David Moses
Entrepreneurship
Facebook Case Study
I Introduction to Facebook
Facebook was started in the dorm room of then Harvard student Mark Zuckerberg in
2003. Zuckerberg started the site as an online edition of the popular ‘Facebook’ profiles that
colleges distribute to freshmen students before the start of the fall semester. “The response to
Facebook was huge and immediate at Harvard”, and three weeks after the start of the website
initially named thefacebook.com it had 10,000 registered users at Harvard. 1 The Facebook
website was created initially only for Harvard college students but soon other Ivy League schools
such as Yale, Columbia, and Dartmouth requested that Zuckerberg have Facebook at their school
as well. It later expanded further to include any university student, then high school students,
and, finally, to anyone aged 13 and over. The website currently has more than 120 million active
users worldwide. 2
II (1) What is the business model for the company? What value do they produce, for whom, and
how does that value generate profit for the firm?
The traditional business model for social networking sites has been to generate revenue
through advertising. While Facebook definitely has plenty of ads (and many of them are targeted
ads) Facebook has decided that growing their business is more important to them in terms of
their business model. Zuckerberg has been quoted as saying that “growth is a strategic thing for
1
2
Facebook, Stanford Business School, May of 2006.
Nov.9, 2008. <http://www.facebook.com/press/info.php?statistics>
us. We're not as focused on optimizing revenue. Now, people have said we're not thinking about
it [and not developing a strategy], but that's completely wrong. We have thousands and
thousands of advertisers coming to the site and reaching people." 3 So, while the management of
Facebook is definitely focused on generating revenue and being profitable, it understands that
growing the number of users in the short term will lead to generating more revenue in the long
term.
Facebook provides value for users of the site by connecting them through an online social
network to people at their university, high school, or company. Without the Facebook online
social network many people would not be able to share unique information about themselves or
be connected to friends of a particular friend. Through Facebook it is possible to create galleries
of photos, to post digital movies that you have taken with friends (similar to YouTube but with
access to the digital movies restricted to your friends), to play online games through Facebook
with Facebook applications such as Solitaire or Texas Hold’em poker (which is played with
Facebook friends).
Facebook launched the Facebook Platform in May of 2007, providing
a framework for software developers to create applications that interact with core Facebook
features. 4 Because Facebook allows for third party developers to create applications for
Facebook there are literally hundreds of applications on the website. Types of applications
include business, educational, photo sharing, political, travel, and many more applications. 5 Yet
3
Nov.9, 2008. <http://www.thestandard.com/news/2008/11/07/facebook-twitter-making-money-takes-back-seatgrowth >
4
Nov.9, 2008. <http://en.wikipedia.org/Facebook>
5
Nov.9, 2008. <http://www.facebook.com/apps/>
another key distinction between MySpace and Facebook is that MySpace restricted (at least
initially), revenue of developers on MySpace while Facebook let developers keep the revenue
they made.
(2)What are the unique resources and skills that this company has acquired? Can those
resources be copied or created by competing firms in the industry?
The unique resources that Facebook has include the many applications that Facebook has
that other social networking sites such as MySpace and Friendster do not have because they do
not allow for third-party developers to create applications for their online social networking site.
Facebook’s method of developing its website using a ‘LAMP’ stack (Linux-Apache-MySQLPHP) and Memcached (which holds frequently accessed items in RAM instead of on slower hard
drives) 6 is not unique to social networking websites or websites generally. 7 Facebook however
has spent millions of dollars developing its computing cloud of servers, which makes it difficult
for future competitors to Facebook to compete against. By investing in building its computing
cloud of servers Facebook has made it possible to scale out its website whereby millions of new
users can sign up for Facebook without any loss in throughput (i.e. comparative speed of the
Facebook site per user) for any of Facebook’s users. Another aspect of Facebook that would be
hard for a new entry into the social networking space to duplicate is the number of users and
their unique connections on Facebook. What this means is that by investing in technology for a
new social networking site it may be possible for a new entry into the social networking space to
6
Nov. 10, 2008. <http://en.wikipedia.org/wiki/Memcached>
7
Nov. 10, 2008. <http://www.facebook.com/facebook?ref=pf>
have the technology that matches Facebook. However, a new entry into the social networking
space will be hard pressed to match Facebook in getting the user base that Facebook currently
has anytime soon.
(3)Describe the industry, using factors you have already learned about. Who are your venture’s
main competitors? Which of Porter’s 5 forces have the most impact? Where in the value chain is
most of the industry based revenue (margins) generated?
Facebook is a social networking company in the Internet industry. The main competitors
of Facebook include MySpace, Friendster, Orkut, LinkedIn, and many other social networking
websites. 8 The main source of revenue for Facebook comes from ads (mostly targeted ads) from
advertisers to Facebook’s users.
The intensity of competitive rivalry is the one force of Porter’s five forces that has the
most impact. There are many strong competitors such as MySpace, Friendster, and LinkedIn in
the social networking space of the internet industry. The growth of social networking sites is
expected to continue its trend of high growth trend in the coming years. From June of 2007 to
June of 2008 social networking sites saw growth of 25% and Facebook itself saw growth of
153% and went from 53 million users to 132 million users worldwide. 9
Advertising revenue with continue to be the main source of revenue for Facebook in the
value chain. In the industry companies such as LinkedIn have generated revenue in addition to
8
9
Nov. 10, 2008. <http://en.wikipedia.org/wiki/List_of_social_networking_websites>
Nov. 10, 2008. <http://www.itfacts.biz/worldwide-growth-among-social-networking-sites-in-june-2008/11331>
advertising revenue by offering subscriptions to the site in order for users to have additional
access to features on the site.
