Introduction
Businesses all over the world are employing various strategies to achieve sustainable competitive advantage. When dominant organizations face increasing competitions by new entrants into the industry, the lock-in concept is exploited to retain customers from fleeing to rivals. E-businesses, particularly those operating in the digital space, have been around for only a few years. Yet, they have employed marvelous operational models and strategies that have remain good subjects of debate. In this essay, I will address how e-businesses can employ lock-in strategies to achieve sustainable competitive advantage and a significant opportunity for further development. I will use Facebook as my case study and mainly focus on the theoretical concepts of Network Economics. This essay will proceed as follows.
First, I will explore the idea of a lock-in strategy to Facebook’s business operation and a tool to carve a competitive advantage. Second, I will review the literature on the previous works that relevant scholars have done. I expect to find some hints that would answer the question raised and identify the gaps in the literature that are yet to be addressed. Third, I will use the theories and concepts from the lecture and readings to answer the question. Fourth, I will provide a comprehensive discussion on how the networks economics theory relates to the Facebook case.
Finally, I will conclude the paper by explaining “what this all means” and the lessons that I have drawn from the research topic. Facebook and other tech giants like Google, YouTube, and Amazon have been consistently accused of their monopolistic behaviors ensure they dominate their respective industries and subsequently prevent other businesses from accessing their markets. Facebook has been able to achieve this through its lock-in concept.
Context
In the Facebook Matures: ‘Not Cool” Anymore for Teens article, Srikant (2014) delivers a compelling case of how Facebook founder Mark Zuckerberg has been employing unique business models over the years to stay on top of the game. When Facebook started dwindling in popularity, Zuckerberg had to develop responsive models to salvage the situation. The proliferation informed these actions of several social media platforms looking forward to stealing Facebook’s clients.
The growth of e-commerce remains strong across the world despite various challenges. Among the most prominent industry players are the social media platforms such as Facebook, Twitter, Whatsapp, Instagram, and Snapchat. The presence of a multiplicity of these platforms across cyberspace leaves users with several options (Srikant, 2014). Over the past decade, Facebook has been the most popular social media platform in the world. The site has witnessed tremendous growth since its creation in 2004. However, lately, the new generation of teens are finding it a “social burden.” Unlike a few years ago when teens could converge on Facebook and share their life experiences and stories, today, the platform has been “infiltrated” by the older generation, including their parents, limiting their freedom.
As a result, alternative social media sites such as Twitter, Instagram, Whatsapp, KakaoTak, and Snapchat have emerged as “cool spots” for this generation (Javalgi et al., 2005). These sites have hence put up a spirited effort to penetrate the market of Facebook. They all want to tap into the one-seventh of the global population that forms the Facebook customer base.
However, to retain its clients, Facebook is implementing a lock-in strategy on its customers. Lock-in is a business strategy that organizations use to create a hurdle that makes it hard for their customers to switch from their brand to their competitors (Javalgi et al., 2005). In 2012, the tech giant spent $1 billion to buy off Instagram, one of its fiercest competitors. It also acquired Whatsapp at the cost of $19 billion in February 2014. By this move, Facebook managed to keep on the clients of those two companies within its system.
From Facebook’s case study, it can conclude that having a great product alone does not guarantee traffic of customers to your brand. It is vital to design a superior business model that will attract customers and retain them into the business’s ecosystem. Facebook has effectively employed the lock-in business model to outcompete its rivals. Lock-in also helps an organization link brand to its customers, build a direct relationship with them, and establish a genuine and long-term partnership (Kauffman et al., 2014). Social media sites offer the most outstanding lock-in opportunities due to their rising numbers, possibilities to create new communities, and low entry barriers.
Switching costs are a superior business model mechanic that can use to carve a competitive advantage. It assists in lowering the acquisition costs of customers and subsequently flourishes on recurrent income from them. Undoubtedly, switching costs can also protect a business from competition. Several ways through which they can be embedded in a business model exist. A close look at the Facebook case study reveals that its dominance in the social media webs is not coincidental. Facebook customers stick with the platform because of the tech giant’s high switching costs (Rashidirad et al., 2013). Simply put, the customers are locked into the Facebook ecosystem, thanks to the high switching costs.
