Acquisition Approach of Facebook, Threats and Opportunities - Case Study Example

?Case Study Table of Contents Introduction 3 3 Strategic Opportunities and Threats of Facebook 4 4 Opportunities 4 4 Threats 5 5 Methods of StrategicDevelopment and Growth of Facebook 6 Analysis of Instagram’s Management’s Strategic Decision to Join Forces with Facebook Using the TOWS Matrix 9 9 Strengths 9 Weaknesses 10 Opportunities 10 Threats 10 10 Strength-Opportunity 11 11 Weakness-Opportunity 11 11 Strength-Threat 11 Weakness-Threat 12 12 Conclusion 12 References 14 15 Introduction In relation to the modern day business scenario, it is crucial for companies to come up with different strategies so that they can develop a sustainable business. The strategies and their needs are entirely dependent on the operations of organisations. It has been further noted that effective strategies also enable organisations to have an upper hand over their competitors in the business. Acquisition or alliance with other organisations is one the most reliable strategies in the modern day business perspective. Acquisition or alliance is a kind of strategy where a company purchases ownership stakes of another company in order to capture a particular target market. These strategies are also considered as among the pertinent growth strategies of companies in today’s business environment (Sherman, 2010). Many of the companies have come up with such strategies in the recent years. The latest company that has incorporated this strategy is Facebook. The company acquired the stakes of Instagram. It is the company that provides online services such as photo sharing as well as social networking for the users. The company has more than 30 million users worldwide with a total valuation of the firm of around US$20 million. Facebook, a social media giant offered a price of US$1 billion to purchase the stakes of the company. This acquisition will enhance the position of Facebook in front of its competitors, as through the assistance of it the company can provide finest photo sharing experience to its users all around the globe. This is also considered as among the key growth strategies of Facebook (Wharton, 2012; Kosner, 2012; BBC, 2012). This essay will analyse the entire case about the acquisition approach of Facebook and discuss the various threats and opportunities for the company. Furthermore, the essay will also analyse the methods of strategic development and evaluate the ones that will be applicable in Facebook’s acquisition of Instagram. In the later part of the essay, TOWS matrix will be used to analyse the strategic decisions of Facebook and Instagram regarding the acquisition. Strategic Opportunities and Threats of Facebook It can be observed from the analysis of the case study that Facebook will have certain opportunities as well threats as a result of its approach of acquisition of Instagram. There are certain potential benefits for the company. Opportunities It has been determined that owing to the acquisition of Instagram Facebook will strengthen its position in front of its major rivals in the market. Acquisition of Instagram will benefit Facebook users quite considerably. Facebook always intended to provide best photo sharing experiences to the customers or users. In this regard, the acquisition will enable the company to accomplish the aforesaid goal as Instagram is capable of delivering best photo sharing experiences for the users. In addition, the applications provided by Instagram will facilitate users of Facebook to leverage instant filters facility, which will be quite unique. This is also among the major opportunities for Facebook. Furthermore, it has been learnt that pictures and images taken from mobile devices appear to be blurred and ordinary. This aspect of photo viewing experience will be completely changed with the inception of the alliance of Facebook with Instagram as the later will enhance the quality of pictures captured and they can also be easily shared. Moreover, pictures taken with the help of cell phones cannot be processed before uploading them to Facebook, but with the help of Instagram this can be done and the user will surely enjoy a different and a better experience altogether. This is also among the various opportunities for Facebook. It has been further analysed that billions of users upload their photos in Facebook to share with friends but they always fail to organise them. In this regard, Facebook will be benefited as with the applications of Instagram have the capability to overcome such weaknesses associated with Facebook. Apart from these, analysts also suggest that with this alliance made by Facebook, it will be able to get a positive hold on the overall mobile environment (Wharton, 2012; Kosner, 2012; BBC, 2012). Threats Alike different opportunities and benefits, there are certain disadvantages or threats that might affect the overall operations of the company (i.e. Facebook) from the acquisition. The first and the foremost in that regard is that the company is about to pay a huge amount for the alliance with Instagram. In this regard, the fact that Instagram is quite a new company in the market with an experience only several months will create a threat for the huge investment of Facebook. Apart from this, being a smaller company, any decline in performance of the product offered by Instagram at any point of their alliance will directly impact the hard earned reputation of Facebook. These are potential threats for Facebook owing to the alliance (Wharton, 2012; Kosner, 2012; BBC, 2012; Campbell, 2011). Methods of Strategic Development and Growth of Facebook It has been observed that usually there are three methods of strategic growth and development of companies. They mainly comprise internal development, acquisitions or disposal and joint development (alliance). Internal development methods or strategies are also termed as organic