote.com/Approved/30303M/20140324/AR_200747/#/6/ 33 Buggey, T. (2007, Summer). Storyboard for Ivan's morning routine. Diagram. Journal of Positive Behavior Interventions, 9(3), 151. Retrieved December 14, 2007, from Academic Search Premier database. 34 Facebook, Inc. (2009-2014). Form 10-K 2009-2014. Retrieved from Mergent Online database. MGMT 680 - Summer 2015 15 R2 - Internal Competitive Analysis Figure 3 - Facebook Revenues, Expenses, & Profits, 2009 - 201435 Without the information from the early years of the company it is hard to tell if there were was any significant drop in revenue for the company from the start. Seeing as they Facebook have has improved dramatically from the time of the recession in 2008-2009 until now, and I would say Facebook has their eyes locked on an end goal of being a leader in the consumer social media industry.it is clear that the company seeks to remain a top leader for years to come. Expenses. There are some peaks and some valleys in regards to the amount of expenses that Facebook has incurred over their time in the social media industry. Expenses for Facebook include cost of revenue, research and development, marketing and sales, and general and administrative. Expenses have managed to increase increased for Facebook as a year over after year approach, but some years see some significantly higher increases in expenses than others. The most influential segments of the expense categories for Facebook would have to include Cost of Revenue as well as their Research and Development and Marketing segments. There is a more consistent increase in the areas of General and Administrative expenses so they are not as crucial when taking a look at the financial data. From 2011 to 2012 and 2013 to 2014, the increase in the Research and Development phase of the expenses was at least $1 billion in both of those dates discussed. 36 This increase in R&D for Facebook shows that they arethe company is looking to expand further into markets and are investing the time and resources to try and determine which areas are the best to penetrate. one for them to make a move into. The other area that should be looked atanalyzed in the expenses category for Facebook would have to beis the Marketing and Sales Expense segment. From 2011 to 2012 it increased over $400 million, and from 2013 to 2014 it increased almost $700 million.35 With this in mind, it has to make someoneone might wonder what Facebook is doing with this extra amount of money which they are investing in their 35 Facebook, Inc. (2009 - 2014). Form 10-K 2009-2014. Retrieved from Mergent Online Database. 36 Facebook, Inc. (2009-2014). Annual Report (2009-2014) Retrieved from Mergent Online Database. MGMT 680 - Summer 2015 16 R2 - Internal Competitive Analysis marketing and sales areas. A look into some deeper areas explains it., Facebook is trying to expand in its' content marketing in order to intrigue attract more businesses to buy advertisements off of them to put on the social media site.37 Since advertising is the main source of revenue for Facebook through Facebook ads, it makes sense for them to be reinvesting their money into marketing to try to sell more ads on a daily basis. Essentially the higher the amount of ads that Facebook sells, the more they will continue to see their revenues and profits rise over time. Profit. Profit follows suit for Facebook in that they are continuingFacebook continues to see a rise in profits as time passes as they have their revenues as well as expenses. Facebook held the highest profit numbers in . 2014 was the year when Facebook held the highest profit numbers . so far when theyFacebook had a total of $2.94 bBillion in Net Income for that fiscal year. The continued profit growth has allowed Facebook to continue to make acquisitions of companies as they have in the past. With even more growth, it looks as though Facebook will look to continue to expand further into more and more markets which they do not have a foothold in at this current time. In 2012, profits took a large dip as they dropped from a total of $1 billion in 2011 to $53 million in 2012. This was also after Facebook started its IPO and I'm sure it was a scare serious concern to the potential investors when those final numbers came out. One of the key influences in the much lower profit amount in 2012 could be due inwas due to the fact to the acquisition that Facebook made ofacquired another social media company, Instagram. Before the IPO in May of 2012, Facebook purchased Instagram in April of 2012 for $1 billion.38 Though this should be seen as a strategic move, I am sure that investors did show some initial concern in regards to the amount of money that was spent for the purchase, and that it had such a drastic impact on the bottom line for the company in 2012. After the fear-stricken year of 2012 in regards to Facebook's profits, since that point in time they havethe company has seen a big rebound in terms of profits. For 2013 and 2014 Facebook saw profits of , $1.5 and $2.94 billion respectively. This kick back was important to the success of the company as it progressed forward through the IPO and continued to garner investors into the organization. With the continued improvement of the ad campaigns as well as the continued investments into outside companies (Instagram, WhatsApp), it is clear to see Facebook plans on sticking around for the long haul and keeping hold of that number one spot. Segmented Revenue - Advertising. Facebook has one main source of income that drives the continued growth in revenues, and that is the advertisements that are scattered throughout someone's the \"newsfeed\" whether it is on a desktop or mobile device. Figure 4- Revenue Breakdown, 2013-201132 37 Investing in Facebook: A comprehensive primer and analysis. (n.d.). Retrieved June 18, 2015, from http://marketrealist.com/2014/01/facebook/ 38 Facebook Buys Instagram for $1 Billion. (2012, April 9). Retrieved June 17, 2015, from http://dealbook.nytimes.com/2012/04/09/facebook-buys-instagram-for-1-billion/?