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the Perfect Startup
       Five keys to their unprecedented success
                                                                                                                       LOGO

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                                                                                                            faberNovel 2012 ••• 1
•••
   A quick word from Stéphane Distinguin ( CEO – faberNovel )
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



                                                                 It is not about the IPO the entire world is
     We all know Facebook.                                       commenting on: an IPO is certainly not an
     We all know Mark Zuckerberg.                                end, but a point on a startup trajectory.
     These are the names.                                        It’s all about perfection. Up to now, Facebook has
                                                                 been the perfect startup, not because it has
     We all know the figures,                                    succeeded in everything, but because its has built
     they are mind-blowing: more than                            itself step by step, in a very pragmatic way. There is
                                                                 no miracle here: it is just a startup that has had an
     900 million members for a current                           almost perfect stance towards every challenge it has
     valuation of over 100 billion dollars.                      faced to date, and has built the most fascinating
                                                                 innovation platform.
     At first sight, we all knew Facebook                        Perfection is rarely encountered and even harder to
     would be the biggest start up "after                        analyze… At faberNovel, as we do every year, and
     Google", Mark Zuckerberg, the Social                        after Google, Apple and Amazon, we wanted to
     Network hero, a juvenile CEO signing                        highlight what could be the formula behind Facebook's
                                                                 roaring success. Is there a formula for perfection? We
     autographs and striking the pose like                       would like to share our discoveries, our dissection of
     one of the biggest rock stars of his                        this marvel just to make it more useful for all of you. I
     generation.                                                 am not sure perfection will be achievable for all of us,
                                                                 but it certainly is our best source of inspiration.



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                                                                                                            faberNovel 2012 ••• 2
•••
   This work was made for you to share, reuse, remix, rework…
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



                         It is licensed under the Creative Commons BY-NC-SA license to allow for further
                         contributions by experts and users in the coming months.



                         You are free to share and remix/adapt the work.


                         You must cite this document:
                         faberNovel, Facebook: The Perfect Startup, May 2012.

                         You may not use this work for commercial purposes. You may distribute a modified
                         work under the same or similar license.




                         Why do we release this kind of work for free?
                         Our job is to help big organizations think and act like startups. And we
                         believe that this cannot be achieved without causing people to want to
                         innovate and explore new business models. Our ambition is to inspire you
                         by giving you the keys to understand new markets like Russia or successful
                         companies like Apple, Amazon… or Facebook.

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                                                                                                            faberNovel 2012 ••• 3
•••
   Facebook is quite a big 8 year old …
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                                                                                                             billion
                                                                                                             Likes & Comments
                                                                                                             per day




                                                                                                               million
                                                                                                               Photos uploaded
                                                                                                               per day


         million user accounts
              12.8% global market share!
                                                                                                               Average
                                                                                                               Time spent
                                                                                                               by users in a month
 Source: Facebook S-1, May 2012
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                                                                                                            faberNovel 2012 ••• 4
•••
   … with many characteristics of a giant .
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                                                 Instagram                     Snaptu                       Friendfeed
                                                  $1 billion                 $65 million                    $47.5million
                                                   (2012)                      (2011)                         (2009)




         The largest tech IPO in history
         $16 billion
         raised on the day of the IPO

      Which ranks its CEO among the TOP10 World’s Billionaires
 Source: Based on information disclosed by Facebook, May 2012; Facebook’s IPO commented by Bloomberg
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                            faberNovel 2012 ••• 5
•••
   Altough still a small company, relative to other tech giants
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



         Facebook’s Page Views = 10x Youtube’s                 but…               Facebook’s Revenues = 10% Google’s

                 1 trillion                                                                                  $37b




                                 100 billion                                               $3.7b




                                                 26 years ld
                                                   average Facebook employee age
 Source: Facebook, Google, Adplanner June 2011
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                                                                                                            faberNovel 2012 ••• 6
•••
   Its meteoric growth results in a remarkably high valuation per employee
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                       3500 employees                                      $30 million valuation per employee



     Obviously, they must be doing something right
 Estimates: Fabernovel, based on a $100b valuation; Number of employees: Facebook, May 2012
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                                                                                                            faberNovel 2012 ••• 7
We believe that
                 Facebook’s
      amazing performance
      was driven by excellency
      in business management.


                                 Facebook is remarkable not so much in its
                                 product or usage, but in the way they
                                 built themselves as a company,
                                 from inception to maturity.


