MarketLine Case Study
Facebook Inc. How a social network became a multi-billion dollar business Reference Code: ML00007-002
Publication Date: May 2012
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OVERVIEW Catalyst Since it was founded in February 2004, Facebook has gone from strength to strength to become the world’s most popular social networking site in terms of registered users. The site was conceived by Harvard college student Mark Zuckerberg as the university did not have a campus-wide "face book" and the paper ones issued by several of the university’s houses were outmoded. Initially, membership was limited to only Harvard students, but was quickly expanded to include other colleges in the Boston area. Over time, Facebook has grown dramatically. It is now open to anybody who wishes to register and is available in over 70 languages. As of March 2012, the site had 901 million monthly active users (MAUs) worldwide; 526 million of which are classed as daily active users (DAUs). Facebook has successfully translated this into increased revenues and profits, growing to be a company with a turnover of $3.7bn in just seven years. This case study examines how Facebook has achieved this and the potential future challenges for the company.
Summary •
In the eight years since its inception, Facebook has endured an eventful journey from start-up to multi-billion dollar business. The key factors in its effective expansion have been its diversification into new groups and languages and its relentless innovation. What started as a small network accessible to a small, exclusive group of users is now a global behemoth with over 900 million regular users. Rather than striving for a finished end product, the company’s management team believes that Facebook must constantly innovate and evolve to keep up with the latest user trends and tastes. This strategy has seen the site undergo several noticeable facelifts in its short lifetime, as well as the addition of much new and improved functionality.
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The challenge facing Facebook has been to monetize its operation. A usership of more than 900 million people presents an excellent opportunity for advertisers. Facebook users volunteer information regarding their age, gender, location, and interests, all of which is invaluable to advertisers as it allows them to target particular subgroups for whom their product or service is relevant. The company’s management team has identified the need to establish a more diverse revenue model in a bid to reduce its reliance on advertising income. It has therefore invested significant resources into growing its payments operation, which now accounts for around 15% of all revenues.
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Facebook has grown without interruption, both as a network and as a business, since it was established in 2004. It does, however; face a number of challenges for the future. The company has already identified the trend towards accessing the site on mobile devices and applications as an issue, as it cannot monetize this as effectively as the web-based version. Some users are also starting to exhibit signs of what has been dubbed "Facebook fatigue," whereby they are using the site less frequently. These users need to be enticed to increase site usage. To this point Facebook has been a privately owned company, but in May 2012 it will undertake an initial public offering (IPO). As a company on the stock market, it will have a responsibility to its investors and the impact of this change on the way that the company operates remains something of an unknown.
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TABLE OF CONTENTS Overview ............................................................................................................................................................................. 2 Catalyst............................................................................................................................................................................ 2 Summary ......................................................................................................................................................................... 2 Analysis ............................................................................................................................................................................... 6 Facebook has grown from a start-up to become the world’s most popular social network with over 900 million registered users ............................................................................................................................................................... 6 Facebook started as a social network exclusively available to Harvard students ........................................................ 6 Expanding the offering to new groups has been key to Facebook’s growth................................................................. 6 This has resulted in dynamic growth of site membership ............................................................................................. 6 Constant innovation is crucial to Facebook’s ongoing success .................................................................................... 7 Facebook has adopted a strategy of phased change and evolution ............................................................................ 7 Monetizing Facebook’s popularity has proved far from simple ...................................................................................... 10 Facebook derives most of its revenue from the sale of advertising space ................................................................. 10 The company has acted to establish a more diverse revenue model ........................................................................ 11 Facebook has successfully grown revenues and, more importantly, profits............................................................... 11 This performance has made Facebook one of the world’s most valuable brands ...................................................... 12 The future presents a number of significant challenges for Facebook ........................................................................... 13 An increase in access via mobile apps could potentially harm future revenues ......................................................... 13 Some regions are starting to experience what has been dubbed "Facebook fatigue" ............................................... 13 The decision to undertake an IPO will bring fresh challenges .................................................................................... 14 Facebook proved to be an attractive proposition for investors ................................................................................... 