Generally, consumers do not prefer to be locked into a particular product, technology, or service. They value flexibility and freedom to choose products of their preferences. On the other hand, businesses want to lock out competition and lock in customers. The most appropriate way to accomplish this is to create a value proposition for their customers that raises the switching costs and makes it difficult to leave their brand.
Facebook has a scalable infrastructure that ensures that it offers its customers unique and personalized experiences that their competitors cannot. It has heavily invested in analytics that includes graph query, ample scale data storage and management, and efficient software performance. This uniqueness of Facebook keeps its customers attached to it.
Social media sites possess several features that are perfect opportunities for lock-ins. Participants using these platforms have developed solid emotional ties with them over the years. For instance, a Facebook devotee who spares a significant amount of time in a day on the site has developed strong attachments with the site over time. Therefore, it would not be easy for this user to switch to another place just because it promises to offer better services. This user is already contented with the services that Facebook currently provides. That is a monopolistic model that ensures that their customers are only trapped with them (Reed et al., 2012).
Moreover, Facebook encourages users to control and customize their home screens. If users can customize and control their environment, they will start showing ownership feelings towards the platform. Some people indeed exhibit stronger emotional ties that attach them to the site for the long run. Facebook also runs a memory update that ensures that customers are reminded of their previous posts. These nostalgic feelings help to reinforce the attachment of users to the platform.
Literature Review
The social media industry continues to revolutionize the way people communicate and generally share information. The companies that entered the sector first have enjoyed dominance for some years now. Nonetheless, new entrants are emerging with ‘cooler packages’ intended for their target clients. They are threatening to hive off a huge chunk of customers from their competitions. However, the old players are devising strategies that ensure that they keep their customers in their grip and prevent their competitors from accessing them. Indeed, in a highly competitive business environment, only those organizations that develop market-oriented strategies will keep their customers trapped to their products and succeed.
Cyberspace is indeed a marketplace with a beehive of activity, thanks to new entrants every day. According to Radulovich et al. (2005), there are hundreds of business opportunities within the global market that the internet offers. The author states that a global internet firm such as Facebook can only achieve sustainable competitive advantage if it focuses on its unique strategic positioning and operational effectiveness. Operational effectiveness is doing the same things that an organization’s competitor does but differently. It also entails inventing and bringing exceptional value to the target customers.
The lock-in model has been identified as one of the current operational effectiveness strategies. Many players in the digital market widely use the lock-in model to ring-fence their marketspaces. But the lock-in is only implemented after identifying the business’ target market. According to Kirkpatrick (2010), Facebook’s target market has distinct socioeconomic and demographic characteristics. Learning from competitors is also vital achieving a competitive advantage (Casadesus-Masanell & Ricart, 2010).
The weaknesses of a competitor can be used as advantages to the business. It comes from the business information obtained from rivals that an organization can develop its competitive advantage essential for flourishing in the industry. However, the competitor knowledge must be augmented by intimate customer knowledge. Kirkpatrick (2010) argues that a business can effectively lock them in with sufficient knowledge about its customers.
The exponential growth and global adoption of the internet, together with ICT advancements, have created new types of e-businesses. That kind of business is capable of digital exchanges such values as services, knowledge, and goods. Kirkpatrick (2011) defines e-businesses as organizations involved in electronic commerce from inception and use network resources residing in virtual networks to derive a significant competitive advantage in commercial collaborative alliances’ virtual networks.
Kirkpatrick (2011) argues that e-business has unique characteristics that distinguish them from other brick and mortar organizations in the electronic marketplace. Some of these distinct features include high information richness and reach, increased connectivity, and reliance on internet infrastructure. Walter (2013) portends that by doing business on the internet, e-businesses have some unique set of advantages that are not enjoyed by those in the brick and mortar sector. He highlights innovative entrepreneurship and opens global accessibility as some of the benefits. However, this is not frequently the case in practice. Some features of the models used in these businesses require deep thinking strategies (Suleman et al., 2019). The consumers in this sector have a different kind of sensitization that leaves them with more decision-making powers in their hands.
