Microsoft Acquires Facebook - Case Study Example

Microsoft acquires Facebook Microsoft acquires Facebook Introduction Microsoft is the world leading Software Company founded by Bill gates and Paul Allen in 1975 while Facebook is a social networking website founded by Harvard student and was launched in the year 2004 by Mark Zuckerberg. Many companies have always wanted to acquire Facebook since its launch in the year 2004, companies like yahoo, AOL, my space, Microsoft and Google (Choi et al., 2007). The last two were the highly interested to pay a fortune just to acquire this social networking website. None of the interested companies got full ownership or acquisition of Facebook but Microsoft got closest by buying 16% at $15 billion of the entire company and got to invest $250 million which moved Facebook to a value of a whole $15 billion. If Microsoft would have gotten a chance to buy Facebook they would have taken a total of six to seven years before the whole acquisition would be complete since they would have had to buy 5% of the company every 6 months (Choi et al., 2007). They would have ended up Microsoft paying more than $15 billion shillings. Purpose Increase Sales Sales and marketing would be one of the reasons why Microsoft wanted to buy Facebook. It was in their agreement that they would be selling graphical banners ads appearing on Facebook outside United States then split the revenue from these sales. This way Microsoft got a channel to run its ads through the United States through to 2011. Competition Microsoft had started losing the market to Google. It had been seen that they were starting to dominate the market. Due to this fear of loss they wanted to make sure that they block and stop every Google’s way even if it was going to cost them lots of money they just had to keep up with the game and by buying Facebook it was more of a competition ploy to stay ahead of their competitor’s game. Change Dynamics As much as Google and Microsoft were on a battle Facebook seemed to had had another idea in their minds they wanted to encourage other people to create tools to share on their advertising space then share the revenue. Instead of letting only one company run in a monogamous way they opened way to create diverse ways of marketing in various websites and different ways this opened up the market in a very great way (Choi et al., 2007). People are now sharing games and informational ads on Facebook and it reaching all the targeted market in a very nice way. Microsoft Mission and vision The mission of Microsoft is to enable people and business throughout the world to realize their full potential. Their mission statement is “commitment by striving to create technology that is accessible to anyone despite age and abilities. Their main focus is to ensure that accessibility is all over the word and all people and businesses are able to access to their services. they have been able to do this by their longstanding commitment in developing and designing innovative accessible solutions, making computer easier to eye, hear and use by providing accessibility into their products and working with other companies to encourage a wide range and higher level if services and accessibility and ensuring there people and designer are aware of the importance of accessibility in in meeting technological needs of people and disabilities (Choi et al., 2007). External Factor Evaluation Matrix The following have been Microsoft external factors 1. Accessibility of products They have been working very hard to ensure that computers are easy to see hear and use by building accessibility their product and service. Like the windows 8 in which one of the most significant change it has introduced is the introduction of touch only devices which enable one t directly interact with everyone on your screen by the use of Ease access center. The magnifier which enables one to adjust into a way that they can easily see, the build in text on speech programmme the narrator which reads aloud and is available in various languages and the on screen predictions which speeds up typing this ensure that everyone I well covered even with those severe disabilities (Bonfiglioli, Moir and Ambrosini, 2006). Office 2013 which comes with the accessibility checker read mode which provides clear and easier reading ant the better document presentation allowing the ones using it at work make their office technology much better. They also provide customer service support which is dedicated to support customers who are looking for assertive technology use or those with disabilities such as scree magnifiers speech recognition and screen readers. 2. Leadership and awareness They have been working on ensuring that people are aware of what they are providing by providing Microsoft accessibility website and accessibility newsletter providing information about their products. They have been working as a guidance for businesses and schools to provide accessible technology in by helping teachers create better curriculums and the government by providing better r accessible technology for its citizen and for organizations providing quality technology for employee’s customer. They have been able to offer guidance for people with disabilities such as vision impairment, dexterity and mobile impairments, hearing impairments learning impairment, learning impairments, language and communication impairments and aging related impairments. They provide open and transparent communication about their accessibility and also provides problems arising in these accessibilities. 3. Innovation Microsoft promotes innovation of accessibility in the development of community and works with industry organizations to encourage innovation by reducing complexity of accessible development which provide a tools and guideline for developing accessible applications in the web content. They have been engaging in research and development to make their products more easy to use and friendly to the users, one of the main research they have been doing is to make pcs easier to use they have also been involved in one on one interviews and targeted usability studies among other research used to improve their innovation. 