Copyright 2014 by McGraw-Hill Education. All rights
reserved. Printed in the United States of America. Except as
permitted under the United States Copyright Act of 1976, no part
of this publication may be reproduced or distributed in any form
or by any means, or stored in a database or retrieval system,
without prior written permission of the publisher.
This McGraw-Hill Create text may include materials submitted to
McGraw-Hill for publication by the instructor of this course.
The instructor is solely responsible for the editorial content of such
materials. Instructors retain copyright of these additional materials.
ISBN-10: 1308388098

ISBN-13: 9781308388090

Facebook (in 2013): Will Wall Street Hit the “Like” Button? 1


Credits Facebook (in 2013): Will Wall Street Hit the “Like” Button?: Strategic Management. Second Edition 1 iv .

what are the latest ideas?” countered Zuckerberg. These images very briefly reminded him of his mentor. Zuckerberg unveiled the third pillar: Graph Search. What are the latest ideas? The question stuck in Sandberg’s mind. source of data. are entirely the authors. ROTH AERMEL SETH TAYLOR Facebook (in 2013): Will Wall Street Hit the “Like” Button? JANUARY 15.” Sandberg responded. Zuckerberg noticed the numerous glowing white Apple icons arrayed throughout the auditorium. but the topic of modifying Zuckerberg’s creation for profit was a subject of debate between them. the late Steve Jobs. . charging users a usage Frank T. As he stepped in front of the audience. All opinions expressed. Sandberg eased into her chair saying. 2015. California. to discuss strategies for monetizing Facebook’s data and users. It is not intended to be used for any kind of endorsement. Zuckerberg would attempt to engage an audience with a new product in a manner similar to Jobs’ flashy introductions of new innovations.” Zuckerberg answered immediately. 2013. Two current products. This case is developed for the purpose of class discussion. or depiction of efficient or inefficient management.1 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer MHE-FTR-016 007764506 5 FRANK T. There were many ways to monetize Facebook’s user base of one billion people: ads on the mobile platform and the main site. These two products allow users to view a portion of their social network by continuously answering the questions. “I believe you will change the way we look for answers from the Internet.M. It could also be a great tool for advertisers—and a way to deliver on the expectations of shareholders. Timeline and News Feed. “What’s going on?” and “Who is this?” After reviewing the first two pillars. Ways that can be a win for everyone—you. a Harvard MBA. “I think that went very well. Today. who played a significant role in his professional development and his company’s success. Zuckerberg sat down with Sheryl Sandberg. 10:03 A. Zuckerberg opened with a review of Facebook’s mission and described the structure of the company’s current social ecosystem. and all errors and omissions. “There are options for demonstrating the value of our data. The authors thank Andrea Meyer for her editorial assistance and invaluable case writing guidance. represented two of the three pillars supporting the Facebook ecosystem. After the presentation. This was Facebook’s first live introduction of a new product. shareholders. is a driven businesswoman with a keen sense for shareholder value creation. Sandberg knew that she and Zuckerberg had a strong professional relationship. entered the media event room at Facebook headquarters in Menlo Park. He intentionally noted that Graph Search is very different from a normal web search because it filters results based on a user’s connectivity to his or her social network. Facebook’s chief operating officer (COO) and second in command. advertisers. “I don’t like seeing my vision for a connected world smothered with logos and slogans! But that is why you’re here—to try to convince me otherwise. Mark Zuckerberg. Even some of Facebook’s current challenges were brought about by Jobs’ revolution of the mobile industry. and users!” “So. Rothaermel and Seth Taylor (GT-MBA’14) prepared this case from public sources. which allows users to query their social network directly. casually dressed in his hoodie.” referring to the Graph Search press event.” while Sandberg. © by Rothaermel and Taylor. Zuckerberg is all about building the “best product and user experience.

2 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? fee.2 Half of Harvard’s undergraduates had signed up within just over a month of the launch. By year’s end. Zuckerberg opened the platform up to other universities in the Boston area. Facebook’s investors were growing more restless as they monitored the young company’s share price. Facebook had 618 million daily active users (DAUs).8 See Exhibit 2 for more information about Facebook’s revenue growth. and to Stanford.3 Facebook continued to grow rapidly over the next several years. Zuckerberg and his friends hacked into Harvard’s computer network and copied files from campus houses. which was similar to Hot or Not—a social media site that prompted users to submit photographs that were judged by other users as either “hot” or “not.000 views within its first four hours online. The only requirement to join was an e-mail address ending in and Canada.584 million. and mobile MAUs from 2009 to 2012. major. Zuckerberg began work on a new website—The Facebook—that leveraged some of the features from Facemash. and hometown to their profile and could link their profile to those of their friends. Realizing the site’s potential. The increase in MAUs from 2010 to 2012 led to a corresponding increase in revenues. In April of 2006. Greylock Partners. anyone with a verifiable e-mail address could sign up. Zuckerberg and several fellow students officially launched The Facebook in February 2004 (the “The” was dropped shortly thereafter). which paved the way for exponential user growth. 2 .5 The following year was another strong one for the company. it hit 12 million MAUs and earned $48 million in revenue. The global footprint Facebook had achieved by 2012 was astronomical. Facebook had achieved $9 million in revenue and accumulated six million monthly active users (MAUs).7 billion likes and comments per day and over 100 billion friend connections by the end of 2011. As Sandberg considered Zuckerberg’s question. chat capabilities. at the very least. Joining members were allowed to add a picture.7 million in investment from venture capital firm Accel Partners. Approximately 80 percent of the site’s users live outside the U. received an invite to view it. traditional banner and skyscraper advertisements.” Zuckerberg’s Facemash site placed pictures of two female students next to each other and asked fellow students to choose the more attractive person. A Brief History of Facebook While attending Harvard University in the fall of 2003. and Yale. Exhibit 1 shows the MAUs. among other things.5 million in Facebook. To collect student images.6 Globally. Mark Zuckerberg and some of his college buddies created an on-campus website called Facemash. Double-digit growth in monthly active users and annual revenue quickly became the norm. on average. Users who have logged into Facebook within a 30-day period are counted as monthly active users. At the same time. the Like button. More features were added over the next several years to further enhance the site’s user functionality. In addition to launching Facebook Mobile. and the website is available in more than 70 languages. attracting 22. there were. respectively. from $731 million to $1.7 The growing user base also brought more revenues. The site proved popular. a 30 percent increase over December 2011. The following semester. DAUs. University officials. it would always be a hard sell to him. and PayPal co-founder Peter Thiel invested $27.4 High school and international school networks were added in the fall of 2005. almost all Harvard students had either viewed the site or.1 After a few days. she knew that no matter what. In addition to 1. Facebook tracks the number of monthly active users (MAUs) and daily active users (DAUs) as a means to assess users’ engagement. Designed initially to replace Harvard’s printed student directory. By September. But the method could not be a drastic diversion to the user.06 billion monthly active users (MAUs). Meritech Capital Partners. Columbia. and an e-commerce payment feature. quickly shut down Facemash and placed Zuckerberg on a six-month academic probation for breach of security. In May 2005. 2. including a developer platform. the website was in use at over 800 colleges and universities and received $12. In the same way. daily active users measure the number of users who have logged in within a 24-hour period. however.