14 As well as challenges, the future also brings opportunities ........................................................................................ 15 Conclusions....................................................................................................................................................................... 17 Facebook has established itself as a fixture in the daily lives of many people and looks set to remain a powerful social tool ................................................................................................................................................................................. 17 Appendix ........................................................................................................................................................................... 18 Definitions ...................................................................................................................................................................... 18 Sources ......................................................................................................................................................................... 18 Further reading .............................................................................................................................................................. 18 Ask the analyst .............................................................................................................................................................. 18 About MarketLine .......................................................................................................................................................... 18 Disclaimer ...................................................................................................................................................................... 19
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LIST OF TABLES Table 1: Facebook revenues and net income 2007–11 .................................................................................................... 11
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TABLE OF FIGURES Figure 1: Number of registered Facebook users at year end (millions), 2004–11 ............................................................... 7 Figure 2: Facebook Payments ............................................................................................................................................ 8 Figure 3: Examples of Facebook ads ................................................................................................................................ 10 Figure 4: Facebook revenues and net income, 2007–11 .................................................................................................. 12 Figure 5: Facebook’s position in Millward Brown’s 2011 BrandZ Top 100 ........................................................................ 12 Figure 6: Facebook share price, May 18, 2012 ................................................................................................................. 15 Figure 7: Facebook across the world ................................................................................................................................ 16
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ANALYSIS Facebook has grown from a start-up to become the world’s most popular social network with over 900 million registered users Since it was founded in February 2004, Facebook has gone from strength to strength to become the world’s most popular social networking site in terms of registered users, boasting over 900 million account holders worldwide. Facebook’s global presence is illustrated by the fact that as of May 2012, it is available in over 70 languages. Its stated aim is to "make the world more open and connected."
Facebook started as a social network exclusively available to Harvard students The site was conceived by Harvard college student Mark Zuckerberg as the university did not have a campus-wide "face book" and the paper ones issued by several of the university’s houses were outmoded. Zuckerberg first developed a site called Facemash, which took photographs from the house "face books" and placed them alongside each other. Students could then choose the "hotter" person. The site attracted a very large amount of traffic; 450 people accessed the site and voted 22,000 times. This convinced Zuckerberg that there was demand for a social networking site that allowed people to look up others that they know and so he began to write code for the site now known as Facebook. Facebook was officially launched as thefacebook.com in February 2004 and initially membership was limited to only Harvard students. It was, however, quickly expanded to other prestigious colleges in the US such as Columbia, Stanford, and Yale, giving it something of a social cache.
Expanding the offering to new groups has been key to Facebook’s growth Facebook deliberately adopted a policy of constraining growth, thus increasing the air of exclusivity surrounding the network. Site registration was gradually made available to more colleges and by May 2005, Facebook supported more than 800 college networks. In September 2005, it was rolled out to high schools across the US before being made available to a number of overseas universities the following month. 2006 was a watershed year in Facebook’s history and one that witnessed a growth explosion as it was first opened up to work networks for selected companies in May of that year, before registration was expanded so that anyone could sign up. This took Facebook beyond the academic world and gave it a potential audience of almost anybody in the world with access to the internet. In order to grow its global appeal, Facebook has increased the number of languages in which it is available. In February 2008, French and Spanish versions of the site were launched, followed by German a month later. More languages have since been added and as of May 2012, Facebook is available in over 70 languages including English, Danish, Hungarian, Finnish, Russian, Hebrew, Turkish, and Arabic. Of the 30 countries with the most registered users, only the US, the UK, Australia, and South Africa have English as an official language, demonstrating Facebook’s global appeal.
This has resulted in dynamic growth of site membership Facebook’s successful expansion into new demographics and geographies has seen the number of registered users grow by 90,000% between December 2004 and May 2012 to reach 901 million. These users are classed as monthly active users (MAUs). As of March 2012, the company estimated the number of daily active users (DAUs) to be 526 million.
