Facebook's History: From Dorm To IPO Darling
Facebook's IPO brings the world's most popular social network into Wall Street's big league. After a wild ride, Facebook's future depends on profiting from an increasingly mobile user base.
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Facebook has come a long way in eight years. What started as a social network exclusively for Harvard students has quickly evolved into a global phenomenon rapidly approaching one billion active users. In fact, eight of 10 users of the social network live outside of the U.S. and Canada. Beyond personal use, businesses have deemed Facebook an important way to reach current and potential customers.
Facebook's emergence as a publicly-traded company with a market value in the $100 billion range is further proof of its success, at least from Wall Street's perspective. The company faces major challenges, however. Topping the list is how to stay relevant to--and profit from--its users, many of whom are now spending more time with mobile devices such as smartphones and tablets than with laptops and desktops.
Can Facebook thrive in a mobile market? So far, mobile users are remaining faithful. A new survey by NPD's Connected Intelligence, a market research firm, shows that nearly 75% of Android smartphone users in the U.S. accessed Facebook's app or website in March. This group spent a fair amount of time on Facebook, too-- more than 15 minutes per day, or nearly 8 hours a month, the survey shows.
The trick, of course, is how to generate revenue from those users, particularly when smaller screen sizes on mobile devices reduce the effectiveness of display ads. Another problem: Hundreds of millions of people using Facebook apps on iPhone and Android devices don't see any ads--at least not yet.
"Ultimately, Facebook's mobile success rests on delivering compelling mobile app and Web experiences, and monetizing on these experiences," said NPD Connected Intelligence's research director Linda Barrabee in a statement.
Facebook's management team appears focused on monetizing. Meeting investors this week in Palo Alto, Calif., CEO Mark Zuckerberg, COO Sheryl Sandberg, and CFO David Ebersman said that social ads, such as ones that include information about your Facebook friends who "like" certain products, will play a key role in this effort.
But what about the effectiveness of Facebook ads: Do most users look at them, or simply ignore the ads and focus solely on news feeds? According to WordStream, a developer of Internet marketing software and services, the average click-through rate of a Google ad is 10 times higher than that of a Facebook ad.
A decade from now, will Facebook be the social networking powerhouse it is today? The Internet public is fickle--witness the rapid fall of MySpace--and Facebook will have to find creative ways to stay relevant in an increasingly mobile online world. In the meantime, let's look at the journey so far.
Facebook's controversial genesis goes something like this: In October 2003 Harvard student and coding whiz Mark Zuckerberg created Facemash, a Facebook predecessor similar to Hot or Not; hacked into the school's computer network to copy private dorms' ID photos of students; and nearly got expelled for his efforts.
In January 2004, Zuckerberg started writing code for a Harvard-only social network, which launched in February 2004 as "thefacebook." Soon after, three Harvard seniors accused Zuck of tricking them into thinking he would help them create a social network called HarvardConnection.com, when in fact he used their idea to create a rival site, according to a Wikipedia account of the incident. Subsequent lawsuits were settled, and the major players involved became fabulously wealthy.
Facebook proved an instant hit at Harvard and soon expanded to more universities across the United States and Canada. In 2005 it expanded to high schools and employees of select companies, including Apple and Microsoft. The following year the site opened its doors to everyone at least 13, and Facebook as we know it today was born. The social network had 12 million users by December 2006.
No longer a private club, Facebook quickly attracted users of all ages. It seemed everybody wanted to share daily, often mundane, details of their personal lives online. The service provided an easier way for extended families to keep in touch, too. Between August 2008 and April 2008, the social network doubled its number of active users from 100 million to 200 million.
Hollywood came calling. Using Ben Mezrich's 2009 book The Accidental Billionaires as source material, director David Fincher and screenwriter Aaron Sorkin crafted "The Social Network," an entertaining tale of the founding of Facebook, one rife with greed, betrayal, sex, and binge drinking. It's a wonder these folks had time to code. The actual founders dismissed much of the film as Hollywood tripe, although Zuckerberg did praise the accurate depiction of his real-life wardrobe.
Fame and fortune propels one into rarified circles, and Zuckerberg soon found himself socializing with titans of industry and politics. Swapping his characteristic hoodie for a jacket and tie, Zuck was one of several Silicon Valley CEOs invited to dine with U.S. President Barack Obama in February 2011. Two months later, Obama and Zuckerberg teamed up for a town hall meeting at Facebook's California headquarters. The event, naturally, was streamed live on Facebook, and Zuck once again looked uncomfortable in a jacket and tie.
Facebook's convoluted privacy policies have long been slammed by critics, many of whom gripe that the social network is too eager to provide advertisers with its users' personal information--without making it clear what it's up to. Part of the problem over the years has been Facebook's perplexing privacy controls and documentation, which few users can decipher. The company has simplified privacy statements and settings in recent years, most recently just days before its IPO. The changes make it easier to configure who can view the information you post on Facebook.
