Acquisition of Instagram by Facebook - Essay Example

?Case Study Table of Contents Table of Contents 2 Introduction 3 Strategic Opportunities and Threats Facing Facebook 4 Methods of Strategic Development and Growth of Facebook 6 Analysing Instagram’s Strategic Decision Using the TOWS Matrix 7 Conclusion 10 References 11 Introduction Acquisition of Instagram by Facebook is a prominent occurrence in the business world in the recent times. A comprehension of the strategic reasons behind this acquisition is a critical aspect to gauge the long-term motives of the companies. Facebook is a social networking platform that helps to connect with family as well as friends along with facilitating in sharing own views and opinions, sending messages, sharing images and videos and playing games among others. On the other hand, Instagram Inc. founded in 2010, is a free photo sharing application software company. It provides a very beautiful, fast as well as amusing way of sharing photos with the family and friends. The company has become very popular with its photo sharing application but the acquisition of Instagram by Facebook at a valuation of $1 billon is really surprising for the whole industry because since the establishment of Instagram the company has no turnover up to now. It has only 35 million users of the application especially the Apple Smartphone users as well as other Android smartphone users. It is also very surprising for all because there are a lot of blog sites that are already accumulated with Facebook, despite this it has acquired such as a small application based company (Gavaghan & Warren, 2013). In this context, it is definitely required to be pointed out that understanding the strategies of the big companies is at times really quite complex. The term strategic management describes the process of analysing decisions as well as actions taken by an organisation in order to create and derive sustainable competitive advantages. Therefore, it is determined that managing the strategy of an organisation effectively as well as efficiently is the essence of organisational growth (The Social Media Guys, 2010). This essay intends to critically discuss the strategic opportunities and threats facing Facebook. Moreover, the different methods of strategic development that can be used by the companies will be identified. Consequently, amid these methods, the appropriate method applicable in case of Facebook’s acquisition of Instagram will be evaluated. In addition, with the aid of the TOWS matrix, a critical analysis would be made of the strategic decision taken by Instagram’s management to join forces with Facebook. Strategic Opportunities and Threats Facing Facebook In the global business world, every organisation has to deal with two types of environment i.e. internal environment as well as external environment. In this context, the parameters that will be described comprise the opportunities as well as the threats faced by Facebook by taking concern the external environment (Thompson & et. al., 2005). In the context of strategic opportunities for Facebook, firstly there is a need to highlight the acceptance of the global people of this innovative concept. The audience size of this social networking media and the talents who are associated with this concept is the significant strength as well as opportunity of this organisation for dealing with any hurdle coming from the global competitors. The term strategic opportunity is a broad concept because it is not only defined by the present business scenario simultaneously it also dedicatedly focuses on the sustainability as well as future prospects (Jeffs, 2008). In order to address the varied strategic opportunities, there is a need to determine the core strategic causes behind the acquisition of Instagram by Facebook. Behind this strategy, unquestionably it can be stated that Facebook acquired this company not because of the turnover generated by it but owing to the user acceptance related to the application. Facebook seeks to sustain in the global market through continuously providing innovative applications as well as functions to the customers. Another biggest opportunity for Facebook is the enormous growth of the smartphone industry. In recent years, the smartphone users have augmented considerably along with the internet users, which in turn have facilitated to amplify the use of Facebook through such devices and mediums (Sadler, 2003). In addition, another major strategic opportunity for Facebook is that gradually it is becoming very famous in the corporate world as a medium of advertising as well. Due to the huge mass proliferation in the social networking platforms, the industrialists as well as authorities are deeply focused towards the growing concept to use it as a media of advertising. Thus, undeniably it will be one of the biggest sources of revenue for Facebook within a short span of time. In terms of company strategies, it is observed that Facebook has always focused on climbing the crown of Wall Street in the social media industry through its Initial Public Offerings (IPO), and the purchase of Instagram is also beneficial to