Chapter 8 Facebook: Building a Business from the Social Graph

Laila EsmailBUS 550- Spring 2011May 17, 2011

ObjectivesWhat is Facebook?TimelineTechnologySocial GraphFacebook as a platformAdvertisingPrivacyFacebook takes over the Web

What is FacebookFacebook is the world’s largest social

network, with over 500 million usersFirm valued at $15 billion

Mark ZuckerbergFounded in February 2004Initially started with College networksEventually opened up to anyone with an

email account

How many people have a Facebook account?

What’s the Big Deal?Large growth of users

Between 2008 and 2009- 600,000 to 1 million users added per day

Half of the users are on everyday for approximately 55 minutes or more

35 years+ make up more then 50% of usersPhoto and Video sharingDocs.comEmail system, music service and payment

systemAdvantage of dark Web

Timeline2004

• Founded in February 2004• 1 million active users

2005

• $12.7 million raised in venture capital from Accel Partners• 5.5 million active users

2006

• Expands to anyone with an email account• Forms strategic relationship with Microsoft for banner ad

syndication2007

• 65 developers with over 85 applications• Microsoft buys 1.6% of firm for $240 million

2008

• Co-Sponsors Presidential Debate with ABC News• 100 million active users

2009

• ‘Like’ feature added• 350 million active users

2010

• > 500 million active users

TechnologyCloud computing

Open source software (OSS)

Content Delivery Networks (CDN)

Telecommunications bandwidth

Social GraphFacebook’s ability to collect, express and

leverage the connection between the site’s users.“The global mapping of everyone and how they

are related”News feeds

Competitive AdvantageNetwork effectsSwitching Costs

Invested in Facebook less

likely to leave

Who has checked in their location?

Facebook as a PlatformApplication programming interfaces (APIs)

Guideline for programs to be written to run within and interact with Facebook

Challenges for FacebookCopyrightSecurityAppropriatenessFree speech tensionsPrivacyPotential competition

What are some of your favorite applications?

AdvertisingHunt versus the Hike

Searching on Google is a hunt Ads are clicked at 2% or more

Browsing on Facebook is a hike Ads are clicked 0.04%

Banner ads are charged per thousand impressionsRemoved in 2010

PromotionsEngagement ads

Ben & Jerry’s

Revenue per User

Privacy (or lack of)Beacon (2007)

Consumer activity posted on news feedsOpt-out versus Opt-in“Facebook Ruins Christmas for Everyone”Video Privacy Protection Act

Terms of Service ChangesPublic reactionEmpowered users to determine the next step

Protection of users

How might have Facebook and its partners avoided the problems with Beacon?

Facebook takes over the WebFacebook launched a series of initiatives

(2010) that placed the company at the center of identity, sharing, and personalization- across the Web.

“Like/Recommend” button added to any websiteViral distribution

Facebook credentials for logging inFacebook membership more valuable by

enhancing network effects, strengthening switching costs, and creating larger sets of highly personalized data to leverageIs Facebook too open? In what ways might this benefit the firm? Is it a risk?

SummaryFacebook was founded by a 19 year old college

sophomore (dropout)Over 500 million active usersPhoto and Video sharingSocial graph expresses connections between

individuals and organizationsCompetitive advantage- network effects and

switching costsFacebook engagement adsBeaconPrivacyFacebook takes over the Web

Multiple Choice QuestionHow many active users are on Facebook?

A)10 million

B) Over 500 million

C)1 trillion

D) Less than 500,000

ReferencesChapter 8: Facebook: Building a Business from the Social Graph.

In J. Gallaugher, Information Systems: A Manager's Guide to Harnessing Technology (pp. 137-161). Flat World Knowledge, Inc.

http://www.facebook.com/press/info.php?statistics#!/ press.php

http://internetbusinessmodels.org/facebookbusinessmodel /

http://www.crunchbase.com/company/facebook