(4)What makes this company special? Are there specific practices or qualities that you really
respond to? Is the leadership unique, and if so, how?
There are a several things that make Facebook special. First, Facebook has opened itself
up to developers who are permitted by Facebook to develop third-party applications for
Facebook. Secondly, Facebook has over 120 million users most of whom visit Facebook daily.
Third, Facebook has the ability to connect people to things they care about such as a sports team,
or a political candidate. Fourth, it is possible to interact online with your friends on Facebook
that is not possible on other social networking websites. For example, it is possible to play
online games with your Facebook friends or connections (this is not possible on MySpace or
LinkedIn). Fifth, Facebook offers more privacy options to its users than MySpace does.
Facebook has spent lots of time and money improving its privacy settings for users so that it is
now possible to limit who has access to your profile (e.g. only friends), who can view your photo
galleries, and many more options. MySpace has not invested its resources to privacy options for
its users. 10
(5) Overall, evaluate the venture in terms of its current operations and potential for growth.
I chose to do a SWOT analysis to evaluate the company in further depth and its growth
potential. Based on my SWOT analysis of Facebook I found that the strengths of the company
10
Nov. 9, 2008. <http://mashable.com/2007/06/10/facebook-hammers-myspace-on-almost-all-key-features/>
include the fact that Facebook allows third party developers to develop applications for
Facebook. A second strength for Facebook includes Facebook’s privacy controls for its users.
Weaknesses of Facebook include the fact that Facebook has limited support for non English
users of its website. Opportunities for Facebook include the fact that Facebook could expand to
international countries. This opportunity shows that there is growth potential inherent in foreign
markets for Facebook. Threats to Facebook include Facebook’s ability to manage the growth of
the company in the U.S. market and the growth that Facebook must contend with in foreign
markets. Another threat that Facebook must deal with include the fact that Facebook must
handle competition from new social networking sites.
III Application of concepts from ‘My Startup Life’ to the Facebook Case Study
There are several lessons about entrepreneurship that can be learned from reading Ben
Casnocha’s book My Startup Life and that are applicable to the Facebook company. First, Ben
Casnocha is an entrepreneur who likes to dream big about entrepreneurial business ideas and his
company Comcate is the result of that. Secondly, like Zuckerberg with Facebook Casnocha saw
a business need and he filled it with his company. Zuckerberg initially with his venture saw that
people at Harvard wanted an online edition of the popular freshman Facebook. Third, Ben
Casnocha realized that public governments did not have software that would enable them to
handle citizen complaints. Another similarity between Zuckerberg and Casnocha is that they
both began at their ventures at early ages. Zuckerberg started his first company while in high
school, and Casnocha began his first company Comcate while in middle school!
Entrepreneurship in the cases of Zuckerberg and Casnocha has no age limits.
One takeaway I found insightful from reading Ben Casnocha’s book is an axiom from
Lao-tzu who said “a journey of one thousand miles begins with a single step.” Casnocha in
reiterating Lao-tzu statement says in his book that “people who get stuff done-begin.”
Sometimes it is hard to take that first step but as Lao-tzu states you will not complete the journey
without first embarking on it.
IV Recommendations & Suggestions for Facebook
My first recommendation to Facebook is for them to consider going into international
markets with its social networking site. Entering international markets will require localizing the
website to specific international markets which will require having language customized to suit
the needs of users in specific international markets.
LinkedIn has recently (as of November of 2008) introduced applications that allow users
to take advantage of their connections and share documents with each of their connections.
Facebook, which already has many social applications on its site, could consider introducing
business applications on its site as well. Business applications that Facebook might consider
introducing include an application that allows users to share files and collaborate with users in
their network. A second business type application that LinkedIn is using that Facebook could
consider for its users is an application that will discover what people in your network are reading
on Amazon.com. A third business application used already on LinkedIn is Google Docs and if
Facebook could partner with Google to get Google Docs on Facebook it would definitely be a
good business application for Facebook’s users. Google Docs allows users to create new
documents, spreadsheets, and presentations through a browser interface (no need to install any
software to create a document). Google Docs on Facebook could be shared with user’s friends
and connections on Facebook. A fourth business application that is employed currently through
LinkedIn applications is Wordpress-which allows users to promote their blog and their latest
posts. A Wordpress business application on Facebook would be of great interest to Facebook’s
users who currently linking their Wordpress blog on Facebook.
V My involvement with Social Networking
In addition to being a user of a couple of social networking websites such as Facebook
and LinkedIn, I have thought of starting my own social networking website. In 2004 I thought of
creating a social networking site for sports fans featuring member profiles, member blog
postings, and applications for sports fans. I did not create a social networking site at the time for
sports fans because I lacked the technical knowledge to create the website myself. After reading
Ben Casnocha’s book I realize now that it would probably have been possible to outsource some
of the technology work for the initial start of the website. As the book The World is Flat
describes, outsourcing to India for a small price may have been possible for the initial beginnings
of my sports fan social networking site. Ben Casnocha’s even made use of outsourcing to
Bangladesh for the prototype of his software for the relatively low price of $2200. Casnocha
claims in his book that the prototype was of high quality, and the prototype of his software was
good enough to show to investors.
Exhibit 1: SWOT Analysis For Facebook
Strengths
• Brand name
• Platform is open to developers
Weaknesses
· Currently only support in English.
· Few business applications.
· Privacy for its users
Opportunities
· To grow internationally
· To provide more business applications.
Threats
· Start of new social networking sites that are
better
· Managing growth of Facebook both in the
U.S. and internationally.