                                 What’s Facebook story?
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                            faberNovel 2012 ••• 8
•••
   Facebook isn’t the first social network in history
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




    •    Created as an embryonic               •    Probably the first genuine               •    A reaction to Friendster
         social community.                          social network                           •    Chose an absolute freedom
    •    Bought by Yahoo in 1999               •    Faced technical difficulties                  policy
         for $3.57 billion.                         from 2004 to 2006                        •    Huge success among artists
    •    Yahoo turned the service              •    Lacked activity & content                     and celebrities
         into free web hosting in                   for the users                            •    Too much freedom
         attempts to monetize it.              •    Chose a restrictive policy                    deteriorated the quality of
    •    Having lost the social                     (e.g. no pseudonym)                           the website
         element, the service                  •    Refused a $30 million                    •    Lacked activity for the users
         closed in 2009.                            buyout offer from Google                 •    Acquired by News Corp. for
                                               •    Acquired in 2009 for $26                      $580 million in 2005
                                                    million after its reboot                 •    Sold for $35 million in 2011
                                                                                                  to Specific Media



    These three social networks were short-lived leaders.
    Why would Facebook be different?
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                                                                                                            faberNovel 2012 ••• 9
•••
   Facebook managed to survive 3 classical challenges
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                   Focus                                   Technology                                    Policy
      Facebook always kept the                   Facebook only experienced 3                Facebook has learned from the
      social feature at the center of            severe outages:                            mistakes of its predecessors,
      the user-experience:                       •  The most severe outage                  keeping a balance between
      “Facebook’s mission is to                     Facebook faced was in 2010              freedom and control:
      make the world more open                      for 2.5 hours                           •  Allowing users to modify the
      and connected.”                            •  They experienced a few                      content
                                                    difficulties later in 2010,             •  Preventing users from
      Facebook stayed focused on                    unveiling new pages                         modifying the interface
      the “big idea”.                            •  In early 2012, some                     •  Allowing brands and artists
                                                    Facebook’s European users                   to create special pages
                                                    could not connect to the
                                                    platform for a few hours

…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                           faberNovel 2012 ••• 10
•••
   It has done so with a perfect scaling strategy
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  


    Test                             Growth                                          Consolidation
   College Networks                  Gradual opening to the world                    Self-sustaining community
   •     Low-scale                   •    Word-of-mouth extension (through           •    Improvement of existing features
   •     High-density                     invitations)                               •    New features to maintain engagement
   •     High need to connect        •    New features that drive engagement

   Build the platform                Scale the platform                              Maintain the platform


   2004-2006                                        2007-2010                                  Nowadays




 Source: Quora, “What are some decisions taken by the Growth team at Facebook […]?”, answered by Andy Johns
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                                                                                                            faberNovel 2012 ••• 11
•••
   2006 breakthrough: The News Feed – Your friends ticker tape
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



    With the News Feed launched in 2006, Facebook managed to automate relevant content
    creation… from friends’ activity.



                                                             The News Feed aggregates the user’s friends activity:
                                                             status updates, photos uploads, comments… The more
                                                             friends, the more content to explore.


                                                             As every webmarketer knows: fresh content is key to
                                                             generate stickiness.

                                                             Facebook’s News Feed concept goes even further:
                                                             providing user-centric content from his network, hence
                                                             tastes and interests.

                                                             News Feed gave a considerable competitive advantage
                                                             to Facebook in its battle against MySpace, because it
                                                             provides permanent user-centric content renewal.




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                                                                                                           faberNovel 2012 ••• 12
•••
   Facebook motto : “Product First”, but with business sense
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                                          Mark Zuckerberg
                                          "Facebook was not originally created to be a company. It
                                          was built to accomplish a social mission - to make the
                                          world more open and connected"



          But Zuckerberg quickly understood that business perspective
          benefits the overall management:

          •  Straightforward and quantifiable objectives
          •  Money can assemble the best team of developers


          In order to enforce these objectives, he hired Sheryl
          Sandberg as COO in 2008.
         Zuckerberg met Sandberg in 2007, at a Christmas party, while
         she was still Vice President of Online Sales and Operations
         at Google.
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                           faberNovel 2012 ••• 13
•••
   With 56.6% of voting rights, M. Zuckerberg can keep the shareholders at bay
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




   Here’s an enlightening extract from Facebook S-1:


     “Our CEO has control over key decision making as a result of his control of a majority of our voting
     stock. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares,[…], in
     his own interests, which may not always be in the interests of our stockholders generally. “
 Source: Facebook S-1
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                                                                                                           faberNovel 2012 ••• 14
•••
   Zuckerberg even refused several opportunities to sell out
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                            “I admire Mark Zuckerberg for not selling out, for wanting to
                            make a company. I admire that a lot.”
                            Steve Jobs (1955-2011)
                                                                                                                            Revenue
                                                                                                                            $3.7 billion

                                                                                    $300 million
                                                                                    invested
                                                                                    by DST Global
                                                   $15 billion                      to postpone IPO
                                                   acquisition offer
   $10 million
                                                   by Microsoft
   acquisition offer
   by Friendster
                                 $1.6 billion
                                 acquisition offer
                                 by Yahoo
                                                                                              Revenue
 Revenue                                                                                      $777 million
 $382,000


 Source: Steve Jobs quoted in Walter Isaacson biography; acquisitions offers reported by TechCrunch
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                                                                                                           faberNovel 2012 ••• 15
•••
   To sum up, Facebook managed to tackle one of the most common tensions in
   any startup: Product vs. Business
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                               Product                                      Business
                                                               vs.