Facebook is the obvious fusion of Zuckerberg’s academic passions in psychology and computer science at Harvard. the way the company has tried to juggle user privacy and the monetization during his tenure has opened him up to additional criticism. and Europe. Zuckerberg’s inexperience and casual appearance have received criticism. Facebook’s ad revenues are predicted to rise to $7. In Germany. it seems that Zuckerberg has actively sought to improve his public image and culled his brashness and activities. whereas Facebook makes only $15 per user account. Facebook’s equivalent in China is Renren. users are quite concerned about data privacy. while Google’s Orkut social network competes with Facebook in Brazil (only recently has Facebook surpassed Orkut in usage). a network with roughly 200 million users. The website collects data to map out human relationships and social connectivity. On several occasions. Facebook launched a new advertising mechanism called Beacon. Facebook battles VKontakte for dominance.12 In Russia. and in China.3 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? In 2012. Facebook operated directly under Zuckerberg. Taken together. has varied. Facebook brought in $5. but there is still plenty of room for Facebook to grow. Facebook reaches anywhere from 60–80 percent of Internet users. The company generated 84 percent of its revenue through advertising services and collected the rest through social gaming fees charged to platform developers.10 However.”13 In recent years. despite the fact that many founders of successful technology startups are asked by venture capitalists to turn over the reins to more experienced. Zuckerberg has worn flip-flops and hoodies to meetings with other executives. former president Bill Clinton’s speech adviser. In most of North America. who coded much of the original site and then managed the engineering teams in the next phase. professional managers. Facebook chooses to focus on average revenue per user (ARPU) as a tool for assessing its ability to monetize its users. Facebook’s ARPU (Exhibit 5) provides another metric for measuring how well Facebook is capturing value from its user base. with most of the growth being generated in North America’s well-developed advertisement industry. As Facebook grew out of its start-up phase. Zuckerberg won’t see his ambitions sidelined by an outsider motivated primarily by increasing shareholder value. He received more negative press over comments he made in a speech in 2007. In the early days. Facebook has ambitious plans for the future.09 billion in sales. even his work schedule hearkens back to college habits. A similar situation occurred in 2009.”11 Its success in penetrating different countries. it is a social graph that has mapped one-tenth of the world population in less than seven years. which Zuckerberg refers to as a social graph. some industry observers began to argue that the company was maturing faster than Zuckerberg was as its CEO. South America. At times.64 billion in 2014 (see Exhibit 4). however. Addressing privacy concerns effectively remains in the front of Zuckerberg’s mind as he considers ways to monetize Facebook’s prime audience. With his habit of arriving late to work and staying into the middle of the night. Facebook’s Leadership MARK ZUCKERBERG Founder Mark Zuckerberg (nicknamed “Zuck”) remains the CEO and chairman of Facebook.14 3 . Its release prompted condemnation from users and privacy groups alike. This measure has slowly risen over the years. Facebook is currently blocked by the government. made public some messages originally thought to be private. however. He even hired a public speech coach. Exceptions are Brazil and Germany. The feature was designed to track users’ activity across all of the websites they visited and share their activity with friends via their Facebook account. when the company released new privacy controls that. The company has stated that it intends to connect the “more than two billion global Internet users. when he stated that “young people are just smarter. mobile users. Compelled by the company’s vision to connect the world by building a great user experience. Even as Zuckerberg has adapted to his role as a business leader.9 Google and Yahoo make nearly $88 per user of their search engines. under the new settings. where penetration rates are less than 30 percent. This ban leaves a gap in the company’s social network. a 37 percent increase over 2011 (Exhibit 3). In December 2007.

Ebersman. particularly those at J. Sandberg focuses on operations. Given Zuckerberg’s public relations challenges. 4 . The SEC and the media criticized Ebersman for his decision to raise the number of shares offered in Facebook’s IPO three days before Zuckerberg rang the NASDAQ bell. allowing him to maintain a tight rein on Facebook’s activities. she worked with Google’s AdSense and AdWords programs. Department of Treasury prior to working at Google. Her TED talk entitled “Why We Have Too Few Women Leaders” has some three million views. launched the third pillar of Facebook’s social ecosystem.19 As COO and Zuckerberg’s second in command at Facebook. She is now working hard to help Zuckerberg find a viable business model that will monetize the company’s mobile users. the company sought a CFO with public company experience that could help it prepare to go public in the next few years. Sandberg has been a key figure in reshaping Facebook’s business model. following a six-year stint as Google’s vice president of global online sales and operations. a unit that began with 300 staff but grew to 4.” but tension grew between the companies after her departure. Sandberg speaks about the low number of female leaders in today’s society and how to overcome this situation. Prior to working at Genentech.24 Ebersman was indispensable to the launch of Facebook’s IPO on May 18. who received an undergraduate degree in economics from Brown University. Timeline. and the U.17 Time magazine considers her one of the “100 Most Influential People in the World.22 DAVID EBERSMAN After the departure of Facebook’s chief financial officer Gideon Yu in 2009. held positions with Oppenheimer & Co. partly because Sandberg recruited Google executives and employees to work for Facebook. To some extent. working closely with advisers from the institutions underwriting the offering.S.” Sheryl Sandberg is a vocal advocate for women in leadership.” and Fortune places Sandberg as one of the “50 Most Powerful Women in Business. such as when she completed a round of funding for Facebook when its chief financial officer (CFO) left suddenly. or about one-quarter of Google’s work force. who was in his 15th year as CFO at the biotech company Genentech Inc. She was also tapped for her sales. revenue. Inc. Department of Treasury.25 Three Pillars of a Business Model Mark Zuckerberg’s Graph Search announcement on January 15. many consider Sandberg the “professional face” of Facebook. public policy.15 Eric Schmidt. under Sandberg’s leadership.16 Sheryl Sandberg attended Harvard for both her undergraduate (economics) and graduate (MBA) degrees.20 Zuckerberg sought out Sandberg amid a shake-up of his executive team. and international reach. Google’s CEO at the time. She worked at McKinsey & Company and as chief of staff for Lawrence Summers at the U. bringing an analytics perspective and authentic communication to bear on the issues.4 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? SHERYL SANDBERG Sheryl Sandberg joined Facebook as chief operating officer (COO) in 2008.23 The search turned up David Ebersman. Sandberg has been able to attract high-profile advertisers by showing them how targeted their ads can be when they’re hooked into a network as intimately familiar with its users as Facebook is. the leadership dynamic between the CEO and his COO can be explained in simple terms: Zuckerberg brings in the users. 2 within the company. 2013. while Sandberg brings in the money. 2012. In this way. She has also stepped up in unexpected areas when needed. considered her a “superstar. P. In both. The dynamic between the two is respected within both Facebook and its board of directors. even going so far as to blame this decision for the stagnant stock price on the day the IPO was issued. and communications prowess.18 and her book Lean In is a bestseller. Morgan. and Graph Search. business development. The three pillars consist of News Feed.000.S.21 Sandberg is known for her ability to form teams and break deadlocks. He was looking for someone who would be comfortable serving as his No. In that capacity.

Zuckerberg stated that Graph Search is meant to help people “discover and make new connections. messaging has remained a core feature of the social networking site. Later releases of the tool will include information from Open Graph (described in the following “Creating Value for Developers” section) and allow users to search Facebook posts.”30 whereas the previous two pillars helped people maintain their connections. and Amazon. and communicate with each other across the Internet..31 Facebook search capabilities will also directly compete with other social-based information services like Yelp. users can opt to utilize a free@facebook. A separate mobile application (app) called Messenger was launched in November 2012. called Timeline.5 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? NEWS FEED Released in September 2006. share. Google1 in 2011. was launched in September 2011. making business connections. Google1 has made little headway against Facebook’s massive head start in the social network space. The company strives to build the tools necessary for users to connect. Facebook’s messaging products include e-mail (i. group memberships. Graph Search is a search bar that hovers at the top of every Facebook page. Users can select what information to share and with whom to share it. Facebook. It is also expected to migrate to Facebook mobile. In fact.32 Facebook’s Products for Users Facebook has evolved tremendously over its eight years of operation. Inspiration for this product came when its creator. Milestones older than 2004 (Facebook’s launch year) are now easily represented on a graphical display. Sam Lessin. 5 . Google launched its own social networking tool. places. play a critical part in the priority ranking. The priority of items displayed in the News Feed is based on a complex algorithm. and the actual content. and interests in their portion of the social graph. LinkedIn. who posted the original item. as a product. is an attempt to map the global social graph in the form of a massive database. It allows each user to paint a complete life story on his or her in the areas of finding restaurants and shops. photos. The years that Facebook spent attracting users and their personal information have come together to give Facebook an edge over Google’s user database. Since November 2010. Today. photos. This app allows users to quickly message with their Facebook friends and supports image attachment and audio messages. Several factors. viewed a hard copy of his profile stretched across the office. “Who is this person?”29 GRAPH SEARCH Zuckerberg calls the network of connections between people the social graph. “What’s going on in the world around you?”27 TIMELINE An updated version of the profile page. Facebook has taken a giant step into Google’s territory with the release of Graph Search. and text messaging. Timeline answers the question. in anticipation of such a move by Facebook. and buying goods.28 According to e-mail address). such as the number of friend comments on an item. and so on. Graph Search also allows users to search for people. News Feed quickly became a core feature of Facebook. Zuckerberg claims that News Feed answers the question. events.e.26 The success of the logic behind News Feed has kept users engaged and has contributed to the immense popularity of the site. chat. In addition to acting as a title for the content of that page. So far. MESSAGES Included with the initial launch of Facebook. It is at the heart of a user’s homepage and provides regular updates of friends’ posts. users have seamlessly accessed all three products in one integrated location.

