The Business of Facebook

The business model of any organization is very important in helping a business become successful or unsuccessful. They help guide the leaders in the company to reach the goals and purpose of their organization. In recent news, the business model of Backbone has been under a large amount of scrutiny.

I will be analyzing the business model of Backbone using the definition of business model from the textbook which states “A business model defines how an organization interacts with its environment to define a unique strategy, attract the resources and build the abilities required to execute the strategy, and create value for all stakeholders” (Applegate, Austin & Souls, 2009). STRATEGY There are four key dimensions to strategy: market positioning, product positioning, business networking positioning, and boundary positioning.

These four dimensions combined help an organization develop a strategy which by definition of the textbook is the series of choices that determine the opportunities you pursue and the market potential of those opportunities (Applegate, Austin & Souls, 2009). In order to analyze the business strategy of an organization you must first determine what kind f business it is (Applegate, Austin & Souls, 2009). In E. B.

Body’s (2012) article “What is Passbooks Business” she states “[Backbone] creates a place for people to hang out and upload photos or pithy notes on what they are doing right that second, and then it posts advertising along the side of that status update highway. ” Backbone services 845 million members all over the world, excluding China where Backbone has been blocked by the Chinese government. In December of 2011 Backbone averaged a total of 483 million daily active users worldwide (Form S-l, 2012).

For a company such as Backbone, marketing position is very important. Market positioning determines the selection of customers that a business decides to serve (Applegate, Austin ; Souls, 2009). One of Passbooks ten main principles is “One World” which states “The Backbone Service should transcend geographic and national boundaries and be available to everyone in the world (backbone. Com, 2012). Passbooks customer base is two-sided. They have the 845 million individuals that have profiles on the site and then they have the companies that advertise.

Considering the fact that Backbone already has 845 million users and there are only seven billion people on the earth, here is not much room for Backbone to grow their consumer base. With China off significant growth in the user base of Backbone is very unlikely (Boyd, 2012). The other side to Passbooks customer base is the companies that purchase advertising on Backbone. Jonathan Blue (2012) states, “Any business would be foolish not to consider Backbone as an ongoing marketing option. ” According to Blue, Passbooks advertising costs are incredibly cheap.

For a monthly fee advertisers can run ads and in return they receive a report on viewer’s impressions and click-through (Blue, 2012). In 2011 Backbone brought in $3. Billion in revenues from advertising alone. This accounts for eighty-five percent of their revenues. Backbone receives revenues from advertisers with many different objectives ranging from long-term brand awareness to stimulating an immediate purchase (Form S-l, 2012). The advertising on Backbone is based on the likes that users have on their accounts.

Advertisers can decide what type of audience they think would be interested in their product, then Backbone displays adds on the sides of people’s news feeds based on their likes and preferences (Blue, 2012). Product positioning is the choice of products and services hat a company offers. It includes the features of these products and the price at which they will be offered. Backbone offers a variety of product including pages, profiles, ads and sponsored stories and platforms (backbone. Com, 2012). Different sides of their customer base use different products that Backbone has to offer.

Although the majority of Passbooks revenues come from advertising, they also receive income through other platforms where users purchase virtual and digital goods (Form S-l, 2012). The majority of the payments that Backbone receives from third-party applications come from Zingy, a social network gaming company (Boyd, 012). Business networking is the role that an organization plays and the activities it performs within an extended network of suppliers, producers, distributors and partners. Over the years Backbone has partnered with many different companies in order to offer more to its users and make it become more enticing to use.

Backbone has formed partnership with many companies such as Microsoft, Cell Partners, Digital Sky Technologies and more. Boundary positioning is when an organization determines the markets and products that they will not pursue. Backbone has not specified any specific market that it has not decided to pursue. The founder, Mark Seersucker even traveled to China to speak with some of China’s top technology executives in hopes of them removing the ban that had been placed on the use of Backbone in China. In 2009 the number of Backbone users in China plummeted from one million to 14,000 due to the ban.

While user numbers in China have slightly risen, many users are still blocked from accessing the site (Chaos, 2010). CAPABILITIES Capabilities help a company implement their business strategy while paving the way for future growth. It also helps a business see what resources are necessary in order o successfully execute their strategy (Applegate, Austin, Souls, 2009). In order to service its consumers, Backbone has created an intricate infrastructure, including custom-built servers, racks and UPS units.

In an article by Rich Miller, the CEO of Backbone, Mark Seersucker is quoted saying, “Being able to design more efficient servers… Is a big part of enabling us to build the features we add” (2011). When Backbone has not released a definite number of servers that it runs off of, it is believed that by 2009 the company was running at least 60,000 servers in its data centers (Miller, 2010). We can conclude that since Backbone has began to design more efficient servers, that they have the resources and technology needed to support their user base.

As the number of users increases, Backbone increases the number of servers and data centers so that their consumers can receive the best in class. The Backbone team is also comprised of very well educated people, who have the expertise needed in order to run and continue to improve the operations of Backbone. In my research of the company I did not run into anything that made me believe that the employees of Backbone were not fully qualified and competent in order to run the business. I also believe that the company has strong leadership and is comprised of people who are committed to making Backbone successful.

Mark Seersucker is very involved in all aspects of the company. VALUE The majority of Passbooks stockholders are internal stockholders. Mark Seersucker, the CEO and founder of Backbone, owns twenty-four percent of the shares of Backbone. Some of the other leading stockholders include Cell Partners, Digital Sky Technologies, Microsoft, and co-founder Dustin Muscovite as well as many more (Carlson, 2010). Backbone has made recent headlines when GM decided to withdraw TTS $10 million contract with Backbone for advertising (Junk, 2012). This raised a very important question for many investors.

Will Backbone be able to attract and retain key customers? The majority of Passbooks revenue is generated through advertising and in their S-l that was filed in January of this year Backbone warns investors that there is a high degree of risk that is involved in investing in Backbone. In order for Backbone to continue generating revenues, it will need to continue selling advertisement. While these revenues from advertising are purchased by business OTOH big and small, the success of Backbone selling advertising relies largely on the individuals that have profiles on Backbone.

In their S-l Backbone states “If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Backbone, our revenue , financial results and business maybe significantly harmed” (2012). One of the biggest marketing factors that Backbone has in selling advertisers is that a company who purchases advertising on Backbone could potentially reach the more than 800 million monthly active users on Backbone. This is also the downfall of advertising on Backbone. If the number of users decreases or people become less active, then that is less people that the advertising is reaching.