In their efforts to expand their customer base, e-businesses apply business models to give them a competitive advantage. According to Walter (2013), one such strategy is through the creation of an economic moat. That involves leveraging on the market entry barriers and using them to deter competitors from challenging a business’ share in the market. For instance, an established company such as Facebook, to manipulate the market entry hurdles for new competitors amounts to practice tools for gaining a competitive edge against its latest competition. As a result, it continues to entrench its business and preserve its massive profitability for the future.
Sometimes customers are forced to stick with a business brand although they do not like some of its features. This opinion is shared by Javalgi et al. (2005), who explains that this is for the simple reason that such customers have been locked in. The market manipulation approach used by most of these dominant e-businesses is aimed at retaining the customers by limiting their access to their competition (Kaplan & Norton, 2015). E-businesses rely on lock-in strategies, therefore, to wade off competition and gain a competitive advantage over their rivals.
Theoretical Framework
The lecture notes provide a detailed analysis of how technology companies have leveraged network economics theory to redefine their space of interactions. This theory portends that organizations prepared for what lies ahead in their business environment are more likely to develop a sustainable business competitive advantage that will see them rake in many profits. However, the explanation provided to support this assertion is the emergence of new business opportunities. While there is some truth in this argument, there is no denying that businesses need to do more than waiting for expanded business opportunities (Eurich & Burtscher, 2014). Nonetheless, e-businesses and digital tech companies have drastically transformed the way their business ecosystem functions.
The theory of network economics functions well with feedback delivery. It is said that solid businesses become stronger with positive feedback and weak weaker. That gives rise to extreme outcomes such as a single tech firm like Facebook dominating the marketplace. Indeed, Facebook has dominated the market share for a long time. It is estimated that a seventh of the global population is active Facebook users. According to the network economics theory, this vast number is a result of positive feedback.
On the other hand, negative feedback creates a nexus upon which the tech firm’s lock-in strategy meets. In a negative feedback system, a strong company like Facebook is supposed to get weak, and a weak competitor like Reddit, for instance, gets more robust. That is supposed to push both of them toward some happy medium. However, this is not the true reflection of things on the ground (Jannesson et al., 2014). Facebook has perfected its lock-in strategies to maintain its dominance at the top and push weak competitors like Reddit to the brinks. Therefore, the negative feedback system of network economics is not applicable in this case.
Conversely, the positive feedback system makes reasonable attempts at answering the research question. That is because of its claim that businesses become stronger by their positive feedback. Therefore, according to the economics networks theory, an organization with several positive feedbacks, such as Facebook, is more likely to gain a sustainable advantage over rivals.
Discussion
From the theoretical framework illustrated above, it is apparent that network economics relates to the Facebook case through the positive feedback principle. Facebook is notorious for applying different lock-in strategies to lock in its customers and render them unavailable or inaccessible to its competitors. According to the network economics theory, this strategy can best be understood using the positive feedback notion (Hanson et al., 2016). The tech firm uses high-end tricks to hop on the curve of positive feedback while at the same time maintaining a steady grip on its customers. Customers who want to leave the platform for other social media sites are confronted with high switching costs. The positive feedback phenomenon, therefore, helps to tilt the favor to Facebook.
Conclusion
The digital marketplace continues to have many market opportunities, thanks to the sustained entry of many players. That means that competition for this finite market is becoming stiffer with the access of each player. Besides, it is not only new entrants that are creating a competitive atmosphere in the industry; e-businesses are transforming themselves and reinventing their operational effectiveness to respond to the needs of their target customers.
However, these organizations’ attempts to cash in on giant tech companies’ customers are being thwarted by the latter’s strategic business approaches. Dominant e-businesses such as Facebook employ lock-in strategies to achieve a sustainable competitive advantage over their competitors. The application of this strategy is supported by the positive feedback principle of the network economics theory. That theory’s strength lies in its two-sided approach in explaining Facebook’s dominance of the market.
References
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