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BUSIDATE

Volume 30, Issue 1 2022

BUSIDATE

Volume 29, Issue 1, 2022

Growing pains and making gains

Matilda Roberts, Business Studies Teacher NBSC, Cromer Campus

Abstract

Businesses all follow a life cycle, and they must make decisions appropriate to their age and stage. Whether it is maximizing growth or avoiding the dreaded decline, there is no ‘one-size fits all’ solution. Rather, businesses rely on the skill and ingenuity of their employees and management to ride through the storm and come out stronger. In this article we will see where Facebook, Zoom and Uber lie in the business life cycle, and examine some of the strategies they have employed on their way there.

Facebook

Facebook is a social media giant that is recognised by billions around the world. However, as one of the first major platforms, you may be tempted to think that Facebook is outdated, swamped with ads and primarily used by your crazy aunt. As we will see, this is not really the case. Despite many challenges, Facebook has sustained high levels of growth with targeted and specific management strategies.

Life cycle

The business life cycle is a model or simplified version of real life. Some businesses fit the model perfectly while others do not. However, we can look at a few indicators to identify a business’ life cycle stage, and there is always lots to learn.

As you see below, Facebook has experienced accelerating revenue growth in the last 15 years which is an impressive feat for any business. This is a textbook indicator of the ‘growth’ stage. However, when looking at the google interest score, the Facebook brand is risking fading into irrelevance. So, what’s up? Is Facebook in growth or maturity?

                       Figure 1. Facebook’s revenue and google interest scores showing contradicting signs of the                         life cycle stage.

One factor that complicates identifying a life cycle stage for Facebook is its global nature. With penetrations as high as 71% in North America, you might say that Facebook is looking at maturity. 7 out of 10 people in the US and Canada already have an account and are somewhat regular users. On the other hand, when you notice that regions like Asia and Africa have penetration as low as 19%, Facebook could definitely still be in the growth phase.

Figure 2. Facebook’s market penetration into different geographical regions. Note: Facebook is illegal in China leading to low penetration in Asia.

With all this in mind, we could say that Facebook, as a global company, is still in the growth phase but may possess aspects of maturity. Naturally, the next question to ask is “What strategies have they employed to keep growing for 15 years?”

Strategies

One major strategy employed by Facebook is acquisition. To date, Facebook has acquired 94 businesses ranging from minor tech companies to major competitors. One of Facebook’s earlier acquisitions was Beluga in 2011. Beluga had a messaging application that was later closed by Facebook and integrated into what we now know as Messenger. This is a great example of how Facebook saw a competitive product that would complement their own, acquired it, and expertly integrated it. 

Figure 3: Facebook and Google

A separate type of acquisition was seen one year later in 2012 with Instagram. Facebook purchased the well-established social media platform but instead of completely absorbing it, Instagram remained a stand-alone product. There are still many benefits from an acquisition such as this, like revenue growth, back-end synergies and brand strengthening.

Another growth strategy used by Facebook is market development. This includes all the activities around trying to enter a new market such as a new region, country or group within society. For example, Facebook is regularly negotiating with governments to allow their citizens to access their products and services online. This strategy is especially important when a large proportion of your existing target market is already a customer.

Zoom

Zoom is a technology communications company. Its core product is the Zoom software which allows video communication over the internet. Pre-2019 you most likely had never heard of Zoom, but since the global pandemic, it has become a household name and is still the video conferencing software of choice for many companies.

Life cycle

Once again, we will refer to the revenue trends of our company of interest to identify its stage in the business life cycle.

                        Figure 4. Zoom’s quarterly revenue data.

Firstly, don’t be discouraged by the term ‘quarterly revenue’. It is normal practice in the business world to break a year up into four quarters (three months each). In this example looking at Zoom’s revenue for each quarter instead of each year gives us a lot more detail.

Now, we can see steady growth in 2018 followed by extreme growth during the first year of the Covid-19 pandemic. Since then, however, growth has been slowing which is a strong indicator of maturity. This could be a key moment for Zoom to determine which post-maturity phase it will enter; renewal, steady-state or the dreaded decline.

Strategies

Zoom’s CEO Eric Yuan has his sights strongly locked on sustainable long-term growth and there is one strategy above them all to get them there – customer-driven design. In a 2017 interview with Saastr, Yuan highlighted that “Our philosophy is we really focus on making our existing customer happy. We do not aggressively pursue the new prospect.” With this strategy, you are placing quality over quantity. Although it may not be best for rapid, short-term growth, if existing customers never leave your amazing product, you will be safeguarded from business decline indefinitely.

Although avoiding decline is ideal, it is only half of the battle. No company would choose steady-state over renewal and there are always improvements to be made. And no surprise, Zoom is using a similar strategy to Facebook – acquisition. Zoom’s most recent acquisition was of a company called Liminal. Liminal provided add-ons to the Zoom software that added functionality for virtual events. With the plan of integrating this functionality into their product, Zoom is showing a keen interest in improving and adapting their product to how their customers really use it. As a bonus, this strategy has all the benefits of emerging technology (with proven success as an add-on) without the risks of research and development costs.