or generic growth. According to this strategy, business or company owners come up with new resources in the business and enhance own capabilities of the organisation. It is also termed as one of the primary methods of strategic development. In this regard, the companies come up with newly developed manufacturing designs and make development of untapped new markets. This can be done by choosing new agents and involving sales force of the company in the new market to gain full understanding of it. Furthermore, companies in such strategies also come up with new products in the market. This creates new market openings for the companies. These moves of companies are also justified with regard to increasing the market share as well as sales revenue of a particular product line of the business unit. It is among the most widely used strategies of growth in relation to the modern day business. In addition to this, internal development strategies or methods encourage companies to make reinvestment in employees’ development and training, making improvement in product quality and ensuring the deliverance of improved services to the customers among others. Internal development strategies of companies do not show instant results and are essentially developed for future benefits. It is quite vital with regard to the increasing size of operations of business (Talloo, 2007). Subsequently, acquisition or disposal strategies of modern day organisations are also among the widely implemented development strategies. Acquisition of disposal can be defined as the strategy of a company to take the ownership of another company. This particular strategy has been evidently used by Facebook in relation to the context of Instagram to derive certain pertinent benefits. The benefits include to make an expansion of the existing business operations, along with enhancing strategic capability of the business as well as to cope up with changing environment of business like market competition and changing demand of customers. Through merger and acquisition companies might also gain strategic capability by exploiting its competencies in a new area. Cost efficiency is another specific reason that encourages acquisition. Furthermore, through merger and acquisition, companies can increase their business partners, which will grow their size of operation. It is vital to mention that the main intention of companies to adopt merger and acquisition is also to increase the net worth of the business in the global arena. This strategy developed by companies in the modern day business scenario has been witnessed to show results quite immediately (i.e. immediate return on their investment) (Talloo, 2007). Another development strategy implemented by companies is called joint development (alliance). In this method, two or more companies share their resources in order to enhance their operations. This is done in order to meet the changing needs of the customers and markets and also to form partnership with other companies that can enable cost reduction. The resources that are being shared in this sort of development approach will comprise skills, finance and materials among others. With these strategies, companies can also gain or enter an untapped geographical market where the existing company will help the new company to gain knowledge about the new market, its customers and other needs. Joint ventures, formal relationship networks and franchising are the most common forms of joint development or strategic alliance (Sharpley, 2006). The external methods of growth are widely used by companies in the modern day business. This approach will be up to an extent justified by the outcome of such strategies. It has been understood that external growth methods are quick to show results for companies. They ensure immediate return for companies from their investment. Also, due to the fact that external growth methods such as mergers and acquisitions increase the size of business both geographically and operationally, companies are encouraged towards such growth strategies. Furthermore, it has been learnt that with the adoption of external growth strategies by companies, they are able have an upper hand over their competitions in the market due to the increase in the size of their operations. This aspect is also quite influential for them to opt for external methods of growth strategies (Nieman & Pretorius, 2004). From the overall discussion, it has been observed that there are several methods or strategies for growth which can be adopted in order to enable expansion of business operations. However, with regard to growth strategies of companies, internal as well as external growth methods (i.e. merger and acquisition) are most preferable. In this context, it has been noted that Facebook is among the various companies that has approached towards expansion of its operations. It has gone for an acquisition or disposal of Instagram. This expansion or growth approach of the company is viewed to be among the key external strategies of growth. This step of the company will expand the operational size of its business. Furthermore, owing to this expansion, the company will gain competitive edge over its close rivals such as Google and Pinterest in the global market. Apart from these aspects, the acquisition will also improve the functioning of Facebook in various vital ways. All these mentioned factors or benefits of Facebook’s expansion coincide with the outcomes of external growth methods. Therefore, it can be evaluated that the growth approach of Facebook (i.e. acquisition), can be firmly considered as among the imperative external growth methods of modern day business (Wharton, 2012; Kosner, 2012; BBC, 2012). Analysis of Instagram’s Management’s Strategic Decision to Join Forces with Facebook Using the TOWS Matrix It has been noted that Instagram is quite a small company as compared to Facebook. Their