6 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? GROUPS Facebook Groups provide users with an online space to discuss common interests. the feature allows users to control the content they share—for example. An event can include a map location for the address and a host for the event who is also a Facebook user. invite other Facebook users to the event. Facebook released a Facebook Camera mobile app that made it easier for mobile users to take pictures and upload them to their account directly from their phone. help users focus on content that they are immediately interested in reviewing. eliminating the need to wade through mundane updates from those to whom they aren’t as closely connected. which some considered superior to Facebook’s solution. or the world. FRIENDS LISTS Launched in December 2007. This feature also provides users with a way to share information privately. Launched in September 2004. depending on their profile’s privacy settings. family. In addition. NOTIFICATIONS Introduced in May 2009.34 Lists. Examples of Groups include family. photo albums. pictures. Users upload more than 250 million photos on average each and every day. Friends Lists added another layer to the News Feed algorithm. and general activity. Friends Lists was updated in September 2011 to compete with circles on Google1.” Users can tag other Facebook users who are with them as well and. 2012. PLACES Launched in August 2010. On May 22. and track RSVPs for the event. EVENTS The Event feature lets users create an event. guests can communicate with each other on the event page. They can also add captions and locations to their photos and identify other users by “tagging” them. like Google’s circles. and comments—via customizable privacy settings. Places is a Facebook mobile feature that lets users share their physical location with other users by “checking in. Notifications accumulate and are displayed as numbers within red notification bubbles located on the Facebook page. making it the most popular photo uploading service on the web. A new version of Facebook Events was launched in May 2010. Separate notifications appear for friend requests. the ability to share pictures is one of Facebook’s most popular features. sports teams. and church groups. and videos with friends.35 6 . Users can use Friends Lists to create Smart lists or Friends and Acquaintances lists to ensure that content from specific friends is given the highest priority on their homepage. users can see that information. Facebook Notifications are visual alerts that signal users to activity on their page or within their social graph. messages. PHOTOS AND VIDEOS Originally designed by a single engineer and designer in October 2005. This upgrade made it easier for users to create events from their homepage while adding more details about an event.33 Users can share an unlimited number of photos. calendars. if their Facebook friends have visited the same location and left comments about their experience.

Facebook’s Business Areas In a Securities and Exchange Commission (SEC) filing in early 2012. SUBSCRIBE September 2011 brought another new feature to Facebook: Subscribe.36 VIDEO CALLING In the summer of 2011. Facebook has identified four value propositions for advertisers and marketers: reach. an owner can increase his or her exposure by taking advantage of the algorithms associated with the News Feed. When users like a page. any time a favorite journalist authors an article. In addition. we make money to build better services. By the end of 2011. businesses. click “Give Gift. USA Today. Pages operate similarly to the model of Facebook competitor Twitter in that the owner of a Facebook Page need not approve likes from users (unlike a friendship between individual Facebook users. sponsor content about its business. this content is then posted to the users’ News Feeds. which promotes the further customization of the Facebook experience. the company may launch ads. Video Calling enabled users to call friends for free directly from Facebook after installing the Skype plug-in. The Wall Street Journal. Still. including ones for most Fortune 500 companies. and many national and local celebrities. CREATING VALUE FOR ADVERTISERS AND MARKETERS Advertisements on Facebook revolve around the creation of a Facebook Page for an organization. Zuckerberg and Sandberg know that developing an effective business model is crucial to Facebook’s future success. or games from individual Facebook friends. Facebook partnered with Skype (which had been purchased by Microsoft in May 2011) to form Video Calling. Facebook Pages allow any individual or group (e. and send a physical gift to that friend. insert a message. The Subscribe feature gives users the option to tailor what they pull into their News Feed. public figures. this feature is only available in the United States.”37 Such a dismissal of the importance of monetization scares investors. celebrities. From then on. GIFTS The Facebook Gifts feature was rolled out in December 2012 as a way to capitalize on e-commerce beyond the cut that Facebook takes from game developers on the Facebook platform. Currently.. relevance. which requires dual acceptance). a feature intended to compete directly with the Hangouts feature on Google1. there were more than 37 million Facebook Pages. Mark Zuckerberg stated. life events. Through effective use of pages.38 7 .” select a gift. a user can subscribe to articles authored by his or her favorite journalists from sites such as CNN. they automatically sign up for any and all content published through that page. allowing them to turn on or off comments. but Facebook plans to expand it to other countries.7 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? PAGES Also launched in late 2007. social context. it is posted to the Facebook user’s News Feed. Once an organization creates a Facebook Page. and engagement. photos. and Forbes. colleges. or organizations) to create a public profile page in order to interact with the Facebook community. “Simply put: we don’t build services to make money. Users can visit a friend’s Timeline. a large number of public and private universities.g. and check advertisement analytics to gauge the success of its campaigns.

and special interests—which allows Facebook to deliver targeted ads with a higher success rate than industry averages (90 percent versus 35 percent. With more than one billion MAUs. The social web is an evolving species. Over 50.g. However. Relevance is important to advertisers because. This enables product differentiation and. race. dynamic ads that include a poll. Social ads allow marketers to add context to their ads. With Facebook’s help. With sponsored stories and social ads.544.44 All of P. on a limited budget of $1. movie studios can notify fans on their page of an upcoming movie release. representing 62 percent of the total worldwide advertising spent. according to a recent study). given the smaller screen size of mobile devices. Facebook intends to open up a new opportunity for advertisers and marketers: Companies that have a page can be discovered by users as a result of their Graph Search queries based on the information the organization posts on its page. This is where Facebook can play a vital role. and Facebook has been a leader in identifying new advertising tactics that improve user engagement. Companies have the ability to purchase lists of the users who subscribe to the pages of other companies. Facebook provides a rich social context for advertisers. Facebook boasts 680 million mobile MAUs. driving company awareness. age. gender. print.47 Currently. targeted recently engaged women aged 24 to 30 who lived in close proximity to CM’s location.46 As marketers continue to gravitate toward online advertising. In 2010.41 A good example of a targeted advertising campaign is that of CM Photographics. marketers are being asked to do more with less. As of January 2012.48 8 .5 billion to $17.45 Market Opportunities. The friend has now automatically become an advocate for the company across his or her social graph. in 2010 IronPlanet Motors (a competitor to eBay Motors) purchased the BMW and Mercedes-Benz Fan Page subscriber lists in order to advertise the launch of its new car auction website to those users.F. Minnesota. For example. it would be the third largest in the world by population—that amounts to quite a reach. Facebook ads can display in multiple locations on the screen.. Chang’s fans and friends of those fans saw the ad. sponsored stories (e. Facebook’s mobile app is one of the most popular downloads. Paramount Studios. the mobile path has an added challenge in that greater mobile use generally reduces ads per user. according to a recent Nielsen study. and radio— was a $363 billion industry. reached 65 million fans in one day when it advertised the release of Transformers: Dark of the Moon on Facebook. The system does a real-time comparison of the bids that different advertisers have offered to pay to advertise to that type of user.43 Engagement. the global mobile advertising market is expected to grow from $1. it expects its ad revenue to follow suit. Chang’s offered a free lettuce wrap to all customers during a three-week period. online advertising. Social Context. in today’s economy. Most important. As Facebook continues to expand its advertising offering. traditional offline advertising—television. the Chinese restaurant P. a large percentage of this offline budget will be allocated to advertisers such as Google and Facebook. As an example. Users identify themselves based on many demographic factors—for example. if Facebook were a country. Additional advertising opportunities for Facebook could arise from three main areas: traditional offline branded advertising. or encourage feedback all improve awareness.6 billion by 2015. and mobile advertising. a friend checking in to a Starbucks) are prominently displayed directly in a user’s News Feed. Facebook invests in technology that dynamically decides the best available ad to display to a user depending on that user’s unique attributes.8 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Reach.F. Similarly. for example. a wedding photography company based in Minneapolis. location. education level.42 The targeted campaign led to a substantial increase in revenue during the ensuing 12 months. increases ad recall by more than 50 percent. For instance.40 Relevance. through its Facebook page. This type of technology helps Facebook maximize ad revenue. Similarly. hit upon a user’s special interest. which can be used to target a specific audience.000 customers took advantage of the offer.39 Facebook also offers free tools for tracking the performance of ads called the Ads Manager. and Facebook’s ad system guarantees a fixed number of ad impressions for a fixed price. 40 percent of them were first-time customers. With the release of Graph Search. CM Photographics.