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Figure 1: Number of registered Facebook users at year end (millions), 2004–11
Constant innovation is crucial to Facebook’s ongoing success Facebook’s expansion to include new demographics and geographies has undoubtedly been a key driver of its seemingly unstoppable growth in recent years. It is, however, not the sole reason for the network’s popularity. The company’s management understands the importance of constant innovation and product evolution in an industry obsessed with functionality. Facebook has undergone a number of noticeable facelifts since its inception, but many of the changes have been much more than purely cosmetic improvements. Since 2004, Facebook has evolved from a site which simply allows users to view friends’ profiles to one which can host videos and photos, allows instant messaging, provides the possibility of playing web-based games, and permits users to share their information with third-party websites and applications should they wish to do so.
Facebook has adopted a strategy of phased change and evolution While it is correct to highlight the importance of change in Facebook’s journey to 900 million users, it would be wrong to see the company as one that makes wholesale changes on a regular basis. This risks the ire of users and so Facebook has instead opted to make changes and add functionality gradually. The first major addition to the site came in September 2004 when the now famous "wall" was added, allowing users to interact with each other by posting messages on their friends’ "walls." August 2005 saw a crucial rebranding exercise as "the" was dropped from thefacebook.com, creating the site now known as the much catchier Facebook. In October 2005, Facebook Photos was launched, allowing users to upload, share, and comment on photos. 2006 saw several notable changes and additions. Firstly in April, Facebook for mobile was launched and in August 2006, Facebook API (Application Programming Interface) was introduced, enabling users to share their information with thirdparty websites and applications. The following month saw the launch of the news feed and in November 2006, the site’s "share" feature was added.
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May 2007 heralded the arrival of the Facebook Platform, which started out with 85 applications. This provides a set of APIs that allow developers to integrate with Facebook’s open graph. This graph allows websites to collect information about photographs, events, and pages, as well as about people. This has expanded greatly and there are now over 500,000 active applications on the platform. This has been a key growth driver as it has added functionality to Facebook which helps to keep users engaged. In June 2007, the Facebook Platform for mobile was rolled out and in November of the same year, self-service ads and Facebook pages were launched as a way for companies to promote themselves and establish ongoing dialog with consumers. Facebook’s instant chat function was launched in April 2008 allowing users to communicate with each other in realtime via text chat. This filled a significant void in the Facebook offering and allowed it to compete with the likes of Windows Live Messenger, Yahoo! Messenger, and BlackBerry Messenger. In July 2008, "New Facebook" was launched which had a more spacious layout and improved navigation tabs. In the same month, the company unveiled its first dedicated mobile app, for Apple’s iPhone. December 2008 saw the launch of Facebook Connect, allowing users to connect their Facebook identity, friends, and privacy to any site. 2009 saw the introduction of the "Like" button in February, and the new Facebook homepage was launched the following month. In June 2009, the company embarked on the road to a more diverse revenue model by launching Facebook Payments, a way for people to buy virtual goods online. The user’s payment details are stored on Facebook’s secure servers and he or she is then able to make purchases across a range of applications without the need to re-enter their details.
Figure 2: Facebook Payments
That same month, Facebook usernames was launched, allowing people to choose a unique web address for their profile. The summer of 2010 saw the introduction of the Facebook Stories app, enabling users to share their experiences, and Facebook Questions was also launched. Facebook Places also went live, meaning that people could now share their location in realtime using GPS-enabled devices. The new Facebook Groups format was rolled out in October 2010 before the year ended with a new-look profile page. 2011 saw the site make video calling available for the first time, as well as the new-look timeline profile. The company also extended its mobile offering further by making a Facebook for iPad app available in October 2011.
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All of these changes and additions have helped to make Facebook what it calls a "social utility." Its ability to adapt to changing consumer tastes has helped it stay ahead of the game and become a site capable of fulfilling a range of needs from sharing photos to sending private messages and video chat.
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Monetizing Facebook’s popularity has proved far from simple While all of the aforementioned expansion and innovation has helped make Facebook a highly successful social utility, it does not necessarily mean that it is a sound and profitable business. Indeed, one of the greatest challenges facing Mark Zuckerberg and his leadership team has been turning the site’s popularity into revenue and profit.