4. Collaboration They have been collaborating with a wide range of organizations to raise awareness of importance of accessibility in meting technology needs of people with disabilities and the technological needs to the society the collaborative measures include collaboration with making government policy makers. They support creating policies that advance broad digital inclusions. They also collaborate with various organizations around the world to support people with disability and the aging ones to meet their technological needs. They support the industry by ensuring that they have a broad selection of products for people with disabilities at all price points this also gives them greater opportunities to grow. Internal factor evaluation matrix Brand loyalty Microsoft has maintained it services for so long that people have grown to identify with the brand this becomes one of their major strength as it makes it difficult for other companies to compete with this. As customers tend to already identify and trust so much in the brand that it difficult for them to change. Brand Reputation Microsoft has been ranked as the 7th most reputable company in the word. This is a good thing a sit increases sales and profitability hence maintained financial status. They also have great monopolistic power which also is recognized by clients who user their products Easy to Use The accessibility of Microsoft products is easy they make products that are easy to use and even provide support for those who are having disabilities and those inquiring for and advanced or better way to acquire this technology. This not only comes in as an opportunity but also as a strength that ensures that they always maintain their clients through the years Strong distribution channels Microsoft has made major investments on its channel of distribution by ensuring that they partners with other companies like dell Lenovo who help them distribute and provide software and hardware for clients. Strong financial stability In the year between 2008 and 2013 Microsoft profit raised to 20% they hold more than 63 billion in cash and has equivalent amount of products that can be converted to make more returns and development for the company (Jit, Mann and Kohli, 2012). They have a profound and strong financial capabilities. After Microsoft acquired Skype they even stand in a greater chance to make more income and be able to ensure increased awareness of its services online. As much as they have all these strengths going on they also face some challenges that they need to work on before they come down pouring on the flourishing business such as: 1. Competition As much as they make $70 billion annual revenue and have 11 products making $1 billion annually they are still facing major competition on areas like: a) Browser They once owed a whopping 90% market share until the rise of Mozilla Firefox and Google chrome came in and broke the monopoly. They are still losing since every month dropping to 52.71% total number of users and 42.45% total pages according stat counter. This suggests that users are ones who replace the default internet explorer with Firefox and chrome. To beat this they are working on ways to improve users on a more regular basis. b) Phone and tablets They are facing major competition from apple and Samsung. They have concentrated so much on PCs that they have not realized that a margin of the market is moving to phones that can do what the pc can do. They had anticipated that by 2015 they would have dominated the market with the new winds 7 phone but then it’s quite clear that HTC and Samsung which are using Android operating system and being ran by Google it looks like looking for white elephants in the market share. 2. Mature PC Market They have been on the PC market for decades and no the market seems to have acquired maturity and reached a point of saturation people are no longer trying to have a PC they are now looking into having portable kinds of PC which have been introduced by competitor companies like Google. Microsoft need s to know that the market structure has really changed and that current customers are more into fast smaller and less sophisticated products. 3. Criticism over security flaws Microsoft is criticized to be the weakest in terms of standing against virus attacks on. Compared to other operating systems Microsoft is said to be the least protected from having these attacks. 4. Poor Acquisition and investments As much as Microsoft has had several acquisitions which has been very successful they have also tasted the other side of having made very bad decisions on some investment such as WebTV, Link exchange and Danger are some of the multibillion investments which has been seen go down divested. Financial Ration Analysis 1. Liquidity Ratio This is used to calculate the ability to pay short term depts. There are several ratios but we are going to use the current ratio Current ratio= Current assets/current liability As of June 30th 2014 below was the current ratio of Microsoft according to Microsoft Corp $114246/$45623= 3.16 This mean that for every assets can pay off one liability for Microsoft A ratio that’s above 1 is good as it shows financial stability 2. Leverage ratio They are used to calculate the ability to meet organizations obligations For this one we use the interest cover ratio Interest cover ratio It determines the interest payment ability of the company against the debt it owes. This is usually from the profit gained from the business it does primarily Interest coverage= operating income/interest expense This enables evaluation of the SWOT analysis of a company and enables the investor to make an informed decisions During the acquisition of FB Microsoft interest coverage was $75000000000/25000000000= 2.8 This meant it was going to be worth investing in the company and that’s why they really had been pushing for the negotiations. Profitability ratios Used to assess the business ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time In this one we look at the main one Return on Investment Used to evaluate effectively before choosing among different investment projects Gain from investment _ cost of investment/ cost of investment= ROI During FB acquisition = $70billion-$25billion/25billi0n The ROI would have been $1.8billion Operating Efficiency ratio Shows how one is utilizing assets and managing liabilities This is calculated as follows Operating Efficiency= operating expenses/total revenue Facebook Value Chain Analysis The value chain in social media world involves user’s game publishers and the industry which controls the two. The users and the publishers The users are the provide information and articles to be viewed by the people in the social media. They will be feeding into the social media raw content, editorial function and