further accelerate the growth options for the organisation (Guardian, 2013). In terms of recognising the threats to the organisation, firstly there is a need to highlight the competitors of the organisation and their initiatives. In terms of global competitors, the names of Twitter, Tumblr, Foursquare as well as Flicker among others can be highlighted. Amid these social networking sites, the use of Instagram has been gradually becoming quite popular. For this reason, Facebook had taken this small application base company very seriously to condense the future challenges. Besides, one of the biggest threats for Facebook is that the social networking industry has very low entry barriers. For introducing a social networking site, there is the main requirement of a team of efficient programmers, a bunch of services as well as a good concept which are quite easily accessible in the market with an investment of limited extent of capital. Though presently Facebook has very less number of competitors in the market but in future there is a prospect of proliferation of a number of players in this industry due to the emerging growth as well as increasing profitability. Moreover, the acquiring of Instagram can result in certain uncertainties as the stability and long-term success viability of the photo sharing application software is not definite. Thus, it can hamper the credibility of Facebook (Clark & et. al., 2008). Methods of Strategic Development and Growth of Facebook Strategic management of an organisation entails three most important continuous processes i.e. analyses, decisions as well as actions. The analysis of the strategic management defines the strategic goals of the organisation i.e. mission, vision as well as strategic objectives. Methods of strategic development entail three vital components including internal development, acquisition or disposal and joint development or alliances. In this regard, in internal development method strategies are prepared by building on along with strengthening a corporation’s own competencies. It is regarded as a crucial method of strategy development. Similarly, the acquisition or disposal method includes a strategy of acquiring another business entity to ascertain an enhanced growth and market coverage. Moreover, alliances or joint development method aims to prepare cooperative venture in which both companies receive equal benefits from the operations (Sharpley, 2006). The success of acquisition strategy process for the diversification of market also depends on various parameters entailing environment, capability as well as expectation. Environment is taken in this context for engaging a special focus on the co-competence of the organization that includes skills, capabilities, actions as well as processes to achieve the competitive advantages. The management of Facebook perceived that in the global market the usage of Smartphone is increasing day-by-day. Though in the Smartphones there are applications for the sharing of photos in Facebook but customers always desire something more attractive and from this parameter Instagram is the most favourable option for the users. The functions of Instagram are even more attractive than any photo sharing applications of the Apple Smartphones. Therefore, Facebook has taken the strategy of acquiring Instagram to derive competitive advantages in the global social media market. The expectation of the organisation is dependent on how much the strategy will be effective to condense the challenges and congregate the opportunities effectively as well as efficiently. In this context, the strategy of acquisition taken by Facebook is especially beneficial for the development of the business and meeting the expectations of the stakeholders. Moreover, the unique experience that can be derive by the users from the incorporation of Instagram’s provided features including photo sharing would in turn enable the ever-increasing user segment of Facebook to have a considerably developed option. This in turn can facilitate to augment the customer base of Facebook who are mainly avid user of photo sharing experience. Consequently, a sustained growth can be ascertained for Facebook as the company can attract the consumer segment from other preferred photo sharing sites to its own offerings (Pearce, 2009). However, for the certain looming threats in this industry the organisation is strongly concerned regarding the positive fulfilment of customer expectations along with maintaining the gradual increase through providing continuous innovative value added services within this process. Here, the expectation of Facebook is primarily not to ascertain an increase in the turnover of the company through the aid of Instagram but to augment the users as well as reputation of the organisation (Small Business Advancement National Centre, 2013). Analysing Instagram’s Strategic Decision Using the TOWS Matrix TOWS matrix is a classical business analysis tool for the analysis of internal as well as external business perspective. The term TOWS defines Threats, Opportunities, Weakness as well as strengths of the organisation. A proper comprehension