_r=0 MGMT 680 - Summer 2015 17 R2 - Internal Competitive Analysis As you can see depicted above, revenue is mainly derived from the use of the advertising that Facebook markets to people its user base and businesses throughout their the website. There's a continuous feed of advertisements that makes its way into every person's timeline news feedat different times within the day. Essentially Facebook has metrics analytics tools established within their website which track the sites you users visit and the profiles you users go to on their own websiteview while they are logged on. With this information they then cater to your user preferences with both ads in your timelinethe timeline, as well as ads on the sides of the website throughout. Since they are able to cater this to each individuals' preferences, it makes it more likely that the business who has purchased the ad may receive a \"clickthrough\" purchase. The more consistent that people make purchases from \"click-throughs\" on the ads, the more likely the businesses are to continue to invest in the advertisements that Facebook offers. Figures 11 and 12 Figure 2 and Figure 3 above shows the exact breakdown of the company's revenues between the Payments which they receive and the Advertisements that they offer. The payments that Facebook receives revenue from are often an overlooked feature that is offered on the Facebook website. Through this process, users can make purchases of digital goods and virtual goods from developers that create application on the Facebook website. 1 Most of the \"games\" which are available on the Facebook website have in-app features where you users can purchase additional digital goods/services for the \"game\" which the user is playing. One of the positive aspects of Figure 12 above is the idea that both sources of the revenue for Facebook has have continued to increase as time has continued to passprogressed. Facebook is one of the key leaders in the consumer social media industry, and they look to hold onto that position for as long as possible. With their the company's willingness to spend money on R & D for the company, and their ability to invest in outside companies for more sources of revenue, investors should expect to see continued improvements in revenues and profits. Profit Margin. Profit margin measures how much profit the company makes from every single dollar in sales revenue. Facebook started off with a pretty steady profit margin from 2009 - 2011. But in 2012, their profit margin took a huge nose dive as there was a significant difference in their Net Income from 2011 to 2012. Facebook saw a 96% decrease in their profit margins when they dropped from $0.27 in 2011 to $0.01 in 2012.39 Facebook made a significant purchase in 2012, the photo social media application, Instagram. Since there was approximately a $1 billion decrease in net income for Facebook in 2012, and they purchased Instagram for $1 billion in 2012, it is relatively safe to say this is what caused their significant drop in profit margins. As can be seen in Figure 13, Facebook has seen an increase in both 2013 and 2014 in the profit margin for the company. Since their investment by purchasing Instagram, as well as their IPO onto the stock market, their Profit Margins have almost returned to their average levels. As Facebook continues to expand into other markets and forms of social media, they the company will continue to expand their ability to increase their profit margins as time passes. Asset Turnover. Asset turnover is a measurement of management's ability to use assets efficiently and effectively to generate sales. As can be seen in Figure 514, Facebook started off with an asset turnover of $0.96 in 2009, and has seen this ratio decrease as time has passed. The most significant drop occurred between 2010 and 2012, with a slight drop in 2014 as well. The drop can be attributed to the continued increase in the amount of assets that Facebook has in terms of its' financial statements. With this in mind, 39 Facebook, Inc. (2009 - 2014). Form 10-K 2009-2014. Retrieved from Mergent Online Database. MGMT 680 - Summer 2015 18 R2 - Internal Competitive Analysis you can take a look at thea large amount of acquisitions that Facebook has made over the past few years that had the most significant impact on the asset turnover ratio are depicted below.. In 2012, as was stated above, Facebook purchased Instagram, and in 2014, the company y also purchased the application WhatsApp for $19 billion which had a significant impact on the asset turnover ratio. Facebook is making strategic moves now, to continue to maintain and improve their ability to be the top social media service in the world. Financial Leverage. Financial leverage indicates how well the company uses debt to finance its assets. A higher financial leverage indicates that the company is relying on debt to finance its assets. Facebook has