the content packaging (Ruiz-Mafe et al., 2014). The information and games publishers are dished to the editorial function which allows the same users to develop operate programmatic ad human content filters and flag the appropriate and inappropriate indicators. The information is the handed to the raw c content where videos photos, non-personal data, locations, review results and others are here published and shared among people in the system. Then it’s move to the next stage which is the content package which provides things like the profile tags these are provided by the merchants, brands (for the advertising uses) real time updates and the friendship about. These are all presented or handed to the user again but this time they will have to have limitations on how they view these products, there is a limitation depending on how much a user has subscribed to pay for the internet service they are getting from the social site (Miller, 2005). There is zero revenue received from providing core service. The real revenue concern is the payment of virtual goods that are often a part of social gains which are available through the site. Therefore we realize that Facebook avails the delivery of the service of the games sale and the provision of advertisements space, since the customers are the ones offering the content then it’s very easy for Facebook to identify the needs of it users and the then they would evaluate a plan to adjust to the changes that address the needs of these people. PORTERS FIVE MODEL ANALYSIS RIVARY AMONG EXISITING CUSTOMERS As much as Facebook has the largest IPO there is a lot of competition pull going around in the technology industry, there other companies that can also offer what Facebook is offering but what Facebook has done is that they have maintained the service to be of a very high quality kind and given the fact that they have several advantages over the market share the competition river still remains at top of things as this market share could be dominated by anyone else who proves to give a better deal (Hopkins, 2012). These other companies are Google plus, Zynga, Instagram, Twitter, Skype among others. THREAT OF NEW ENTRANTS As much as Facebook has claimed the biggest market in social media this has also become their great challenge. Their number one and a top ranked competition is Google+ which seem to be really coming in with greater force. The fact that Google lost the chance to acquire Facebook they seem to be coming really hard on the Facebook by starting their own social platform which doing really well. There is also Zynga which has been hosting games in Facebook. It has actually build and grown in Facebook and became stable in December 2014 it has 12% of the accounts that Facebook has. They pay Facebook 15% of their total revenues but this contract goes through to as from 2008 to 2015 and therefore Facebook CEO needs to maintain good relationship with the Zynga organization to avoid rivalry of competition since if they also pulled out that would mean a great step back for Facebook. BARGAINING POWER OF BUYERS The buyers are the customers who are shared among twitter, Instagram, WhatsApp, Google+ and all these other social platforms that have a share of the market if one of these just gave a better service that would be a clear loose of clients and this would lead to huge financial losses something that would even mean reduced profits for these guys. This being said they would need to maintain their 800 million clients by providing an effective and quality service and keep satisfying their needs to ensure that they acquire loyalty with the clients. BARGAINING POWER OF SUPPLIERS The suppliers are the providers of servers, technology, software, data center, financial supporter and so on. The only problem is that most of these supplier main business not in line with what Facebook core business such as Microsoft. They have the powers to control on who is going to be doing business with who and they have limits to this and rules enforced by the law are applied to ensure there is no bridge of contract. Some of these suppliers possess a threat of forward integration. THREAT OF SUBSTITUTE PRODUCT SERVICES Substitutes demand reduce the demand for industry product and services they also create intense competition during normal economic times and therefore reducing potential increase in profit during positive economic times. Facebook need to maintain a top notch service to maintain and acquire loyalty for. The need to improve on their loop holes to ensure that effectiveness is maintained and that they don’t lose their market share. strategic positioning and action evaluation method This is a strategic management tool that focuses on strategy formulation as related to the competitive position of the organization. It is comprised of four strategies: aggressive strategy, conservative strategy, defensive strategy and competitive strategy And it functions around Internal and external strategic strategies The internal strategy focuses on two main areas: A) Financial strength The financial strength of a company will cover areas like liquidity Return on investment turn over working capital amok other. What we are trying to say is that the financial strength is covered by the financial analysis ratio B) Competitive advantage The competitive strengths presents the companies competitive strength and hence could cover things like customer quality product quality, industry growth and product life cycle. External strategic factors The external strategic factors are include two areas the environmental changes and the industry growth items which are well covered by the Michael porters theory Below is an image that demonstrates the matrix Boston consulting group matrix This is used to evaluate how companies with different business unit share market growth and the market share. It is done by allocating the units according to where they are situated on the grid. Cash cows They are business units with large market share in a mature slow growing industry. In our case this would be where Facebook is placed working with Microsoft as Microsoft has already a mature market with slow growth but still has a large market share which has been acquired overtime. They generate cash to invest elsewhere in this case Microsoft has a very wide range of product that it generate at least $1billion annually per product. This makes the a real cash cow Stars They are business units that have a large market share on a fast growing industry. This is