Facebook derives most of its revenue from the sale of advertising space Facebook has monetized its high level of usage by displaying ads and other commercial content and charging for doing so. As users of the site are only too keen to point out, these adverts reside on the right-hand side of a user’s profile and provide them with the opportunity to click through directly to the website in question. Facebook has successfully leveraged its user base of over 900 million to build a highly profitable advertising business, which generated revenues in excess of $3bn in 2011. When selling itself to advertisers, Facebook is able to point to several key advantages over web-based advertising elsewhere. The potential size of the audience for an advert is, with the possible exception of Google, unmatched anywhere on the Internet. Furthermore, Facebook is able to offer targeted ads in a way that no other site can, simply by using the information that users have voluntarily shared with the site. Facebook can show ads to a subset of users based on demographic factors (age, marital status, gender, etc.) and specific interests they have shared with the site (soccer, reading, cars, etc.). For example, a 25 year-old single man may be targeted with ads for a dating site for 25–30 year olds, or a soccer fan may see adverts for online gambling sites offering certain odds on certain matches. This allows advertisers to target consumers that they already know have an interest in their offering, thus increasing the chances of a successful sale. This is evidenced if one examines the numbers. All Nippon Airways placed ads through Facebook and experienced clickthrough rates of 25%, compared with 8–12% for non-Facebook web-based advertising. Facebook also provides advertisers with the opportunity to include social context in their messages. Recommendations from friends carry more weight with consumers than the messages from the company itself and so Facebook has the ability to turn an advertising message into a trusted referral by including content from a user’s friends who are already affiliated with the product in question. For example, adverts now say "3 friends like this" and for businesses such as restaurants, users can even see when their friends have "checked in" there. In this way, companies set up Facebook pages and place ads on the site in the hope that this will lead to immediate sales in the short term, but also as a way of establishing meaningful, ongoing dialog with consumers in the hope that they will be able to reap long-term rewards. As such, Facebook is able to offer a complete marketing strategy rather than simply just advertising space.
Figure 3: Examples of Facebook ads
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The company has acted to establish a more diverse revenue model In 2011, 85% of Facebook’s revenues came from the sale of advertising space, showing that the company is still highly reliant on this income stream. This did, however; represent progress on the previous year, when 95% of revenues were accounted for by advertising. The remainder of Facebook’s revenues come from Facebook Payments, a system that allows users to buy virtual goods online. The user’s payment details are stored on Facebook’s secure servers and he or she is then able to make purchases across a range of applications without the need to re-enter the details. This is done by buying Facebook credits. The growth seen in this area is predominantly being driven by the social network game developer Zynga, the creator of popular Facebook games such as CityVille, FarmVille, and Mafia Wars. Players use Facebook Payments to purchase extras for these games and Facebook takes a 30% cut of all transactions. Facebook sees payments as an area where it can grow significantly. According to the company’s website, revenue generated worldwide from the sale of virtual goods increased from $2bn in 2007 to $7bn in 2010. Furthermore, the industry is forecast to be worth $15bn by 2014. Facebook currently requires payments integration in games played on the site and the company has stated that it may seek to extend the use of payments to other types of apps in the future. This would allow the company to boost its revenues from payments, and consequently further reduce its reliance on advertising revenues. On the face of it, Facebook’s revenue model may seem to be extremely concentrated around advertising income. While it is true that 85% of revenue coming from one income stream illustrates a certain degree of over-reliance, Facebook is actually more diverse than some of its peers. For example, Google’s business is far more dependent on advertising with over 96% of its revenues accounted for by advertising. In this way, Facebook has already established a more varied business than Google.
Facebook has successfully grown revenues and, more importantly, profits Facebook’s appeal to advertisers and its increasing payments revenue stream have seen the company grow from a small, non-income generating operation to a multi-billion dollar business. Furthermore, it has also become highly profitable, recording profits in the hundreds of millions.
