1. Chapter 8 Facebook: Building a Business from the Social Graph Laila Esmail BUS 550- Spring 2011 May 17, 2011

2. Objectives What is Facebook? Timeline Technology Social Graph Facebook as a platform Advertising Privacy Facebook takes over the Web

3. What is Facebook Facebook is the world’s largest social network, with over 500 million users Firm valued at $15 billion Mark Zuckerberg Founded in February 2004 Initially started with College networks Eventually opened up to anyone with an email account How many people have a Facebook account?

4. 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 users Photo and Video sharing Docs.com Email system, music service and payment system Advantage of dark Web

5. Timeline 2004 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 syndication 2007 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

6. Technology Cloud computing Open source software (OSS) Content Delivery Networks (CDN) Telecommunications bandwidth

7. Social Graph Facebook’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 Advantage Network effects Switching Costs Invested in Facebook less likely to leave Who has checked in their location?

8. Facebook as a Platform Application programming interfaces (APIs) Guideline for programs to be written to run within and interact with Facebook Challenges for Facebook Copyright Security Appropriateness Free speech tensions Privacy Potential competition What are some of your favorite applications?

9. Advertising Hunt 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 impressions Removed in 2010 Promotions Engagement ads Ben & Jerry’s

10. Revenue per User

11. Privacy (or lack of) Beacon (2007) Consumer activity posted on news feeds Opt-out versus Opt-in “Facebook Ruins Christmas for Everyone” Video Privacy Protection Act Terms of Service Changes Public reaction Empowered users to determine the next step Protection of users How might have Facebook and its partners avoided the problems with Beacon?

12. Facebook takes over the Web Facebook 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 website Viral distribution Facebook credentials for logging in Facebook membership more valuable by enhancing network effects, strengthening switching costs, and creating larger sets of highly personalized data to leverage Is Facebook too open? In what ways might this benefit the firm? Is it a risk?

13. Summary Facebook was founded by a 19 year old college sophomore (dropout) Over 500 million active users Photo and Video sharing Social graph expresses connections between individuals and organizations Competitive advantage- network effects and switching costs Facebook engagement ads Beacon Privacy Facebook takes over the Web

14. Multiple Choice Question How many active users are on Facebook? A)10 million B) Over 500 million C)1 trillion D) Less than 500,000

15. References Chapter 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