apps. In this way. Subscribe. for example. “The worldwide revenue generated from the sale of virtual goods increased from $2 billion in 2007 to $7 billion in 2010. Through Spotify. safe. which displays thumbnails of friends’ profile pictures. and use the Nike1  mobile app to share their exercise activity. held near-annually. The Facebook platform can carry over the social experience from Facebook to any website that has the Facebook social plugins enabled. Finally. could open up new opportunities for Facebook. Through products such as Open Graph. a user’s current songs are shared through Facebook. read news and sports articles on Yahoo. Developers can also integrate with requests that allow a Facebook user to encourage other friends to use an app. create an infrastructure for developers to receive funds for the purchase of their virtual and digital goods. and secure system has streamlined the transactions between users and third-party developers. Social Plugins. Open Graph. bring together developers. which was first launched in May 2007 with 85 developers and 65 apps. extending beyond the core area of gaming. through the use of Facebook Credits. and the Facepile feature. and devices that take advantage of the Facebook platform.54 Currently. developers can learn how to connect user Facebook accounts from within their app. Open Graph allows app developers to map the content of their apps and see how users can interact with it. LinkedIn and Google have deployed similar login methods.52 Other examples of developer integration using the platform include the ability for users to listen to music on Spotify. the activity feed.50 Zynga. Send. Spotify is an excellent example. entrepreneurs. Social channels provide a way for developers to integrate with News Feeds and requests. Social Channels. Facebook’s f8 conferences. and innovators to collaborate on new websites. by allowing users to purchase songs from iTunes that a friend listened to. payments. registration. comments. Content can be generated from the app and distributed to a user’s News Feed using Social Channels. track runs via MapMyRun.”55 The projected increase in social gaming will undoubtedly provide future revenue for Facebook. However. As an example. This well-established. According to Facebook’s S-1 filing with the SEC. Payments. Login. fees collected from Facebook Payments almost exclusively come from the purchase of virtual goods used in social games. is currently the largest developer. Social Plugins give website owners the opportunity to broadcast interests from one friend to another non-connected friend. but declined in 201251 as the popularity of Zynga’s games declined. and Payments. 9 . the fees collected from Zynga accounted for 12 percent of Facebook’s revenue in 2011.49 The platform is a set of development tools and application programming interfaces (APIs) that enables software and web developers to create innovative experiences for the Facebook community. and is forecasted to increase to $15 billion by 2014. speeding up the registration process. Facebook offers significant value to developers. This application programming interface feature of the Facebook platform allows apps to read and write data to Facebook.9 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? CREATING VALUE FOR DEVELOPERS Approximately 15 percent of Facebook’s revenue is generated through its developer platform. This enables users to share personal content generated by the app with their friends on Facebook through their News Feed and Timeline. Graph API. Social plugins include the Like.53 Social Plugins. creator of the game FarmVille and many other wildly popular games. the Yahoo Social Plugin shares articles directly to Facebook’s News Feed. Users can log in to an app or website using their Facebook credentials. and Login buttons.

”60 Even though mainstream adoption has quickly become a reality. Twitter has become an extremely popular free micro-blogging and social networking service. Twitter had over 500 million accounts with 27 percent designated as active users. while Twitter captured only 1. the largest deal ever for Facebook. the chance of users spending more time with it communicating with friends and family will grow as well. audience. if any at all. Facebook captured 62. the percent change in revenue is expected to decline year over year during that time (see Exhibit 6). A subscriber to the user’s page (known as a follower) then receives the tweet automatically.6 percent of worldwide activity. MSNBC. Anybody who can facilitate a more precise or quicker communication should be perceived as a threat to Facebook. Facebook acquired Instagram for $1 billion. about the people and places that matter to you. Of all social media site visits in October 2012. a photo-sharing service for iPhones and Android phones.”64 10 . Semiocast. While analysts estimate that it will grow to $540 million by 2014. users of Facebook spend significantly more time on the website each month than users of Twitter. This accounts for 27. Facebook plans to retain Instagram as a separate business unit.5 million. has been a vital element in the company’s success and efforts to drive user engagement. and 85 percent of U. however. As of July 30.39 percent. Professor Tim Loughran of Notre Dame summed it up as follows: “Facebook is in the business of communication. Users submit a tweet. 82 percent of U. Facebook has eliminated a potential competitor and gained access to the talent that created the robust Instagram app for iPhone and Android. but it will be expected to share some of its talent and innovation with the parent company.S.85 percent (see Exhibit 7). Giving people better information about the world around them and the things they care about has become the cornerstone of the product offering.10 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Current Competitors INSTAGRAM Instagram. CEO Kevin Systrom announced that registered Instagram users had nearly doubled from 15 million to 27 million in the previous three months. And celebrities. which is one of Facebook’s core features. .”57 Photo sharing. and companies have quickly realized the benefit of this type of interaction: the ability to reach an unlimited.63 For the time being. Twitter is still growing its business model. which requires the dual acceptance of friend requests. and politicians have accepted the technology as well. The most popular method of using Twitter’s service has been through the company’s main website. which is limited to 140 characters in length. TV channels such as CNN. relevant timelines . Congress members. Senators are active Twitter users. was founded in October 2010 and quickly became a leader in online photo sharing. as Twitter continues to grow. Twitter’s 2011 ad revenue was $139. to their profile page.59 Former vice president of product. athletes. By acquiring Instagram. . Twitter stimulates interaction between complete strangers because users don’t need to approve who follows them. and ESPN now use Twitter as part of their broadcasts. In March. attributes Twitter’s appeal to the fact that it “delivers interesting. Individuals. Facebook’s ad revenue was $3. Unlike Facebook. Twitter generates only a fraction of the ad revenue and user interest of Facebook. 75 percent of NBA players.58 Twitter gives users the ability to communicate with friends and family via text-based posts in real time.S. For now. 2012. yet targeted. 2012. Jason Goldman. “We don’t plan on doing many more of these. organizations. Zuckerberg saw the acquisition as a “milestone” for the company and said. TWITTER Launched in July 2006.15 billion in 2011 alone.62 In addition. which is accessed through desktop computers rather than through mobile devices. according to the French analytics firm.56 On April 9.61 Meanwhile.