managed to keep a steady andily decreasing financial leverage ratio since its entrance into the market. As an investor, this is a good sign and significant confidence boost because Facebook has steadily decreased its' reliance on debt as a means of funding its assets. MGMT 680 - Summer 2015 19 R2 - Internal Competitive Analysis This decrease is attributed to their the company's ability to continue to increase their assets with purchases that are funded through the investments they are receiving from stockholders since their IPO. This is significant for the future of Facebook as a company, the less they are relying on debt to fund their assets, the better their ability to sell off sections of their company if necessary due to financial hardships that they may encounter. QZone Company Profile Created in 2005, QZone is a Chinese social networking site owned and operated by Tencent. QZone's functionality is similar to that of Facebook. There was a huge need for this type of platform in China because Facebook is prohibited by the Chinese government, also known as the Great Firewall of China. QZone's owner, Tencent, is a Chinese publically owned company that handles mobile-value added and online advertising services. Users can create customizable blogs, share photos, make posts, write diaries, and listen to music. Since its creation, QZone has grown to have close to 700 million users as the second largest social network open platform in the world after Facebook. Figure 16 below shows the top sharing social network websites in China as of October 2013.40 Of course, the social media industry has a huge presence on mobile phones, not just on the computer. QZone is still the first by far in the rankings of mobile social application activity for mobile phones in China as of December 2013 as illustrated in figure 17 below.40 40 Barakat, C. (2014, March 14). QZone tops WeChat as China's biggest open-platform social network. SocialTimes. Retrieved from: http://www.adweek.com/socialtimes/qzone-tops-wechat-chinas-biggest-open-platform-social-network/144824. MGMT 680 - Summer 2015 20 R2 - Internal Competitive Analysis Despite all of the competition, QZone was able to rise to the top. Back in 2006, the vice president of QZone, Peter Zheng, launched a Web 2.0 space model-blog to QZone which was a huge hit, helping the site reach over one million users by the end of 2006. One year later, users were up to 100 million long before Facebook was popular worldwide. By 2009, China banned Facebook from the country and a void was created that QZone was able to fill by offering a social networking site for liking, posting, commenting, and sharing, catering to the newly emerged microblogging need. Thus by the end of 2009, QZone was up to 300 million users. 41 Once it reached the 500 million user mark in 2011, QZone decided that it might be time to move the software to an open platform. Before doing so, the company tried a few games first to test the success of the platform before the real launch. It was QQ farm that really sped up the transition for QZone's open platform based on its very own operating model. By design, QZone is the traffic distribution platform and QQ is the biggest traffic entrance, another company owned by Tencent. 41 Company Structure As stated in Tencent's annual report: If the PRC government finds that the agreements that establish the structure for operating our services in the PRC do not comply with PRC governmental restrictions on foreign investment in value-added telecommunications businesses or other related businesses, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.42 41 Sabrina. (2013, September 13). The story of China's biggest social network: Qzone. China Internet Watch. Retrieved from: http://www.chinainternetwatch.com/3346/tencent-qzone/. 42 Tencent Holdings Limited. (n.d). Tencent. Retrieved from: http://www.tencent.com/zhcn/content/ir/an/2011/attachments/20111114.pdf. MGMT 680 - Summer 2015 21 R2 - Internal Competitive Analysis Tencent Product Lines QZone is one of three major lines of messaging social platforms that Tencent owns and operates. Additionally, there is QQ and WeChat/Weixin. QQ is specifically an instant messaging software that dates back to 1999 while WeChat is a text and voice messaging application service released in 2011. 43 Market Area QZone does business in China and also has users in South Korea. While accessible in English through QQ International, the full version of QZone is only available in Mandarin. In order for other languages to be read through QZone, the user must manually go into their browser settings and select the option to have the pages translated. 44 Company Functional Areas Tencent has six functional areas described in the figure below while all services and operations can be categorized into four business lines: corporate functions, security, services, and architectures. The line of operations is then further subdivided into five branches: corporate development, wireless services, internet services, interactive entertainment, and online media. 45 Tencent Functional Areas TEG Technology & Engineering Group, comprised of Tencent Research and operating divisions SNG Social Networking Group, comprised of its Internet business lines and some divisions from Tencent Research CDG Corp. Development Group, formed by Tencent Guangdong R&D Center and its corporate development arm IEG Interactive Entertainment Group, original Interactive Entertainment service 43 Richter, F. (2014, August 13). Tencent's impressive line of messaging + social platforms. Statista. Retrieved from: http://www.statista.com/chart/2575/active-users-of-wechat-qq-and-qzone/. 