operational experience is also only of several months. The management of the company has come up with the decision to join operations with Facebook. This decision of the company has the probability to provide potential advantages, disadvantages as well as opportunities for the company. Following the TOWS matrix certain factors below are depicted: Strengths The decision of Instagram will enable it to get tied up with a renowned company such as Facebook. This will emerge as its one of the vital strengths. Furthermore, the decision will also be considered positive for the company in the sense that it will provide a wider network of customers for Instagram. Apart from this, aligning with Facebook will enable Instagram to derive a wider operational approach. These are among the probable strengths of the company from this strategic decision (Wharton, 2012; Kosner, 2012; BBC, 2012). Weaknesses The decision of the company to align with a company of bigger stature such as Facebook might also yield negative outcomes for the company (i.e. Instagram). This decision will cost the company to loose its own identity to a leading company such as Facebook. Since Facebook is far bigger company than Instagram; it will be hard for the later to establish its own distinct unique identity after the alignment (Wharton, 2012; Kosner, 2012; BBC, 2012). Opportunities Getting aligned with Facebook will probably provide the operations of Instagram a wider market base. It can take the advantage of the vast operations of Facebook worldwide. Furthermore, Instagram will also garner the opportunity to popularise their application or product with the assistance of a wider reach of Facebook (Wharton, 2012; Kosner, 2012; BBC, 2012). Threats After aligning with Facebook, the company i.e. Instagram will be in danger to lose its own brand identity in the market in front of bigger companies such as Facebook. The chances for making a distinct name for themselves will minimise by a considerable extent (Wharton, 2012; Kosner, 2012; BBC, 2012). Strength-Opportunity The strengths of Instagram for getting aligned with a renowned company such as Facebook should be implemented in order to fulfil the opportunities of the company to get a wider market for its product. Apart from this, the strength of this decision of Instagram should be incorporated in order to cash in the opportunity of popularising its product in the market in a wider sense (Wharton, 2012; Kosner, 2012; BBC, 2012). Weakness-Opportunity The weakness of the company to lose their distinct identity after aligning with Facebook can be overcome by their opportunity to get a wider market for its product owing to Facebook’s popularity. The company can utilise the brand name of Facebook and market its product worldwide (Wharton, 2012; Kosner, 2012; BBC, 2012). Strength-Threat It has been discussed that the biggest strength of this decision of Instagram to join forces with Facebook is that it will get a larger market and wider customer base owing to the popularity of Facebook. This strength can be used to mitigate the threats of Instagram such as losing its value and distinctiveness among people or users worldwide (Wharton, 2012; Kosner, 2012; BBC, 2012). Weakness-Threat The company can minimise its weakness by enhancing quality of its product so that its applications can find their way into the minds of people and make a place as popular aspects. This will further reduce the company’s threat of losing its presence and hold among the customers (Wharton, 2012; Kosner, 2012; BBC, 2012). Structure of TOWS Matrix Strength Weakness Opportunity Strength-Opportunity Weakness-Opportunity Threat Strength-Threat Weakness-Threat Conclusion From the overall analysis, it can be summarised that there are several growth strategies that are vital with regard to the modern day scenario. Among them external and internal growth strategies are mostly preferred by organisations. Both internal and external growth strategies are fruitful for companies but external strategies have been observed to provide pertinent results. Moreover, in this context, external growth strategies mostly attract modern day businesses. Facebook is also encouraged by this aspect and it went on for acquisition of Instagram. This approach of the company is accompanied by both opportunities as well as threats in terms of its long-term operations. Apart from this, the essay also analysed the decision making of Instagram with the aid of TOWS matrix and depicted the potential strengths, weaknesses, opportunities and threats for the company. Therefore, it can be concluded that both Instagram and Facebook will mostly get positively as well as in certain circumstances negatively impacted by their decision of alliance. References BBC, 2012. Facebook Buys Instagram Photo Sharing Network For $1bn. Home. [Online] Available at: http://www.bbc.co.uk/news/technology-17658264 [Accessed May 25, 2013]. Campbell, 2011. Mergers and Acquisitions in Europe Selected Issues and Jurisdictions. Kluwer Law International. Kosner, A. W., 2012. Facebook Wants to Be Your Mobile App Provider, Instagram is Just a $1 Billion Object Lesson. Forbes. [Online] Available at: http://www.forbes.com/sites/anthonykosner/2012/04/15/facebook-wants-to-be-your-mobile-app-provider-instagram-is-just-a-1-billion-object-lesson/ [Accessed May 25, 2013]. Nieman G. & Pretorius, M., 2004. Managing Growth: A Guide for Entrepreneurs. Juta and Company Ltd. Sherman, A. J., 2010. Mergers and Acquisitions from A to Z. AMACOM Div American Mgmt Assn. Sharpley, R., 2006. Travel and Tourism. SAGE. Talloo, T. J., 2007. Business Organisation & Management (For B.Com Course of Delhi University). Tata McGraw-Hill Education. Wharton, 2012. Facebook and Instagram: How Much Is a Picture Worth? Home. [Online] Available at: http://knowledgetoday.wharton.upenn.edu/2012/04/facebook-and-instagram-how-much-is-a-picture-worth/ [Accessed May 25, 2013]. Read More