Hangouts is a video chat feature that allows up to 10 friends to communicate through videoconferencing. which would parallel Google’s initiative of driving iPhone developers to the Android operating system through more attractive developer commissions. what matters most to Google is how much time users spend within the Google ecosystem once logged in to their account. the third-party developer platform associated with Google1 (which is similar to Facebook’s developer platform) is completely free. Microsoft offers a fleet of products 11 .68 For Facebook. 8 percent of Google’s revenues came from the hardware and services of Motorola Mobile.67 Google also added to its revenue by acquiring Motorola’s mobile division—in 2012. allows for improved video and photo sharing.32 percent of social media site visits (Exhibit 7). is online advertising. MICROSOFT Even though it owns a 10 percent equity stake in Facebook (which it bought in 2007 for $240 million). A major driver of revenue for Google. Google1 claimed only 1. Google has seen a boost in click-through rates on some display ads of anywhere from 2 percent to 15 percent due to the additional user information provided by its social media product. particularly since its highly successful IPO in 2004. another area of concern is Google1. a subset of the overall online advertising market.7 percent of the market. which raised $1.69 Meanwhile.1 percent (see Exhibit 11). Microsoft commands a large percentage of advertising revenue and both online and offline user interaction. Google will be able to paint a more complete picture of each of its users. However.11 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? GOOGLE Founded in 1998 as a provider of Internet search results. Facebook’s one billion active users comprise 62. Yet. it is still projected to claim only a 7. In the large $40 billion U. up from 150 million in June of that same year. Google1 circles allow users to organize the people they are connected to and give them better control over their privacy settings. just as with Facebook. which will then have grown to $53 billion.g. The integration of Google1 with YouTube and the image organizer and viewer. YouTube. While Facebook is expected to oust Yahoo from its second-place position during that same time. Google and Facebook are more evenly matched.65 In 2014. Chrome.66 In the online display advertising market.4 percent share of the industry. Picasa. and others). Google1 had 235 million active users at the end of December 2012. Analytics.39 percent of social media site visits. while Facebook charges a 30 percent commission.72 Now that all of these products and services are linked to Google1. Google is projected to have a AdWords. Google has become a leader in cloud computing and advertising.5 percent.4 percent and 6. Google1 has several improved and additional features over Facebook. while Yahoo and Facebook hold 7. beyond its initial core competency of Internet search is evident in its stock performance (see Exhibit 9). Picasa photo software. Translate. Rather than focusing on any single product.9 percent share of the market. This incentive could drive developers away from Facebook and to the Google1 platform. while Facebook slips to 17. It currently has a 44. The company’s strategic growth. respectively (see Exhibit 10).1 percent share of the market. even with this increase. by which time it is expected to account for 21.S.70 Still. Google. both organically and through acquisitions. In this $15 billion industry. Google1 lacks Facebook’s installed base of users as of late 2012.. However. Google is projected to supplant Facebook as the leader in online display ad revenue by 2013 and grow its market share further in 2014.9 billion on a valuation of $23 billion (see Exhibit 8). Microsoft remains a Facebook competitor across several market segments. Such fine-grained data will be vital in Google’s push to become the dominant online presence delivering customized advertising. Google holds a commanding lead over its competitors. Similar to Google.71 Google’s drive for Internet dominance and social strategy includes a suite of products and services (e. online advertising market. What’s more. the two companies each hold about 16 percent of the market.

6 million by 2014 (see Exhibit 12).75 Previously mentioned as a competitor in the area of user interaction. Facebook and Microsoft have formed a strategic partnership that enables the two companies to compete directly with Google on several fronts.6 million in 2011. LinkedIn brings in $1. although LinkedIn users spend much less time on the site than Facebook users do on Facebook. that help them find qualified employees and contact those individuals directly. LinkedIn Sales Navigator.12 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? and services that competes directly with Facebook. It was $154. see full profiles beyond second-degree connections. Bing is now the default search engine within Facebook. when Microsoft sold $550 million worth of patents and licenses to Facebook. Another product. sports. Premium services enable users to see who has viewed their profile. that gives us the sense of stability that it’s going to be with a company we can trust—that we know we have a longstanding relationship with. at a price of $45 per share. “We have a really good relationship with Microsoft. The stock quickly jumped to over $90 per share.81 Meanwhile.5 billion and soon after partnered with Facebook to challenge Google1’s videoconferencing capabilities. do premium searches that let them build job leads. making the company worth around $9 billion (see Exhibit 9). and 82 Fortune 100 companies use the recruiting tools provided by LinkedIn. LinkedIn’s ad revenue drags behind Facebook’s. Facebook’s ad revenue was $3. online advertising revenue and was projected to remain third behind Google and Facebook over the next several years (see Exhibit 10). and is projected to increase to $405. 60 percent of LinkedIn members live outside the U. LinkedIn has added more user-friendly features. companies can purchase LinkedIn products. getting access to a larger number of services at each level.77 All Fortune 500 companies have at least one executive with a LinkedIn profile. Microsoft purchased Skype for $8.83 Still. Microsoft accounted for 5. For their part.7 percent of U. For example.S. This partnership will compete directly with Google1 and Google. while Facebook brings in only $0. LINKEDIN Started in 2002 in co-founder Reid Hoffman’s living room. LinkedIn has grown into the world’s largest professional network. 2011. In May 2011. which equates to a very healthy price-to-earnings ratio (P/E) of approximately 850. users have a choice of three subscription levels.06. shopping. and videos) all drive traffic away from Facebook and Google. the Xbox 360. LinkedIn operates on a business model called freemium.”74 The truth of this statement seemed evident in May 2012.84 In addition.15 billion in 2011. 12 .78 LinkedIn held its IPO on May 19. Now that Skype is owned by Microsoft.73 At the time of the deal. Zuckerberg said. Moreover. such as LinkedIn Recruiter Corporate. At the beginning of 2012.79 In 2011. On the other hand.30 per user-hour spent on its site.80 However. in which it offers its core product for free but then charges for premium services. Microsoft’s Bing search engine has also formed an alliance with Facebook in an effort to improve the breadth and depth of its social search search results.S.76 In February 2012. making it more akin to a network that allows for professional connections embedded within social interactions. the company had more than 150 million members accessing the site from more than 200 countries in 17 languages. In 2012 alone.83 percent of all social media site visits in October 2012 (see Exhibit 7). LinkedIn offers premium products to individuals as well as to companies. the Bing search engine.82 In addition. games. the company recorded $522 million in revenue with earnings of $11. and send messages to people with whom users are not connected.91 million. LinkedIn site visits accounted for only 0. Bing search queries conducted within Facebook are not directly accessible to Google for further data analysis. there were more than two million LinkedIn Company Pages (which are similar to Facebook Pages) and almost one million online job applications originating from within LinkedIn. helps salespeople build better prospect lists. Windows Mobile. and MSN (a portal to news.

71 billion in revenue and $1 billion in net income. STUMBLING OUT OF THE GATE As if signaling future disaster. $45. P. P.S.85 With an IPO price set at $38 per share. while LinkedIn grew at roughly the same rate as the NASDAQ 100 over the same period.13 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Facebook’s Initial Public Offering (IPO) Facebook’s IPO on May 18. After one month of public trading. the NASDAQ exchange’s system entered an automated loop that delayed trading by 30 minutes. Morgan Stanley and Facebook’s CFO have been criticized for making changes to the price and number of shares just before the offering. Google grew much faster than the NASDAQ 100 in its first six months. Morgan’s Doug Anmuth wrote: We believe Facebook’s virtual ownership of the social graph. These recent earnings.2. These shares and prices were set at the far upper end of 13 . analyst ratings remained optimistic about Facebook’s future. Morgan Stanley. Before its IPO.8 billion) less than the IPO market cap. Daniel Salmon at BMO Capital Markets. other large-cap NASDAQbased companies have much lower P/Es: Apple has a ratio of 18. Despite the suffering stock price.91 Facebook stock continued its downward trend in July and August of 2012 (Exhibit 9).88 The accuracy of Facebook’s pre-IPO assessments was to be tested as Wall Street determined the market-driven public value of the social network.92 In the months following the IPO.4 billion through its IPO. Microsoft invested in October 2005 at a valuation of $15 billion. the NASDAQ exchange. 54. called for an underperform rating and gave a price target of $25. Facebook was valued at $104 billion and planned to raise approximately $18. Google sits at 21.2 percent ($56. To match these expectations. The calamitous opening may have cost firms as much as $500 million in investments. Morgan. Accel Partners sold its stake at a $35 billion valuation in November 2010. Facebook far underperformed its closest comparable IPOs: Google and LinkedIn. In 2011. and early investors suffered significant losses. To start. combined with Facebook’s lofty valuation. the stock price had fallen from $38 to $32. when investors were unable to check the size or value of their trades because confirmations on orders from the NASDAQ system were delayed three hours. UNDER SCRUTINY Discussions over the declining stock prices put Morgan Stanley. 2012. problems arose just moments before Facebook’s initial public offering. and Goldman Sachs led funding at a $50 billion valuation in January 2011. believing that the company would lead an Internet revolution and estimating that its user base would grow 70 percent by 2014. respectively (see Exhibit 14).89 J. and unwavering focus on the user experience position the company to significantly improve monetization over time and to become an enduring.33. In comparison. strong competitive moat. blue-chip company built for the long term.86 Facebook valuations historically have been optimistic. J. leaving many investors with an unpleasant feeling about Facebook stock. history. and $42. Facebook had earned $3. equated to a high P/E of 104 for Facebook. These valuations and the hype around Facebook’s IPO made it one of the most anticipated public offerings to date (see Exhibit 13). Facebook knew it would have to grow its earnings quickly in 2013 and beyond. The market cap as of August 16 was $48 billion. was one of the largest in U. dwarfing even that of Google in 2004. Even investors who anticipated that Facebook would perform no worse than LinkedIn were disappointed.87 Errors of this variety and magnitude had never occurred during an IPO and made it appear as though fate was against a publicly traded Facebook.33.90 Only one analyst. and Microsoft is at 11. Another glitch occurred once trading started. and Facebook executives under great public scrutiny. and Goldman Sachs rated the stock as a “buy” and gave price targets of $38. Facebook was valued by several companies—Yahoo offered $1 billion for the company. citing his concern about Facebook’s advertising revenue.

