Dealing with Risk and Uncertainty: Facebook

Dealing with Risk and Uncertainty: Facebook
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Dealing with Risk and Uncertainty: Facebook
Businesses encounter risk and uncertainty which affect their operations and profitability. These risks and uncertainties are unforeseen and unavoidable. However, businesses must put in place systems and protocols to deal with risks and uncertainties to enhance their survival in a competitive and sometimes volatile business environment. According to Sharma, Leung, Kingshott, Davcik, and Cardinali (1), risk and uncertainty stem from an inability to correctly predict something, mostly arising from a lack of knowledge about an issue. Risk and uncertainty can throw businesses off balance, which is why it is important to have measures put in place to manage any risk and uncertainty. Sharma, Leung, Kingshott, Davcik, and Cardinali (1) further posit that risk and uncertainty can be due to environmental, industry, and firm-specific factors. This paper explores the risk and uncertainty that Facebook has been facing since the beginning of 2021. It will outline the actions that Facebook has taken to deal with this uncertainty and propose ways in which Facebook can mitigate the risk and uncertainty for its bottom line. Further, the paper will explore the adverse selection, moral hazard, and principal-agent problems affecting Facebook, as well as its organizational structure and how it can be changed to improve profitability.
Facebook: Uncertainty and Revenue Generation
Facebook is a United States (U.S.) multinational technology company that was founded in 2004. Primarily, Facebook allows users to connect with their loved ones by sharing messages, photos, and videos. Its mission is to “Give people the power to build community and bring the world closer together (Facebook, 2).” Over the years, it has gained prominence to become one of the social media site companies with the widest global coverage.
Facebook’s main products are social networking sites such as Facebook, WhatsApp, Facebook Messenger, and Instagram (Facebook, 2). These networking sites are available to users for free; users only need to install the applications on their smartphones or computers and register using their emails or phone numbers. Other products include digital gaming sites such as Oculus and digital financial wallets such as Novi (Facebook, 2). To generate revenues, Facebook relies on advertisements which it sells to marketers. According to Black (3), the company generates about 99% of its revenue from advertisements. More than 2 billion people around the world use Facebook, WhatsApp, and Instagram, among other Facebook social media sites. This means that marketers can gain access to over 2 billion people, which is why most of them are willing to buy advertisements space from Facebook. What Facebook does is that it directly targets each user with advertisements (Black, 3). The cost of advertisement depends on targeting as well as engagement from each advertisement.
Facebook has experienced significant growth, even during the COVID-19 pandemic, because more businesses have embraced online commerce, making online advertising a priority (Facebook, 4). Also, there has been a shift in consumer demand from ...