of these parameters is especially helpful to critically examine the current business scenario and to recognise the required strategies for the future development of the organisation. For the TOWS analysis of Instagram’s strategic decision to join forces with Facebook, firstly the threats of the organisation need to be assessed (Proctor, 2007). Instagram is only an application based service provider organisation that helps to share photos and images in the social media sites and this sector has quite low entry barriers. Therefore, anytime an organisation can grow in this sector through providing innovative application based services. For this reason, Instagram needed to mitigate this threat by enhancing its strength through becoming a part of Facebook. On the other hand, a threat had been created to Facebook from Instagram due to the popularity of its photo sharing application. Facebook become hugely popular due the easy application of it by using computer. However, in the last few years, the huge increase of Smartphone users has created a big challenge for Facebook. To maintain the speed as well as simplicity of usage especially regarding photo sharing, Facebook has taken this strategic decision of acquiring Instagram to reduce the future threats. The major opportunity of joining forces with Facebook for Instragrm is obtaining a major market for its application products, which can be further leveraged with its strength of quality offerings. On the other hand, the fast, simple as well as innovative application of Instagram captures the mind of the users. Though this organisation had no turnover before being acquired by Facebook, the critical strength as well as opportunity was the registered customers along with enormous acceptance of this application. Instagram had only taken this opportunity into action and sold the application to Facebook at a worth of $1billon. Conversely, the acquisition of Instagram by Facebook also would help to increase the users of Facebook along with ensuring greater visibility for Instagram in the developed countries including China and Russia. In terms of weakness that can create threat to Instagram, initially there is a need to highlight the security issue with the usage of this application. Through this application, anyone can post any photo in the social media sites. It is the biggest weakness with the application of this organisation therefore it can also face legal challenges from the purview of the government. However, after being acquired by Facebook in order to reduce these weaknesses, it added a lot of legal terms and conditions with this application comprising aspects such as initially the users must be more than 13 years old, users cannot post any sexual or pornographic post as well as contents through this service, users should be responsible to keep their own passwords secretly so that others cannot login explicitly. The organisation has strictly focused on these parameters and certain terms and conditions are applied from 19th January, 2013 for protecting any kind of violence (Instagram, 2013). In terms of strengths of the organisation through joining forces with Facebook, undoubtedly it can be said that the sharing of knowledge and skills of the employees of both the companies can result in greater positive outcomes. The skills of the employees are the core strengths of the organization to meet the requirements of the dynamic as well as changing needs of the users (Office of Fair Trade, 2012). Conclusion Conclusively, from the overall analysis it can be observed that Instagram was acquired by Facebook at a worth USD 1 billon in order to gain decisive strategic competence. In this regard, Facebook is not generally focusing upon the present business scenario, it is mainly focused to ensure its long-term stability through such strategies in the long-term. Though Twitter and LinkedIn are amid the biggest competitors of Facebook but the organisation is at times unable to gather or attract the mass users. From this viewpoint, Facebook has aimed to remain one step ahead of its competitors by enduring superior user experience through the acquisition of Instagram. Moreover, in the present day scenario, for the enormous usage of Smartphone the fast as well as simple photo sharing applications of the Instagram has been becoming very famous amid the users. Therefore, to reduce the future challenges as well as threats and to increase the opportunity of mounting the Facebook users through smartphones, it has taken this sensible acquisition strategy. References Clark, W. & et. al., 2008. Strength. Facebook and the Emerging Social Networking Industry. [Online] Available at: http://www.mcafee.cc/Classes/BEM106/Papers/2008/Facebook.pdf [Accessed May 24, 2013]. Guardian, 2013. Facebook's IPO Announcement – as it Happened. News. [Online] Available at: http://www.guardian.co.uk/technology/blog/2012/feb/01/facebook-ipo-announcement-live [Accessed May 24, 2013]. Gavaghan, J. & Warren, L., 2013. Instagram's 13 Employees Share $100m As CEO Set To Make $400m Reveals He Once Turned Down A Job At Facebook. Mail Online. 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