and they know how to set up their profiles and timelines. that they would not sell more shares than were necessary to cover their tax liabilities. Sandberg said. because News Feed is so core to the user experience. DEFENSIVE MEASURES After a disappointing start. Local businesses represent a “huge” opportunity for Facebook. they can imagine ads working for their businesses as well. Zuckerberg reassured shareholders.100 Digital marketing research company eMarketer cites a marketing campaign launched by P. Sandberg added that “sponsored stories perform multiple times better than ads in Facebook’s sidebar. concerns about Facebook’s stock price deepened in the fall of 2012.” because they are more like a recommendation from a friend. which are sponsored stories that show up in a user’s News Feed. which are very similar to business pages. denying development of a Facebook phone and hinting at future work with search engines. Since Facebook’s services have already captured 600 million of 5 billion mobile Internet users.F.” Her approach highlighted the growth that Facebook was seeing in its social ads. More important.14 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? the limit for the company.95 For her part.”96 Facebook also monitors user reactions to make sure the ads are adding value and not alienating users.”97 Local businesses are typically not very tech-savvy. adding that “local is the Holy Grail of Internet. Zuckerberg did explain how the task of monetizing Facebook mobile products was up to the product development teams. Even so. Zuckerberg said the company would concentrate on native applications for mobile devices going forward. chief operating officer.F. the NASDAQ faces a review of its systems and procedures by the SEC. Chang’s Lunar New Year advertisement generated one million clicks—70 percent of which were from mobile devices—in just four days. whom many have perceived as an untested CEO. Facebook’s mobile days may be its brightest if it can replicate Twitter’s recent success. Zuckerberg publicly confessed to feeling disappointed in Facebook’s stock performance and conceded that it wasn’t good for company morale.93 As a result. and take big companies and make them social. Another advantage that Sandberg sees for Facebook is in the area of local business advertising. If they see messages from other businesses. he issued formal responses to rumors. Sandberg called Facebook a platform company. employees remained motivated by their desire to “[build] stuff they are proud of. Chang’s as the reason Twitter’s ad revenue jumped from $139.” Sandberg said.98 In an interview with Michael Arrington at TechCrunch’s Disrupt conference on September 11. Sheryl Sandberg.94 Perhaps the sharpest criticism may have been offered against Mark Zuckerberg. This gives Facebook an advantage because many business owners are Facebook users in their private lives.101 14 . and “more than 40 percent of them have no web presence at all. “We want to take social companies and make them big. At Facebook’s first earnings call after its IPO.9 million in 2012. 2012. After admitting that Facebook had made a mistake in its early mobile strategy by focusing development on HTML5. 2012. as investors prepared for the release of a large portion of public shares scheduled to hit the market in late November (see Exhibit 15). he revealed the strategic focus for Facebook’s future: mobile devices. saying. “We’re looking at the social context to make sure it’s really relevant. This measure was taken as a statement of faith in the company’s future. Zuckerberg and other company executives had indicated on September 5. Sandberg has noted Facebook’s commitment to scrutinizing sponsored stories. Facebook also sought to protect its stock prices by buying back 101 million shares before the lockup periods expired and more shares become available for sale. has been fielding questions about Facebook’s advertising strategies and pointing to positive signals and moves.”99 In addition. While there was no mention of immediate opportunities in the mobile market. P. saying.5 million to $259.

substantially. She sees competitors like LinkedIn using a combination of freemium and subscription business models. Would they give it up if Facebook started to charge them? Sandberg is also pushing to expand to other countries. or would charging users open the door to a no-fee competitor? Facebook users would face high switching costs due to the network of connections they’ve established. Can the market size make up for the lower per-user revenues? What effect might local competitors have in foreign markets? And what about Instagram? Is there a way to monetize that acquisition to a larger degree? Are there other acquisitions that Facebook should make? Sandberg remembers how quickly MySpace lost its first-mover advantage after focusing too much on monetization. the photos they’ve uploaded. relies on advertising more than anything else. What business model and monetization strategy should she propose? 15 . To many people. and Sandberg has strong relationships with large advertisers from her Google days. Do users value Facebook enough to pay to use it. in contrast. Sandberg needs to come up with a business model that will generate sufficient income to justify this valuation. it would need to increase its advertising revenue per user. which currently sits at $15.S.102 For Facebook to follow such a path. and the timeline activities they’ve shared on the site. but mobile advertising generates less revenue compared to desktop advertising because fewer ads are shown. Facebook is almost as vital as electricity—it’s a communication tool that users have come to rely on daily. Overall advertising revenues for Facebook are growing. These markets have vast numbers of potential users. Google’s revenue stream. Should she focus on convincing advertisers to pay higher ad rates for the precision and social benefits they’re getting from Facebook? Are there ways to expand mobile revenues? Sandberg has seen how utilities like electric and gas companies use the pay-as-you-go business model. Facebook has enviable relevance and reach to offer its advertisers. The clock is ticking. it generates $88 in advertising revenue per user. Expanding Facebook’s mobile advertising has been vital for Facebook to stay current.15 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? A New Business Model? Facebook’s IPO has put tremendous pressure on Sandberg and the Facebook team to come up with a strategy to justify Facebook’s $100 billion valuation in the stock market. but revenues per user are lower than in the U. She wants to ensure that Facebook does not encounter a similar fate.

& Canada Europe Asia Rest of the World 200% 100% 0% Ju nSe 09 pDe 09 cM 09 ar Ju 10 nSe 10 pDe 10 cM 10 ar Ju 11 nSe 11 pDe 11 cM 11 ar Ju 12 nSe 12 pDe 12 c12 16 (continued) 16 .S. & Canada Europe Asia Rest of the World 400% 300% 200% 100% Ju nSe 09 pDe 09 cM 09 ar Ju 10 nSe 10 pDe 10 cM 10 ar Ju 11 nSe 11 pDe 11 cM 11 ar Ju 12 nSe 12 pDe 12 c12 0% Panel 2: Daily Active Users (DAUs) 700% 600% 500% 400% 300% U.S.100% 1.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 1 Facebook’s Global Usage.000% 900% 800% 700% 600% 500% U. 2009–2012 (in millions) Panel 1: Monthly Active Users (MAUs) 1.

S.000 Europe $800 U.usa.400 Advertising Rest of the World $1. & Canada cDe pSe 12 12 12 nJu M ar -1 2 11 cDe Se p- 11 11 Ju n- 1 -1 ar M De c- 10 $0 Source: Authors’ depiction of data in Facebook’s SEC & Canada $600 Payments & Other Fees Rest of the World $400 Asia $200 Europe U.17 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 1 (Continued) Panel 3: MAUs on Mobile Devices 700% 600% 500% 400% 300% 200% 100% Se p10 De c1 M 0 ar -1 1 Ju n11 Se p11 De c1 M 1 ar -1 2 Ju n12 Se p12 De c12 10 Ju n- 09 -1 M ar 09 cDe 09 n- pSe Ju 0 0% Source: Authors’ depiction of data in Facebook’s SEC filing. EXHIBIT 2 Facebook Revenues.200 Asia $1. 17 . http://1. 2010–2012 (in $ millions) $1.S.