Table 1: Facebook revenues and net income 2007–11
2007
2008
2009
2010
2011
153
272
777
1,974
3,711
Net income ($m)
3
0
25
402
695
Net profit margin
2.0%
0.0%
3.2%
20.4%
18.7%
Revenues ($m)
Facebook SEC Registration Statement
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Figure 4: Facebook revenues and net income, 2007–11
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Facebook SEC Registration Statement
This performance has made Facebook one of the world’s most valuable brands Facebook’s growth in user numbers, revenue, and profits is matched by that in its brand value. According to Millward Brown’s BrandZ Top 100 Most Valuable Global Brands, the company’s brand increased in value by 246% in 2011 to reach $19,102m. To put this growth into context, the second fastest growing brand in the list, Chinese search engine company Baidu, saw its brand value increase by 141%. Facebook was ranked as the world’s 35th most valuable brand ahead of well-known and long-established names such as Disney, L’Oréal, Mercedes, and Pepsi.
Figure 5: Facebook’s position in Millward Brown’s 2011 BrandZ Top 100
Millward Brown BrandZ Top 100
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The future presents a number of significant challenges for Facebook Facebook’s story to date has been one of almost uninterrupted success, with user numbers, revenues, profits, and brand equity all growing dynamically. This has allowed the company to establish itself and make constant improvements to its offering, but the company’s rapid expansion, diversification, and impending initial public offering (IPO) bring with them some potentially significant challenges for the future.
An increase in access via mobile apps could potentially harm future revenues In its SEC Registration Statement filed in February 2012, the company highlighted its current inability to monetize mobile access via mobile web, smartphone apps, tablet apps, and so on as a factor which could have a potentially negative impact on its revenues in the future. Facebook does not currently display ads to users who access it through mobile apps or the mobile website in the way it does to users accessing the site on PCs. People are increasingly using the Facebook app for iOS, Android, BlackBerry, and so on as a substitute for PC-based access, and Facebook has stated that it fully expects this trend to continue. Furthermore, its SEC Registration Statement the company speculates that "the number of ads that we deliver to users and our revenue may be negatively affected unless and until we include ads or sponsored stories on our mobile apps and mobile website." The popularity of Facebook apps and Facebook for mobile is beyond question. In December 2011, Facebook had more than 425 million mobile MAUs, and in its SEC filing the company highlights noticeable growth in mobile access in developed markets such as the US as smartphone penetration has soared and new apps, such as Facebook for iPad, have been launched. The advantage of this is that this growth in mobile access has driven an increase in the amount of content (wall posts, likes, photos, etc.) which Facebook can leverage when selling to advertisers. Facebook therefore faces the challenge of striking a balance between losing out on vital revenue and detracting from the user experience by cluttering small screens with ads, an issue of which it is well aware. Furthermore, the company has also spoken of the negative affect that this could potentially have on payment volumes, the company’s other revenue stream. While the exact effects of an increase in the number of users accessing the site via mobile apps remain uncertain, the numbers that Facebook itself quotes show that it could potentially have a significant impact on future revenues and is therefore an issue that the company will be forced to tackle.
Some regions are starting to experience what has been dubbed "Facebook fatigue" Since it was founded in 2004, Facebook has added users every day and all over the globe. Some regions continue to have a higher concentration of users than others, and in these regions Facebook has become a part of everyday life to the extent that it is now included in the Collins English Dictionary as a verb meaning "to search for a person’s profile on the Facebook website." North America is one such region, with the US and Canada exhibiting a high level of Facebook penetration. However, in 2011, Facebook witnessed some worrying trends as its growth in North America seemed to stall, leading some to question whether it has reached saturation point. In April 2011, Facebook lost 7 million users in the US and Canada and while the 12 months to December 2011 saw its US user base grow by 8%, this represented a steep drop from the 44% growth seen for the 12 months to December 2010. More worrying is the fact that the number of users in Canada actually declined in 2011 from 17,288,620 to 17,113,920, a fall of 1%. This suggests that there is very little left in the way of untapped potential in North America and that some users have grown tired of Facebook and have consequently reduced their usage or, worse still, closed their accounts. These users need to be enticed to increase site usage or to reactivate their accounts. Facebook needs to establish a means of achieving this. North America is not alone in this regard, with other regions that adopted Facebook early also displaying similar symptoms of "Facebook fatigue." The UK, Norway, and Russia each saw their user bases drop by about 100,000 in May
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2011 and while all of these grew in the 12 months to December 2011, they experienced a noticeable slowing of growth.
