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  1. Facebook The Art of Making Money By Tetyana Samoylenko BUS 550 Professor Minder Chen

  2. Facebook Theory From Its Dorm-room Days: • Simple, clean, and uncluttered • Elegant interface design • Zuckerberg’s preference for minimalism • New sort of communication based on real relationship • “Improve people’s lives, especially socially”

  3. The Beginning • Revenues – non-existent in its first 2 weeks • June: $10 million offer at 20 y.o. • Saverin and $10,000 • Y2M – ads for college newspaper websites. 30% comission. • ScepticalMastercard • Y2m wants to invest

  4. Becoming a Company • Zuckeberg’s vision – “We are going to change the world” • Zuckerberg’s terms – “We don’t like these either but they pay the bills” • Serious business – must keep growth • Obsession with technology – decide when to turn on new schools • Open-source software – key factor in early success. • Exponential growth in the next few years • 2007- more than half the site’s users were outside the United States • Universal appeal – all text is in English

  5. Becoming a company • Providing service to people all over the world was expensive • No revenue from more than half its users • Advertising deal with Microsoft – applied only in the US • Microsoft is interested in becoming a partner to advertise outside the US • Microsoft had exclusive right to sell banner advertising

  6. Series D • Facebook needed its own self-managed streams of revenue • Time to raise capital • Google is interested • Microsoft - $240 million at a $15 billion valuation at 1.6 % of the company • Li Ka-Shing – “Asia’s Warren Buffet” - $60 million for 0.4% of the company • Perfect timing- 2008 recession

  7. Series D Cont… • In addition to the initial $300 million - Asia’s Warren Buffet invested $60 million more several months later • Three Munich-based venture capitalists invested $15 million • Total raised in the series D round - $375 million

  8. Let’s Start Making Money • Microsoft – no longer an obstacle • New sort of advertising • Any commercial entity could create a “page” for free. It had an individual’s model including ability to host applications • The strategy – get as many companies into its systems as possible • A user can become a fan rather than a friend • Activities would be broadcast to their friends’ News Feeds

  9. The Beacon Fiasco • Poorly designed alert device • Intended for playing games, adding a recipe, and announce purchases you made on partner sites • Major design flaw • “Who is this ring for?’’ • Disrupted relationships • Christmas surprise • Redesigned Beacon with opt-in system

  10. Sheryl Sandberg • Senior executive at Google • Perfect candidate for COO • Company’s top advertising champion and sales person • Immense experience with advertisers from Google • How to social success into a lasting money-making business? • Series of meetings to clarify the business strategy

  11. Google vs. Facebook • Things people had already decided they wanted to buy • Response to the word you typed in to the search box: fulfills demand • Help people decide what they wanted • Generate demand • Implant a new idea into your brain – you should want to spend money on this thing

  12. The Engagement Ads • Solution for large brand advertisers • Brand Lift enables large brand to test effectiveness of their advertising campaign almost immediately • Users can interact with advertisers • First year – close to $100 million in revenue • $5 per thousand views for these adds

  13. Self-Serve Ads • Smaller advertisers with a credit card • Ads are displayed in the side bar of most pages of the site including user profile, events, groups, and the third-party application • Small businesses – doctors, lawyers, restaurants • Estimated revenue in 2010 $450 million

  14. Self-Serve Ads

  15. Facebook Gift Shop • Send virtual gifts to one another • $1 per gift - $30 million 2009 • Third-party developers to increase variety of products sold • Discontinued in August, 2010

  16. Facebook Credits • Credits are used to buy virtual goods • FarmVille, CityVille, CafeWorld • 150 developers in more than 350 applications • Developers must pay a 30% cut whenever online game players use the virtual money • Sandberg: 20-30% of revenue will come from the sale of virtual good or operations of an on-site currency

  17. Quiz Question • Prior to becoming COO at Facebook Sheryl Sandberg worked for which search engine giant?

  18. Topics for Discussion • 1. Should Facebook go public? Why? • 2. What would happen when individuals and companies become more comfortable with the idea of accepting virtual currencies in exchange for various types of interactions, goods or services.