974 3.331 15. 2010–2012 (in $ millions. depletion.47 0. EXHIBIT 4 Facebook Ad Revenues.18 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 3 Facebook Financial Data. February 22.089 Cost of goods sold 354 537 720 Selling.187 Income taxes 402 695 441 Income before extraordinary items 606 1.02 Earnings per share (diluted) excluding extraordinary items 0.899 11. and amortization (accumulated) 246 450 882 2. 2012.28 0.2% 60.391 Depreciation.711 5.348 Stockholders’ equity – total 2.72 60% $5.990 6.103 29 63 65 367 398 1.626 373 547 1.000 53 Net income (loss) 606 1. 2011–2014 (in billions with % change) 100% $10 $8 $7.785 3.7% $2 $0 80% 2014 20% 0% Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race.64 68. plant.06 32.000 53 Earnings per share (basic) excluding extraordinary items 0.” eMarketer.28 0. except EPS data) Fiscal Year 2010 2011 2012 Cash and short-term investments 1.432 3.02 Source: Compustat.095 3. general.755 Sales (net) 1. and administrative expense 449 1.991 Receivables – total Inventories – total Assets – total Accounts payable – trade Long-term debt Liabilities – total 828 1.475 2. 18 .47 0.908 9.6% $6 $4 $6. http://bit.170 0 0 0 2011 2012 2013 Facebook ad revenues % change 40% 13. and equipment – total (net) 574 1.162 4.8% $3.

25 $1.50 $1.19 De $1.43 $1.usa.54 11 $0.44 $0.0 210% $500 $399.71 $1.20 $ 86% $200 $100 Twitter ad revenues 54% $139.47 $0.33 $1. EXHIBIT 6 Twitter Ad Revenues.08 U.” eMarketer.60 Se $2 Source: Authors’ depiction of data in Facebook’s SEC filing.41 12 $0.0 2010 2011 2012 2013 2014 Source: Authors’ depiction of data from “Twitter.31 $0. January 31.26 $0.29 $0. http://1.28 $0. LinkedIn to see solid ad revenue growth.34 $1.40 $3 $3. 2010–2014 (in millions with % change) $600 $540.37 12 $0.40 $1.56 11 $0.14 $0.43 10 $0 $1.56 c- p- De Ju n- 2 12 $0.21 $0.49 Rest of the World $0.84 $2.38 11 $1.38 $1.80 Worldwide $2.5 $400 $300 $0 % change $259.37 $1.58 -1 $0.20 $2.90 $2. 2012.S.26 Asia $1.24 $0. & Canada $3.19 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 5 Facebook Average Revenue per User (ARPU).55 ar $0.33 Ju $1 $1.40 $1. 19 .44 $1.53 M $0.69 c- pSe n- 1 -1 M ar cDe $1.77 Europe $3.54 $1. 2010–2012 $5 $4 $4.5 35% $45.

” Statista Industry Statistics. 20 12 20 11 20 10 20 09 20 08 07 20 20 06 20 05 04 20 20 03 20 02 01 20 20 00 99 20 19 98 97 19 96 19 95 19 19 94 $0 19 20 . EXHIBIT 8 Various IPOs and Market Cap. November 25. 1994–2012 (in billions) $300 Market Cap. 2012.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 7 Social Media Site Visits in October 2012 70 Percent Share of Visits 60 50 40 30 20 10 es m Cl In as st sm at ra ed ag gg Ta Li Ya ho o! Pi An nk sw ed er In s t er nt og le es 1 er itt ub uT Tw Go Fa Yo ce bo ok e 0 Source: Authors’ depiction of data from “Most popular social media websites in the United States in October 2012. in billions Google (GOOG) $250 Facebook (FB) Amazon (AMZN) $200 LinkedIn (LNKD) $150 Groupon (GRPN) Yahoo (YHOO) $100 eBay (EBAY) $50 Netflix (NFLX) Source: Authors’ depiction of data drawn from Bloomberg.

LinkedIn. and Google Post-IPO Stock Performance Panel 1: Google NASDAQ: 100 NYSE: GOOGLE 1- 05 rAp 1- M ar -0 5 05 1- 1N Fe 11Oc t-1 1 Ja b- 05 n- c1- 1- De No v- 04 04 4 t-0 1- 1- 1- Oc pSe Au g- 04 04 140% 120% 100% 80% 60% 40% 20% 0% 220% Panel 2: LinkedIn NYSE: LINKEDIN NASDAQ: 100 12 Ja n1- 1D ec -1 1 1 ov -1 1 Se p1 1- 1 g1 1Au 1 l-1 Ju 1- 1 n1 Ju 1- 1Ma y- 11 40% 30% 20% 10% 0% 210% 220% 230% 240% (continued) 21 .21 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 9 Facebook.

8 *Projected.4% 6.5 $46.0% 44. 2011–2014 2011 2012 2013* 2014* Google 41.2% 5. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse race. 2012.1% Total Top 5 64.5% AOL 2.2% 2.7% 5.4% 2. 22 .4% Yahoo! 9.1% 68.5 $52.9% Facebook 5.1% Microsoft 5.1% 7.0% 6.9% 68. February 22.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 9 (Continued) Panel 3: Facebook NYSE: FACEBOOK NASDAQ: 100 13 1- Ja n- 12 De 1- 1- No v- c- 12 2 t-1 Oc 1- Se 1- Au 1- p- g- 12 12 2 l-1 Ju 1- nJu 1- M ay -1 2 12 20% 10% 0% 210% 220% 230% 240% 250% 260% 270% 1- 22 Source: Authors’ depiction of data from Yahoo. http://bit.0 $39.” eMarketer. Online Ad Revenue.7% 6.8% 2. EXHIBIT 10 Percent Net U.7% Total Internet (billions) $32.5% 7.6% 47.5% 7.4% 6.4% 66.S.

35 10.7% $3.3% $0.7% $11.4% AOL $0.64 7.98 53.71 13. Online Display Ad Revenue.S.40 9.53 4.75 17. 2011–2014 (in $ billions) 2011 2012 2013* 2014* Facebook $1.29 17.1% $1.62 4.0 $154.76 21.57 54.7% Total Top 5 $5. January 31.68 19.6 95% $310.5% $3.58 16.56 4.0% $2.5% Microsoft $0.39 $18.92 Total Online Display $12.” eMarketer. 2012. 23 .ly/y2FYgi.73 14.8% $0. http://bit.8% $9.8% $3.50 8. EXHIBIT 12 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 LinkedIn Ad Revenues (millions and % change) $405.8% $2.88 47.3% $0.23 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 11 Net U.6 46% 37% 2011 2012 2013 31% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% LinkedIn ad revenues % change 2014 Source: Authors’ depiction of data from “Twitter.96 4.91 *Projected.81 50. February 22.67 4.4% $7.81 3.” eMarketer.7% Yahoo! $1.71 3.40 $15. Source: Authors’ depiction of data from “Google edges closer to Facebook as US display advertising becomes two-horse A3mdNS.4% $21.4% $0. 2012. http://bit.80 4.1% $1.8% $1.5% $0.0% $0. LinkedIn to see solid ad revenue growth.8% $4.1% Google $1.7 $226.54 16.

00 Source: Authors’ depiction of data from “Analysts hit the tepid button on Facebook.0 $50. August 17. http://on. 24 . P. com/VE9P23. Morgan Doug Anmuth Overweight $45. June 27. 2012. EXHIBIT 14 Analyst Ratings of Facebook Stock.wsj.00 BMO Capital Markets Daniel Salmon Underperform $ ZX1r4W. 2012 Bank Analyst Rating Price Target Morgan Stanley Scott Devitt Overweight $38.00 per share) $80.wsj.0 18-Dec-2012 18-Nov-2012 18-Oct-2012 18-Sep-2012 18-Aug-2012 18-Jul-2012 18-Jun-2012 2012 18-May-2012 2011 2010 2009 2008 2007 2006 $1.00 N/A $41.0 $35.Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 13 Valuation History (in billions) $104.0 2005 24 Source: Authors’ depiction of data from “Facebook investors cash out. http://on.0 after IPO $10.00 Credit Suisse Spencer Wang Neutral $34.00 BofA-Merrill Justin Post Neutral $38.00 Wells Fargo Jason Maynard* Outperform $37.” The Wall Street Journal.8 Opening price for IPO ($38.00 Citigroup Mark Mahaney Neutral $35.00 RBC Capital Markets Andre Sequin Outperform $40. Kevin Kopelman Neutral N/A Pacific Crest Evan Wilson Sector Perform Oppenheimer & Co.00 Goldman Sachs Heather Bellini Buy $42.0 before IPO $15.00 Lazard Capital Markets William Bird Neutral Piper Jaffray Gene Munster Overweight Raymond James Aaron Kessler Market Perform N/A Stifel Nicolaus Jordan Rohan Hold N/A William Blair Ralph Schackart Outperform N/A Cowen & Co.00 J.00 Barclays Anthony DiClemente Equal-weight $35. June 27. 2012. Jason Helfstein Ouperform N/A $41.” The Wall Street Journal.

wsj.197 1. August 17.500 1. http://on. 2012.25 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? EXHIBIT 15 History of Facebook Public Shares Available (in millions) Shares New public shares 2.944 2.000 149 47 1.093 May 2012 Aug 2012 Oct–Nov 2012 Nov 2012 Dec 2012 May 2013 0 Source: Authors’ depiction of data from “Facebook investors cash out.000 55 271 500 421 421 692 747 1.” The Wall Street Journal. 25 .500 ZX1r4W.