Figure 5: Zoom

Finally, Zoom has a long-term growth strategy called the ‘Freemium model’. While not specific to the maturity phase, this strategy provides an excellent way for new customers to get on board. Similar to Spotify or your favorite mobile games, Zoom lets you use all of its wonderful features, but only for 40 minutes at a time. This is enough for many casual users to get hooked until they end up purchasing a premium account or business license for their increased personal or professional needs.

Uber

Uber is a mobility business best known for its ride-hailing service, aggressive promotions (think “50% off your next ride!”) and more recently, its food delivery service. A key aspect of Uber’s business model is that it does not own any of the cars, and depending on the country, it doesn’t technically employ the drivers either. This helps Uber stay lean and focus on the actual service of connecting passengers to a driver; however, it also means the barriers to entry for competitors are relatively low – just make an app and you’re good to go!

Life cycle

Now for the third and last time (I promise!) we are going to have a look at a revenue chart – this time for Uber.

                      Figure 4. Uber’s annual revenue data. 

Clearly, revenue growth has been strong in the last decade except for 2020. This is not surprising for a company that provides mobility during a period when many governments were restricting travel. Acknowledging this, Uber appears to still be in the growth phase.

Strategies

Although growth is a generally positive period for a business, it must be managed to grow ‘healthily’ while maximizing outcomes. Uber has employed many strategies to achieve just that.

One such strategy that has been used across the ride-share industry is penetration pricing. This is where companies price their product very low to build a customer base and facilitate growth. Uber took this to the extreme causing them to experience an overall loss (negative profit!) in 7 out of the last 8 years.

                     Figure 6. Uber’s annual profit and loss data.

Another growth strategy that has been incredibly successful in recent years is the diversification into food delivery services – Uber Eats. This strategy allowed Uber to offer multiple services to a single customer, access a larger market and utilize marketing and cross-pollination between the two services.

Figure 7: Uber

Finally, Uber did try its hand at the innovation game with large investments into autonomous driving research and development between 2015 and 2020. However, due to a fatal accident and legal issues among other reasons, this branch of their business was sold at the end of 2020. Although innovation is a great way to grow and maintain a competitive advantage, it is also important to recognize when an idea or technology is not suited to your business, and Uber made this decision well.

Conclusion

In this article, we have seen how three household name businesses have grown in the past few years. Although this growth can appear to be good luck or being in the ‘right place at the right time’, it is important to dig deeper and think about the decisions and strategies these businesses are employing. From acquisitions to product design or pricing, there is no one answer. Rather it is a complex equation that can only be solved by the best minds in business.

                        Figure 8: Metaverse

Student Activities

1. Define the business life cycle.

2. Draw a diagram of the business life cycle and plot each case study on it (Facebook, Zoom and Uber).

3. Classify Facebook’s Beluga and Instagram acquisitions as horizontal integration, vertical integration or diversification.

4. Explain how it could be argued that Facebook falls within both the growth and maturity stages of the business life cycle.

5. Look at the business life cycle of both Facebook and Instagram (before Instagram was acquired by Facebook). What are some similarities and differences? You will need to do your own research on Instagram for this question.

6. Define market penetration and cross-pollination in the business context.

7. Explain some of the strategies Zoom could employ to avoid decline in their post maturity stage of the business life cycle.

8. Investigate some of the challenges Uber has experienced with its employees as it has grown as a company.

9. Explain some of the challenges companies face when expanding internationally.

10. Conduct the following research activities into Facebook:

a. Check out https://www.techwyse.com/blog/infographics/facebook-acquisitions-infographic/ for a full list of Facebook acquisitions. Identify one acquisition not mentioned in this article and research why it was acquired by Facebook.

b. In 2021 Mark Zuckerberg announced a change of name from Facebook to Meta. Conduct research to find out why and make a judgement about how effective this strategy is likely to be. (Discuss with your classmates)

References

Google Trends. 2022. Facebook. [online] Available at: <https://trends.google.com/trends/explore?date=all&q=Facebook> [Accessed 14 March 2022].

Iqbal, M., 2022. Uber Revenue and Usage Statistics. [online] Business of Apps. Available at: <https://www.businessofapps.com/data/uber-statistics/> [Accessed 14 March 2022].

Iqbal, M., 2022. Zoom Revenue and Usage Statistics. [online] Business of Apps. Available at: <https://www.businessofapps.com/data/zoom-statistics/> [Accessed 14 March 2022].

Statista. 2022. Facebook: global penetration by region. [online] Available at: <https://www.statista.com/statistics/241552/share-of-global-population-using-facebook-by-region/> [Accessed 14 March 2022].

Statista. 2022. Meta (formerly Facebook Inc.) revenue and net income from 2007 to 2021. [online] Available at: <https://www.statista.com/statistics/277229/facebooks-annual-revenue-and-net-income/> [Accessed 14 March 2022].

Tonneson, S., 2022. What Explains Zoom Video’s Success During the Coronavirus? [online] Pipeline Blog. Available at: <https://pipeline.zoominfo.com/marketing/zoom-video-growth-coronavirus> [Accessed 14 March 2022].

Further reading

Facebook Acquisitions – The Complete List (2022)! [Infographic]

https://www.businessinsider.com.au/uber-still-losing-a-lot-of-money-latest-earnings-show-2021-8?r=US&IR=T

https://www.nasdaq.com/articles/can-zoom-thrive-in-a-post-pandemic-world

https://www.eleken.co/blog-posts/maturity-stage-of-product-life-cycle

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