44 Is there an English version of QZone? (2012, June 11). QQ International. Retrieved from: http://blog.imqq.com/do-you-haveqzone-in-english/. MGMT 680 - Summer 2015 22 R2 - Internal Competitive Analysis MIG Mobile Internet Group, made up of wireless services and some divisions from Tencent Research Online Media Group, namely its portal business OMG Figure 5 - Functional Areas of Tencent45 Mission/Vision of the Company Tencent's slogan is: \"We aim to create value for our users.\" The following figures depict Tencent's vision, mission, values, and business and management philosophies. 46 Vision To be the most respected Internet company. Earn the respect of consumers by listening, satisfying and exceeding their needs and expectations. Earn the respect of employees by continuously improving our corporate reputation so that Tencent is a company employees are proud to work for. Earn respect within the industry by promoting the healthy development of the Internet industry and win-win collaboration with partners. Earn the respect of society by actively assuming corporate responsibility and contributing to community development. Figure 6 - Tencent's Vision46 Mission To enhance people's quality of life through Internet services. Treat the Internet like electricity: a reliable service that makes life easier and more enjoyable. Address the diverse needs of different regions and consumers by offering differentiated products and services. Build a healthy and win-win Internet ecology based on open collaboration with partners. Figure 7 - Tencent's Mission46 Values Integrity Ensure full compliance with both corporate policies and national regulations, not just according to the strict letter of the law, but according to its spirit. Treat morality, justice, honesty, and trustworthiness as guiding principles in all of our actions. 45 Chiang, B. (2012, May 18). China's Tencent to restructure into six groups, here's why. TechCrunch. Retrieved from: http://techcrunch.com/2012/05/18/tencent-to-restructure-into-six-groups/. 46 Tencent Corporate Culture. (2015). Tencent. Retrieved from: http://www.tencent.com/en-us/cc/culture.shtml. MGMT 680 - Summer 2015 23 R2 - Internal Competitive Analysis Use integrity to bring a positive impact to our markets. Proactive Commit wholeheartedly and execute efficiently in assigned tasks. Proactively assume responsibilities and embrace new tasks and challenges. Always maintain a sense of curiosity, continuously learn, and strive for excellence. Collaboration Collaborate and co-prosper with industry partners by promoting a win-win mentality. Cooperate with people in other departments or business units to achieve overall corporate goals. Contribute to mutual growth by sharing professional knowledge and experience with colleagues. Innovation The objective of innovation is to create new sources of value for the customer. Innovation can be found everywhere, by everyone. As innovators, we refuse to be afraid of failure, and intend to boldly achieve breakthroughs for our consumers, while carefully learning from mistakes. Figure 8 - Tencent's Values46 Business Philosophy Consumer value as first priority. Focus on the long-term development of the company by putting consumer value above short-term commercial interests. Develop a deep understanding of consumer needs in order to provide the most satisfying products and services. Communicate candidly with consumers, respect their feelings, and grow with their evolving needs. Figure 9 - Tencent's Business Philosophy46 Management Philosophy Care for the development of employees MGMT 680 - Summer 2015 24 R2 - Internal Competitive Analysis Provide employees with comfortable work environments and attractive incentives. Enable employees to enjoy professional and personal growth in a thriving environment. Coach and encourage employees to achieve success in work based on the attitudes of trust and respect. Figure 10 - Tencent's Management Philosophy46 Value Chain Analysis Tencent is able to fill a market need in China with QZone because of the government ban on Facebook and other popular social networking sites available to the rest of the world. QZone has so many users because people in China are not able to join many other popular sites that the rest of the world uses. While QZone is free like most other social networking sites, one way that Tencent maxes out profits is by selling advertising space to Chinese retailers. Another way is through upgrades that are offered on the site such as changing your identity in the form of a QQShow avatar from the default setting or buying clothes. Payment is accepted in QB currency which is equivalent to one RMB. 47 The future of Tencent is bright as they continue to diversify their brand and products, even acquiring two U.S.