” 29. 2010. 2012. 24.” 2013.usa. Ibid. 27. “Facebook: One billion and http://econ. December 15. Ibid. Helft.”” eMarketer. 14. 16. 8. 2009. http://bit. 26 .26 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? Endnotes 1.” Facebook.” The Wall Street Journal. 15. “Graph search event December. “Inside fumbled Facebook offering. 9.ted. 2010. “Facebook overview. “Facebook seeks a new finance chief as Yu leaves. “Facebook Form S-1 registration 22. “Facebook CEO seeks help as site grows up.” 12. “Person of the Year: Mark Zuckerberg.” The Wall Street Journal. February 4. Lean In (New York: Knopf).com/ June 30.” Facebook Newsroom. S.” The Wall Street Journal.” The Wall Street Journal. http://bit.” TEDWomen. “The acceptable face of October 5. (2010). http://bit. 17. 26. Ibid. 3. 2. “Floating Facebook: The value of friendship. “Facebook IPO filing puts high value on social network. July 21. 2007. S.wsj. 19. M. 2008. “Facebook CEO seeks help as site grows up—Google veteran to be Zuckerberg’s no. http://on. http://econ. 2009.” The Wall Street Journal.” The Economist. “Why we have too few women leaders. “Facebook Form S-1 registration statement. 7. July 24. 20. March 5. 10.wsj.wsj. 4. “Facebook overview. “Google edges closer to Facebook as US display advertising becomes two-horse “Graph search event video. April 1. The Social Network [Film]. 11. January 15. 2012. Ibid. 18. 6. 2012. “A brief history of Facebook. 2012.” The New York Times. February 2.” Time magazine. http://nyti. “Facebook IPO filing puts high value on social network. Sandberg. “Facebook hires finance chief.” The Guardian.wsj.wsj.html. Sandberg. 25. October 2.” USA Today. May 16. May 23. http://bit. 13.” 5.” The Economist. “Mark Zuckerberg’s most valuable friend. 2012. (2013). Ibid. http://on. February 22. http://on. 21.” 23. http://usat. http://www. http://on. http://on. (2010).

http://on. 41. 57. 27 . Ibid. http://on. Ibid. http://bit. September” The Wall Street Journal. 55. “Facebook overview. “Facebook to organize friends into lists. “Facebook on collision course with Google on web searches. 47. January 31.” The Wall Street Journal. 2011. 43.” WcKyPl. Ibid. “” Facebook. “Facebook IPO filing. 56. 2012. 32. Ibid. http://on. 33. “Facebook Form S-1 registration statement. 59.” The Los Angeles Times. 2012. http://tcrn. 46. “Facebook annual report. Ibid. Ibid.wsj.” 38.wsj .27 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 31. 40. 2011. “Twitter shares active user numbers.” eMarketer. January 16.” The Wall Street Journal. July 31. 54.” 2013. 60. Ibid. Ibid.wsj. 49. “Facebook Form S-1 registration statement. 2012 52. 58. “f8 conference. http://bit. “Facebook annual report. 2012.” Facebook. Ibid. Ibid. 44. Ibid. 2012.” 37. “Insta-Rich: $1 billion for Instagram. 2010. 45.” Facebook-Studio. http://lat.” 34.” 42. “Facebook Form S-1 registration statement. 51. December 8.” TechCrunch. Ibid. “Facebook overview. LinkedIn to see solid ad revenue growth. “Introducing Graph Search: Help people discover your business. “Twitter VP Jason Goldman steps down. September 11.” 53. 61.” The Wall Street Journal. 2013. 35. April 10. 48. 39. 36. Ibid. January 15. September 8.. 2012. “Twitter may have 500M1 users but only 170M are Ibid.

77. 92.” 84. “SEC could seek Nasdaq upgrading. 88. “The mounting minuses at Google1. 90.” http://press. “Facebook IPO hasn’t hit Nasdaq volumes. 2012. “There’s no avoiding Google1.” 82.” 83.” 72. “The mounting minuses at Google1. http://on. http://on.wsj. February http://bit.” Forbes.. 2011. 2012.wsj. 91. February 22.linkedin. May May 20.” LinkedIn. 2012.” Google Inc. May 17. 2012. 2012.” Puget Sound Business Journal. “Why the Facebook-Microsoft alliance should worry Google. 2011.” Microsoft. “Facebook Form S-1 registration statement. February 28. “Google edges closer to Facebook as US display advertising becomes two-horse race. 67. January 3. 2012. “Google edges closer to Facebook as US display advertising becomes two-horse race. 2012.usa. “Form 10-K.” The Wall Street Journal.” The Wall Street Journal. July 7. 2012. 69. “There’s no avoiding Google1. feeding web boom.” The Wall Street noRRYd. Ibid. http://fxn. 80. “Why Wall Street likes LinkedIn more than Facebook. June 29.” The Wall Street Journal. http://bit. “What keeps Facebook up at night.” The Wall Street Journal. 89. 66. http://on.” The Wall Street Journal.” The Wall Street Journal. May 10. 65.. “About LinkedIn. “Analysts hit the tepid button on 85. 2011. 2012. http://bit. June 28.wsj. 71. 87. 70.” “Microsoft.28 Facebook Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 62. “Facebook Form S-1 registration statement. Ibid. February 28. LinkedIn to see solid ad revenue growth. “LinkedIn IPO soars.wsj. “Facebook sets historic IPO.” The Wall Street Journal. “Facebook prices IPO at record value. E. http://on.” The Wall Street Journal.wsj. June 29. “Microsoft to acquire Skype. Ibid. “The mounting minuses at Google1. 76. February 2. http://bit. http://onforb.wsj. August 4.” The Wall Street Journal. http://bit. February Ibid. http://1. Ibid. (2012). Facebook get cozy as competitors hover.” Forbes.” 81. 86. http://on. http://on. 73. “About LinkedIn. 79. http://bit. 2012. “Why it doesn’t matter that Google1 users only spend three minutes a month on the site. 64.” 28 . 78. 74. 68. “ Ibid.” Fox Business.

2012. June 29. “Facebook: One billion and counting. 96. July http://on. http://on.” The Wall Street Journal.wsj. “Stock traders to Mark Zuckerberg: Do you hear us now?” Forbes. “Zuckerberg admits to missteps. 2012. July 26. June 28. 2012. “Facebook: One billion and “Analysts hit the tepid button on Facebook. 101. “Facebook plays defense.” The Wall Street Journal.wsj. http://bit. 102. http://on. “Twitter’s mobile ads begin to click. http://onforb.29 Facebook (in 2013): Will Wall Street Hit the “Like” Button? Final PDF to printer Facebook (in 2013): Will Wall Street Hit the “Like” Button? 93.” The Wall Street Journal. 95. September 5. September 11. Ibid.” The Wall Street Journal. 2012. 100. 2012. October 5.wsj.” The Wall Street Journal. 98. 2012. “SEC could seek Nasdaq upgrading. “Facebook Q2 2012 earnings call.”” Facebook. http://on.wsj. 99.wsj. http://on.” 29 .com/MapjuQ.