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Why Facebook and Tencent pursue different strategies in the same technological change contexts Case Solution & Answer

Why Facebook and Tencent pursue different strategies in the same technological change contexts Case Solution 

INTRODUCTION TO FACEBOOK

Facebook, Inc. is one of the largest-social media networking company around the globe. Started in the year 2004 and owned by Mark Sucker berg, Facebook became the leading social media network in the world connecting more than one billion users in the year 2012(Hall, 2020). Company’s main centre or headquarter is in California, USA and the company total sales were around $73.4B (FORBES, 2020) in November 2020. The business’s products not only include Facebook but it also acquired Instagram, Messenger, Whats-app, and Oculus(Facebook, 2020).  The company, Facebook, Inc.participates in the development of social media platforms for people to connect from around the world, through mobile devices, laptops etc. The company aims to connect people from all parts of the world in one platform. Facebook acts as a small digital world inside your phone.Using this social media platform people are able to share their culture, celebrations, happenings etc. with others.Facebook as a platform is freely accessible and of charge, the company earns most of its money from advertisements. New users can create their profiles, upload photos and videos, join an established group or start a new one. Transparency is one of the main focus of the company. The company’s management reasoned that transparency is essential for building up the society. Facebook want members/users to be transparent about who they are (identities); members are prohibited from acquiring false identities. Company’s management also noted that the bottom-up, peer-to-peer connectivity amongstusers makes it easier for businesses operating on Facebook to connect their products with their consumers.

INTRODUCTION TO TENCENT

Tencent is a multinational technology company also known as Tencent Holdings Ltd. Company’s headquarter is in China in the city of Shenzhen. This company was founded in the year 1998, its subordinate companies provide various services and products related to internet. It is the world’s major video game seller(Prinsloo, 2018)and they also provide services such as entertainment, artificial intelligence etc. globally. Tencent is among the leading social media venture capital, and investment corporations(Ballard, 2018).  The company offers QQ and WeChat services in China.In 2018, Tencentexceeded a market value of around US$500 billion. Since then the company appeared as one of the Asia’s most valued companies, and among the world’stopmost technology companies.

MAIN ARGUMENTS OR FINDINGS

This project highlights that why Facebook acquired different social media accounts such as Instagram, WhatsApp, Messenger etc. and Tencent owns WeChat and QQ. The project report describes all the key reasons why these technology giants acquired other business but only in the social media domain. This report also argues that if these companies took the right decision by pursuing different strategies but in the same technological change contexts?”

SIGNIFICANCE OF YOUR REPORT

The main contributions of the report are the lessons from Facebook and Tencent’s case and what other companies can learn from their strategies.

CHAPTER 2.

FACEBOOK AND ITS APPLICATIONS

Facebook has extended a lot in terms of its business and is still growing even after 17 years of its founding. Image below shows 2nd quarter revenue generated by Facebook’s in the 2nd quarter of 2020 (Statista, Facebook’s global revenue as of 2nd quarter 2020, 2020).

To increase its business and expand its revenue Facebook acquired other social media platforms. According to a news publication Facebook owned all the top 4 most downloaded applications in 2019(Shead, 2019). Following are some of the famous platforms that Facebook has bought and now owns(V, 2019):

Ø   Instagram
Ø  Whats-app
Ø  Messenger
Ø  Oculus VR
Ø  Onavo
Ø  Beluga
Ø  Friend-feed
Ø  Ascenta
Ø  LiveRail
Ø  Giphy
Ø  Mapillary

Facebook has by time matured to become an internet and technology giant. Facebook has achieved this status by implementing a number of smart strategies used for acquisition. The aforementioned list is just a part of the numerous takeovers that Facebook Inc. has undertaken to date, but this list sheds some insight onto Facebook’s smart strategic plan. According to a report Facebook currently owns around 72 companies (V, 2019).The top 3 acquisitions of Facebook are described below. The company does not provide any information on profit and revenue that each acquired business provide Facebook.

INSTAGRAM

The Instagram(Instagram, 2020)purchase was all about battlingFacebook’s biggest competitors Twitter and Google+.Instagram is a picture, memories and video sharing app. It was created in the year2010. The company was taken over by Facebook Inc. in the year 2012 for about $1.0 billion. Today Instagram is worth more than $100 billion (Roy, 2020). This acquisition changes everything for Facebook. According to some sources Instagram generates more revenue in advertisements than its parent company. Facebook Inc.’s $1 billion capturing of Instagram was a huge turning point for this technology giant. Facebook owners and management saw the app as one of the biggest threat to Facebook’s social network(Rodriguez, 2019).Image below shows the current market size of Instagram(J.Clement, 2020).

WHATS-APP

Mobile messenger service, WhatsApp(WhatsApp, 2020) was acquired by Facebook in 2014 in around $19 billion.WhatsApp allowed its customers to direct and receive messages, make calls and video calls directly to their families and friends for absolutely no cost, regardless of the user location. Consumers of this app can also send and receive photos, videos, documents, music, location etc. over the platform. Facebook Inc. decided to acquire WhatsApp after analyzing that this tech small company was able to reach more than 400 million active user each month (Reiff, 2020). WhatsApp could have become the fastest rising potential rival to Facebook’s platform.The estimated revenue for WhatsApp is around $5 billion, around $4 per user in 2020. The number of WhatsApp users are dramatically increasing day by day. This shows that Facebook’s acquisition of this company was indeed fruitful. The image below shows the number of active WhatsApp users from the year 2013 to the year 2002 (Statista, WhatsApp, 2020).