The decision to undertake an IPO will bring fresh challenges Facebook announced in February 2012 that it planned to undertake an IPO in H1 2012 and so become a listed company. As a privately owned and run company, its management team has so far been able to make decisions as it sees fit without being answerable to investors. Those who have invested money, such as PayPal founder Peter Thiel, sit on the board of directors and play an active role in the decision-making process. As such, Facebook’s only responsibility has been to itself. One major advantage of this is that the company has been able to take a long-term view and build for the future, as evidenced by its constant innovation and striving towards a more complete social utility. Listed companies must still take a long-term view and build a sustainable and profitable business, but shareholders also demand short-term gains, demands which Facebook will need to meet. Shareholders invest in a company with a view to making a profit on investment and so the listed company must satisfy its investors by posting strong profits and increasing brand equity, both of which drive increased share prices and, ultimately, shareholder value. Investors often want to see a return on investment (ROI) in the short term as they are not certain to hold the shares for any length of time. Facebook’s management team will, therefore, to a certain degree need to shift its focus to the short term. The regulatory burden is also much greater for a listed company as regulatory bodies such as the Securities and Exchange Commission (SEC) in the US place certain demands on them. For example, publicly traded companies in the US are required by the SEC to submit an annual Form 10-K containing a comprehensive detail of a company' s financial performance, thus allowing competitors and investors alike to see how successful a company is in its operations. As a large privately owned company, Facebook already releases a great deal of information, but as a listed company doing so will no longer be optional. In short, Facebook’s stated aim of "making the world more open and connected" is laudable and has given users the opportunity to interact with friends and companies in previously unimagined ways. This will, however, be of little concern to investors who will be more interested in financial results and so Facebook’s focus will inevitably shift towards maintaining and growing returns for its investors, potentially having a fundamental effect on the way it operates.
Facebook proved to be an attractive proposition for investors On May 18, 2012, Facebook shares began trading on the NASDAQ stock exchange. The flotation was originally expected to raise $12bn, but such was the clamor for the stock that the size of the proposed IPO was increased by 25%, making it the third biggest flotation in history behind Visa Inc. and General Motors. The high level of demand allowed the company to increase and narrow the price range from $28–35 to $34–38 per share, valuing the company somewhere between $93bn and $104bn. Investors were split by what has been called the most polarizing stock in living memory, with some, such as Apple founder Steve Wozniak, stating that they were keen to invest regardless of the price, and others scoffing at the valuation, citing concerns about slowing growth in ad revenues and the difficulty Facebook is experiencing in monetizing mobile access. Investors were ultimately convinced by Facebook’s financial results and potential for the future as the IPO was oversubscribed. An early frenzy saw the share price climb from its list price of $38 per share to as much as $45, valuing the company at $115bn. According to Reuters, 82 million shares were traded during the first 30 seconds of Facebook’s stock market debut. Within an hour, the shares settled at around the list price and the stock closed the day at $38.23. This represented an increase of just 0.2% on the opening price, a performance that many analysts deemed lackluster. Max Wolff, senior analyst at GreenCrest Capital, even went so far as to compare Facebook' s debut to a "starlet tripping on the red carpet." However, Facebook broke the record for the most shares traded on a company’s first day as a listed entity with 566 million sold. This illustrates the enthusiasm for the company among investors, investors that Facebook must now satisfy by maintaining and growing returns.