By the end of March 2012, Facebook claimed more than 900 million monthly active users, more than half of whom did some sort of daily Facebook activity, such as clicking the Like button. In other words, nearly one in seven humans use the service semi-regularly. Facebook is a global phenomenon: 80% of its users live outside of the U.S. and Canada, and the service is available in more than 70 languages. Daily musings are popular, of course, but so are photos. In the first quarter of 2012, Facebook fans uploaded more than 300 million pictures per day.
Mark Zuckerberg understands social networking, but critics question his ability to place a monetary value on unprofitable mobile apps. Facebook in April bought Instagram, maker of the popular, eponymously named photo-sharing app, for around $1 billion in cash and Facebook shares. Reports suggest that Twitter was interested in Instagram, too, a factor that might have driven up the price. Some members of Facebook's board of directors weren't aware of the deal until after Zuckerberg reached an agreement with Instagram CEO Kevin Systrom, according to The Wall Street Journal.
Facebook's initial public offering is shaping up to be one of the largest in history, with a price of $38 per share. The social network's valuation is hovering near $100 billion, but some financial analyst firms such as PrivCo believe Facebook is overvalued, in part because the company has yet to find a way to monetize its rapidly growing base of mobile users. Many early investors plan to cash out early, including Goldman Sachs, which might sell up to half of its Facebook stake. And CEO Zuckerberg? He plans to sell 6% of his shares.
With a profitable business model and oodles of cash to grow, Facebook's future looks bright. All isn't perfect, however. Perhaps the biggest risk is what some analysts see as the novelty factor: the fear that the general public will lose interest in Facebook--and perhaps in social networking is general. A new Associated Press-CNBC poll shows that half of Americans see Facebook as a passing fad.
Right before the IPO, General Motors announced it would stop advertising on Facebook, although it planned to keep its Facebook pages to market its cars and trucks. Facebook's biggest fear for the future? Turning into MySpace.
With a profitable business model and oodles of cash to grow, Facebook's future looks bright. All isn't perfect, however. Perhaps the biggest risk is what some analysts see as the novelty factor: the fear that the general public will lose interest in Facebook--and perhaps in social networking is general. A new Associated Press-CNBC poll shows that half of Americans see Facebook as a passing fad.
Right before the IPO, General Motors announced it would stop advertising on Facebook, although it planned to keep its Facebook pages to market its cars and trucks. Facebook's biggest fear for the future? Turning into MySpace.
Facebook has come a long way in eight years. What started as a social network exclusively for Harvard students has quickly evolved into a global phenomenon rapidly approaching one billion active users. In fact, eight of 10 users of the social network live outside of the U.S. and Canada. Beyond personal use, businesses have deemed Facebook an important way to reach current and potential customers.
Facebook's emergence as a publicly-traded company with a market value in the $100 billion range is further proof of its success, at least from Wall Street's perspective. The company faces major challenges, however. Topping the list is how to stay relevant to--and profit from--its users, many of whom are now spending more time with mobile devices such as smartphones and tablets than with laptops and desktops.
Can Facebook thrive in a mobile market? So far, mobile users are remaining faithful. A new survey by NPD's Connected Intelligence, a market research firm, shows that nearly 75% of Android smartphone users in the U.S. accessed Facebook's app or website in March. This group spent a fair amount of time on Facebook, too-- more than 15 minutes per day, or nearly 8 hours a month, the survey shows.
The trick, of course, is how to generate revenue from those users, particularly when smaller screen sizes on mobile devices reduce the effectiveness of display ads. Another problem: Hundreds of millions of people using Facebook apps on iPhone and Android devices don't see any ads--at least not yet.
"Ultimately, Facebook's mobile success rests on delivering compelling mobile app and Web experiences, and monetizing on these experiences," said NPD Connected Intelligence's research director Linda Barrabee in a statement.
Facebook's management team appears focused on monetizing. Meeting investors this week in Palo Alto, Calif., CEO Mark Zuckerberg, COO Sheryl Sandberg, and CFO David Ebersman said that social ads, such as ones that include information about your Facebook friends who "like" certain products, will play a key role in this effort.
But what about the effectiveness of Facebook ads: Do most users look at them, or simply ignore the ads and focus solely on news feeds? According to WordStream, a developer of Internet marketing software and services, the average click-through rate of a Google ad is 10 times higher than that of a Facebook ad.
A decade from now, will Facebook be the social networking powerhouse it is today? The Internet public is fickle--witness the rapid fall of MySpace--and Facebook will have to find creative ways to stay relevant in an increasingly mobile online world. In the meantime, let's look at the journey so far.
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