OCULUS VR

Oculus (Oculus, 2020)is a VR technology company and it was taken over or acquires by Facebook Inc. in the year 2014 in almost $2.0 billion. Oculus was created in 2012 and is mostlyrecognised for its productOculus Rift(Rift, 2020). When Facebook attained the ownership of Oculus it was a company that had only developed a prototype of their headset. Since Facebook’s acquisition, the company is now one of the leading VR headset producers. Facebook gave Oculus VR an instant recognition in the market. Image below shows the current market size of Oculus VR(Alsop, 2020).

WHY FACEBOOK ACQUIRED ALL THE COMPANIES WORKING IN THE SAME TECHNOLOGICAL CONTEXTS?

Facebook Inc.’s strategy is very clever. Facebook purchase, capture or take over companies for either their new technologies and for their efficient working employees. The company keeps an eye on the market. The company follows each and every new social media app making its entry into the technological world around the globe and acquire that company if it proves to be profitable or if it is slowly becoming the user’s favorite. Facebook doesn’t want any competitor in the market and tries its best to obtain the ownership of every company that poses the threat to become Facebook biggest rival.

Facebook’s policy has been to purchase or gain ownership of all of its possible rivals before they can get too big and capture Facebook’s market. In order to acquire its competitors, the company occasionally has rewarded-extraordinarily high prices for some deals. Due to its anti-competitive practices,Facebook Inc. has also captured the attention from the Federal Trade Commission (FTC)(Reuters, 2020).Facebook’s monopolistic approach made FTC questioned and asked the company to provide the data of companies that were acquired but are not reported(Reiff, 2020).

Facebook Inc. has altered its emphasis time by time, recently the company is increasing its portfolio to comprise of companies outside of the traditional social networking space, but still the main focus of Facebook since its beginning is social media platforms.

                            TENCENT AND ITS APPLICATIONS

Tencent, a tech giant from China (Tencent, 2020)has overtaken its US rival Facebook, in spite of getting only 18% of its income from advertising.Just like Facebook, this Chinese tech giant has also acquired other platforms like QQ, WeChat etc. QQ and WeChat in specific have a lot of  customers. Following are some of the notable platforms that Tencent has acquired and now owns(Tracxn, 2020):

Ø  WeChat
Ø  QQ
Ø  Supercell
Ø  Funcom

The top 2 social media platforms acquisitions of Tencent are described below.

WECHAT

WeChat is a multi-purpose application. It serves as a social media platform, payment platform and communication application for the people of China. It was developed in the year 2011 and since then is gaining its number of users. WeChat both inside and outside China has over a billion users now.It works a lot like WhatsApp and is usually compared to it as well. Just like WhatsApp business, WeChat also offers WeChat business. It is available for both Android and IOS users. Image below shows the total number of active WeChat users on monthly basis from the year 2011 to 2020(Statista, WeChat, 2020). It clearly shows that the number of WeChat users is increasing year by year making it a tough competitor for Facebook.

QQ

QQ or Tencent QQ was launched in 1999 i.e.five years before Facebook was launched. It is an instant messaging application service and a web portal. Services provided by QQ includes voice chat, group chat, online games, music, shopping, blogging, movies etc.It is the world’s 5th most visited and viewed website. According to a 2019 report there were about 731 million active daily users of QQ (Smith, 2020).  The image below shows the number of monthly active mobile devices users from 2014 to 2019 of QQ in China(Statista, Active users of QQ, 2019).

CHAPTER 3.

FACEBOOK VS TENCENT

Tencent, Chinese tech giant that provides social media and gaming services to its users, in 2018 out did the expectations of analysts. Since social media platforms like Instagram and Facebook are banned and unreachable in China, there exists a completely new network of communication, socializing and messaging sites and platforms that are hugely popular inside China and around China, but are rarely known anywhere else in the world.But in 2018 Tencent was reportedly sending its stock price mounting. Here is where analysts realized that the users of Tencent might be more than what we currently expect.Tencent’s sub ordinate company“WeChat” passed the billion-user milestone back in 2018. WeChat’s financial results are approximately on the same level with Facebook’s. Reported revenue of Tencent back in 2018 was around $11.7 billion with a net profit of $3.8 billion.Whereas Facebook’s 2018 financial results showed $12.0 and $5.0 billion revenue respectively(Richter, 2018). Image below is the comparison of Tencent and Facebook’s users and revenue in 2018.

According to a recent report, Tencent seizes Facebook’s title of the social media king by adding around $207 billion to market value this year(Price, 2020).Tencent is nowadays the 7th most appreciated company globally clearly taking the lead from Facebook. US based tech and internet companies have ruled the social media for a long time but it seems as if China’s growing tech industry is finally getting ahead. Image below shows the 100 largest companies in the world by market capitalization in 2020 and both Tencent and Facebook are a part of this list.

PUBLIC OPINION ABOUT FACEBOOK INC.

It seems that more people are now using their mobile device, such as their smartphone, to access these online networks. It’s easy to understand why – with the internet being more readily available in the home, people are having a much greater chance of interacting with other people online through the use of their phone.

It seems that smaller online businesses are starting to take a look at the possibilities of the two networks, and are considering the benefits of using them to their benefit. Some big businesses have already begun to do this, and it’s very possible that they could make this trend an even bigger one in the future.Facebook and Instagram are the future of social networking, it depends on what you ask, but it’s fair to say that we will likely see this new network grow, both as a larger one and as one that have many smaller, independent users.But it’s fair to say that Facebook is far and away the leader when it comes to social networking, so the chances of it disappearing completely, and only being used by those large companies who own the largest sites in the world, is highly unlikely. Of course, some small companies may still use them, but only a few at most…………………

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