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Figure 6: Facebook share price, May 18, 2012
Daily Telegraph
As well as challenges, the future also brings opportunities While Facebook faces challenges related to an increase in mobile users, regionalized saturation, and its future status as a listed company, it also has opportunities for further growth. In some countries, Facebook penetration remains low and these provide excellent growth opportunities. For example, South Africa’s population is around 50.5 million, but the number of registered Facebook users is just 4.8 million. Similarly, Russia is the world’s eighth most populous country with 143 million inhabitants. Of these, just 5.2 million have Facebook accounts. Many Asian countries, most notably Japan and Pakistan, provide excellent future growth potential, and growth in recent years has been driven by countries in this region. For example, in the 12 months to December 2011, India, South Korea, and Thailand saw growth in the number of registered users of 139.5%, 116.5%, and 97.2%, respectively. The company’s fastest growing market in that period was Brazil, which experienced dynamic growth of 298.5%. The map in Figure 7 shows the concentration of Facebook users across the globe and this reveals that there is great growth potential in South America as a whole, and that Africa remains virtually untapped. Furthermore, Facebook continues to be officially blocked by the government in China, and should this law be relaxed in the future, a large growth market would open up and give the company fresh impetus in Asia. This, however, remains far from certain.
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Figure 7: Facebook across the world
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CONCLUSIONS Facebook has established itself as a fixture in the daily lives of many people and looks set to remain a powerful social tool Since it was founded in February 2004, Facebook has gone from strength to strength to become the world’s most popular social networking site in terms of registered users. In the eight years since its inception, Facebook has endured an eventful journey from start-up to multi-billion dollar turnover business. It has successfully expanded by gradually making itself available to different groups, starting exclusively with Harvard students, to now include anybody with access to the Internet and a desire to set up a Facebook account. It has extended its offering to include a site that is available in over 70 languages and is now accessible on PC, mobile web, and a number of mobile application platforms, including iOS, Android, and BlackBerry. Its continued expansion and improvement of the user experience to include a range of applications and allow it to communicate with third party sites has allowed it to keep its content fresh and keep up with changing user tastes and demands. By using the information that account holders voluntarily share, Facebook is able to offer targeted ads with a social context that generate a higher click-through rate than other web-based advertising, thus setting itself apart from its competitors. The popularity of online games has also meant that the company can generate revenues by taking a percentage of payments for virtual content, helping to make the company less reliant on ad revenues. As such, Facebook has successfully leveraged its popularity to build a business that recorded revenues of $3.7bn and net income of $695m in 2011. Although the company will need to confront a number of issues in the future, most notably the difficulty in monetizing its mobile platform, there is still much scope for growth in geographies in which its penetration remains low. Furthermore, revenue generated by its IPO should provide Facebook with significant funds to invest in innovation and expansion, meaning that the future is bright for the world’s leading social utility. If Facebook seems ubiquitous now, it may very well go on to feel all-consuming in the coming years.
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APPENDIX Definitions API – Application Programming Interface: a specification intended to be used as an interface by software components to communicate with each other. IPO – Initial Public Offering: the first sale of stock by a private company to the public.
Sources www.bbc.co.uk/news/technology-18056547 www.facebook.com/facebook/info www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm www.splatf.com/2012/02/facebook-paypal-payments/ http://newsroom.fb.com/content/default.aspx?NewsAreaId=20 www.thecrimson.com/article/2003/11/19/facemash-creator-survives-ad-board-the/ http://investor.google.com/earnings/2011/Q4_google_earnings.html www.splatf.com/2012/02/facebook-revenue/ www.nickburcher.com/2012/01/facebook-usage-statistics-by-country.html http://edition.cnn.com/2011/TECH/social.media/06/13/facebook.dropping.america/index.html www.telegraph.co.uk/technology/facebook/9274573/Facebook-IPO-as-it-happened.html
Further reading Global Advertising – MarketLine Industry Profile Advertising in the United States – MarketLine Industry Profile Apple Inc. – MarketLine Company Profile Google Inc. – MarketLine Company Profile Google Inc.: The World' s Leading Search Engine – MarketLine Case Study
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