he position where Facebook is at Now their market share is growing really fast and hence they need to have high investments to maintain their lead in the market a point where Microsoft investment is required so that they can add up to the investments amount. A successful star eventually turns into a cash cow hope Facebook looks up to this and dominate the social platform as Microsoft dominated the PC world. And ensure they maintain their lead as it a position of high competence. Question Marks They are business units that have small market shares in a high growth market a perfect example for this would be Zynga on Facebook as they have 12% market share on Facebook another one would be Google+ which has about 42% market share with the Facebook but not on the same platform. Other examples would be WhatsApp, LinkedIn, Instagram and Twitter. Whither they will succeed to become cash cow or not it’s not yet known. Dogs They are small units that have small share in a mature industry. E.g. WhatsApp applications LinkedIn they are there in Google and Microsoft or the selling of the windows 7 phone. Unless there is some strategic purpose it should be liquidated if there is little prospect for it to gain market share. INTERNAL –EXTERNAL MATRIX This is a strategy used to evaluate firms’ internal environment revealing its strengths and weaknesses while the external evaluation does the same by revealing the threats and opportunities of the company. It is used to evaluate and identify the key affecting factors. The strengths of Facebook is that it has been a growing very fast and has a lot of buyer’s power therefore making it competitive and very attractive. The fact that its partnering with Microsoft is giving itself a lot of financial investment at the end of the day but then it faces weaknesses as Microsoft core business is not adverts which is big on FB but their main focus has been to selling PCs. The external factors are the high completion it facing from Google’s Google+ all they need d to do is apply an aggressive strategy which allows them to protect and even gain more of the market share. The opportunities include those that they have been working with other growing companies that might in the long run come in as competition but they help them ensure that they have higher developments and acquire even more shares by putting themselves out there to create awareness in these other site. As long as they maintain a good rapport between these people then there are no worries that they will become competition in any case they will have to cross that border when they get there. GRAND STRATEGY MATRIX This is a very useful for evaluating and creating alternative strategies for an organization. Tit has 4 quadrants First quadrant Companies positoned in this position have a stong strategic position. They focus on competitive advantage and take use the aggressive strategy to adpt the product development (Hopkins, 2012). The companies in this quadrnt have to focus on single products and can g for diversification strategy to minive the risk related to limited product line. If they have higher resources they can go horizontal backward and forward set of strategies 2quadrant They are very careful in the fights they take due to the growth of the indusrtry in this case look at facebook. Hence they cannot fight competentley a they need to go back and find out why they are ineffective in the market and improve their strategiesas their first startegic ption. If these kind of companies have a competitive asvantage horizontal intergartion is moer of an advantageeous option. The strategic option for these companies os liquidation which provides funds needed for other startegic business units or to acquire other business 3rd Quadrant They have slow growth rate and relatively have a weak position . retrenchment strategy has to be priority and transfer of resources to other businesses should follow. The strategy to be used is liquidation or diverstatuon of the business will resort. 4th Quadrant They have slow growth but a strong competitive position n their case they face restricted growth and have high cash flow intensuity which allows them to practice elated and unrelated diversification effectively . they also engage in joint ventures to fullfill growth needs. e.g Facebook and Zynga QUANTITATIVE STRATEGIC PLANING MATRIX This is the last stage of the decision making. It helps decide the last option or the strategy to be used. It is a quantitative method used to collect data and prepare a matrix of strategic planning. It is based on successful internal and external important success factors as only technique to help the decision making process. The external factors used are Industry attractiveness and environmental stability. This mainly focuses on: Growth potential, Environmental stability, financial stability, Resource utilization, Capital industry, Manufacturer bargain power, Pressure from substitutes, and Size of demand For the internal factors we put into considerations like: Products loyalty, market share, product life cycle, competition capacity, speed of new product introduction 1. Comparison of the two companies They are both using aggressive strategies to survive in the market. They have a great market share. They have acquired customer loyalty over the time they have served them. They are highly competitive companies and demand a lot of manufactures powers. They are consistently improving their product to maintain the lead. Company contrasts Microsoft has already attain maturity on their product while Facebook is still highly growing it market share. Microsoft core business is in providing software while the core business in Facebook is to sell advertisements. Microsoft has grown to become a cash cow while Facebook is the star that’s shinning on every other cash cow hoping and wishing its acquisition. This enables Facebook to take control over the bargaining power over the suppliers. While Microsoft is busy competing with other suppliers in the revelry and ensuring that it blocks ay that would lead to a loss in market share (Kakabadse and Swailes, 2007). 2. My strategic plan regarding to the acquisition. I would employ both aggressive strategy as it helps the business protect what it has and make more gains in the competitive market then also would use it in conjunction with defensive strategy used to protect market share and the whole business. References Bonfiglioli, E., Moir, R, and Ambrosini, V. 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