-based game studios to break into the gaming industry. One prediction is that the company may try to establish itself as the underpinning of a host for new third party services. Tencent also wants to expand its services to other countries around the world which may prove to be an uphill battle competing with Facebook.47 Tencent operates on an open public platform; therefore, it will not crush smaller startup companies. While this required some new development work for Tencent, the company was able to better meet the diversified and personalized needs of the Chinese people. Furthermore, Tencent's competitors like Baidu, Aliaba, Qihoo 360, Sina, and SNDA all opened their platforms to appeal to smaller enterprises. As Tencent opened more platforms, their strategy also had to change, encouraging more innovation from developers to help build healthy and profitable programs. By having multiple open platforms the competitiveness of the market has improved by increasing the links in the Internet application development chain. Tencent has played these new opportunities to their advantage using their own resources and development services.48 Financial Analysis QZone is a part of the Chinese technology giant Tencent Holdings Ltd. QZone is the Tencent equivalent of the United States' social network Facebook. The active users for QZone is are approximately 33% of 47 Andrews, R. (2012, August 13). Interview: How China's giant Tencent makes users pay. Gigaom. Retrieved from: https://gigaom.com/2012/08/13/interview-how-chinas-giant-tencent-makes-users-pay/. 48 Sabrina. (2014, February 11). The story of the rise of the Tencent empire. China Internet Watch. Retrieved from: http://www.chinainternetwatch.com/6031/tencent-rising-of-penguin-empire/#First_Pot_of_Gold. MGMT 680 - Summer 2015 25 R2 - Internal Competitive Analysis the total use in the entire company of Tencent. With this percentage, we used it toit is possible get an estimate of the breakbreakdownout of revenues, expenses, etc. for just QZone. Tencent does not specify the revenues generated from each of their the company's individual companiesproducts. They doTencent does break it outbreak down the finances by segment and QZone has an impact on a majority of these segments, further justifying the percentage of the company's revenues/expenses that can be attributed to QZone only. Revenues. In Figure 25, from the period January 1, 2004 through December 31, 2014, QZone has sustained a revenue stream that has steadily increased from since the very startits origins. In 2014, revenue for QZone managed to reach a record level of $26 billion, similar to that of Facebook.49 As time has continued to progress, QZone has continued to grow and expand as evidenced in their the site's expanding increasing amount of users. In 2014, QZone saw its highest number of Monthly Active Users (MAUs) of 654.1 million users.50 This showcases the ability of the company to continue to attract users, and with that comes a greater opportunity for revenues throughout the company's continued growth. The continued acquisition of other services, technologies, and companies has helped not only QZone but also Tencent have a strangle strong hold on the social networking industry in China. China has very high restrictions in regards to on the information and technology their people can access on the internetInternet. Thus, QZone has to do a good job of tip toeing the line of where they arecontinue attracting users by allowing people users to express their opinion, but also not stepping on the toes of abiding with the Chinese government and the implemented internet Internet regulations for social networking sites.. Expenses. Early on in the history of QZone, the expenses which they encountered rivaled nearly matched the revenues they were making., but sinceSince then, however, the margin between revenue and expenses has grown widened at what seems to be a year over year pace. In regards to Qzone's most common expenses they are made up ofThe cost of revenues, selling and marketing, and general and administrative expenses encompass QZone's most common expenses. The highest level of expenses that the company has encountered came in 2014 when the expenses reached a level of $18.28 billion. 51 49 Tencent Holdings Ltd. (2004 - 2014). Form 10-K 2004 - 2014. Retrieved from Mergent Online Database. 50 Tencent Holdings Ltd. (2014). Annual Report 2014. Retrieved from Mergent Online Database. MGMT 680 - Summer 2015 26 R2 - Internal Competitive Analysis QZone's expenses continue to rise and this is due in part to the territory and business that they are intheir territory, and business industry. Technology in the social networking industry is always on the rise and constantly evolving at a pace few can keep up withsustain. In order for QZone to continue to be successful, they must be able to keep growing while maintaining a lock on what control on the technology is necessary for them to be successful one, five, and even ten years down the roadin the future. The key example in this industry is MySpace, who had the lead in the market and then when technology evolved, they couldn't manage to keep up. Now, MySpace is a shadow of the company that they it used to beonce was, and it serves as an example for companies like Tencent, which are trying to avoid a similar fate., this is a situation QZone is doing everything to avoid. A majority of QZone's expenses can be attributed to the continued acquisition of other companies and applications by Tencent Holdings, Ltd. which may help them in regards to the future success of the company. By spending money now, they arethe company is hoping that it will make them a significant increase in revenue down the road. in the future. Profits. Year over year from 2004 through 2014, QZone has managed to see a continued upward trend in regards to profits within the company. Figure 13 25 above shows that in the beginning profits were not as prevalent, but 2014 saw a large spike in the amount of profits to $7.93 billion