                     Many startups struggle or fail when they find themselves
                     prioritizing one over the second. Facebook seems to have
                     passed this test quite brilliantly.



             What is fascinating with Facebook ?
         The way it deals with most startup challenges.

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                                                                                                           faberNovel 2012 ••• 16
•••
   Facebook’s excellency lies in managing classical startup challenges
  …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
  	
  




          Technology &
         User Experience                       Business model exploration                         Business & Ecosystem




                                  Disruption                                 Long term vision




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                                                                                                           faberNovel 2012 ••• 17
•••

    1.  Technology & User Experience
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                           faberNovel 2012 ••• 18
•••
   Facebook’s platform is both a best practice in user-centric design…
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



                                                                                Customizable appearance thanks to
                                                                                new Cover Picture



                                                                                Timeline featuring the user’s story, with
                                                                                milestones and events.



                                                                                Engaging content thanks to smart
                                                                                display




                                                                    Facebook New Timeline, released in 2011,
                                                                    replaced “The Wall”

…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                           faberNovel 2012 ••• 19
•••
   … and technical wizardry
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



                                                                                Visual aggregation of numerous
                                                                                sources of content




                                                                                Third-party apps integration




                                                                                Action links to out-of-platform apps
                                                                                and software




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                                                                                                           faberNovel 2012 ••• 20
•••
   The result let people and brands tell their story in a way that is engaging and new
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
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                                                                                                           faberNovel 2012 ••• 21
•••
   Facebook accomplishes all of this at a breakneck, startup pace
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




     A new version of Facebook                                                                                                    million
     is released every Tuesday                                                               to                                   users!
      = 12,000 modifications per month



     More than 1,000 developers deliver code to be released each week, most of the
     time small iterations… sometimes completely new features.


     Facebook manages to do this with a few simple rules:



                  #1                                                  #2                                                          #3
                                                         Developers are
       “Move Fast and
                                                   individually responsible                                      “Mark is always right”
        Break Things”
                                                    for the code they write.

 Source: Arstechnica.com, A behind-the-scenes look at Facebook release engineering, April 2012; Facebook Developer Garage, Paris, April 2012
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                                                                                                                                             faberNovel 2012 ••• 22
•••
   The key to Facebook’s agility: its testing process
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




      Facebook teams’ tools prove there’s no need to be sophisticated to be efficient. They
      work with hacker tools, such as: IRC chat (a geek instant messaging system) and P2P file-
      sharing technology (basically content piracy tools) to release Facebook each week!
 Source: Arstechnica.com, A behind-the-scenes look at Facebook release engineering, April 2012; Facebook Developer Garage, Paris, April 2012
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                                                                                                                                             faberNovel 2012 ••• 23
•••
   Acting like a startup is not just a question of process: it’s a question of culture
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




    Two atypical leaders….


                       Mark Zuckerberg, CEO                                                Sheryl Sandberg, COO
                       The Genius who hacked into                                          Named in the top 100 most
                       Harvard’s security network to                                       influential people in the world,
                       create the first version of                                         and still leaving work at 5:30
                       Facebook at only 20.                                                everyday to pick-up her children
                                                                                           at school.




    … managing an army of highly-talented youngsters


                       Avada Kedavra, Expecto                                            Facebook average
                       Patronum, Alohomora                                               employee is 26 years-old
                       Names of Facebook’ HQ meeting                                     By comparison, IBM’s average
                       rooms, inspired by Harry Potter magic                             employee is 44 year old…
                       spells




 Source: Mashable
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                                                                                                           faberNovel 2012 ••• 24
•••
   When it comes to new features, Facebook takes a pragmatic approach
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




    Customer feedback                          Fail fast, fail often                      Constant improvement




   New News Feed                                Deals                                        Groups

    In 2011, Facebook introduced a new         With Facebook Deals, the engineering          Through analytics, Facebook
    News Feed which presented “Top             team faced a lack of traction: the            discovered that Groups were
    Stories” first. Despite the business       product wasn’t used enough to justify it      cannibalizing a large portion of
    opportunity offered by this new            to continue. They simply shut the             their new Pages.
    feature, Zuckerberg decided to             service down.                                 They decided to improve their Groups
    remove it and set up the “latest                                                         to meet the genuine objective of the
    updates first” as demanded by the                                                        feature, differentiating it from User
    vast majority of users.                                                                  Pages.


  At Facebook, modifications or removals are not seen as failures: everything is constantly tested and
  modified. It is a never ending beta, with high-quality user-experience.
 Source: Facebook Blog
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                                                                                                           faberNovel 2012 ••• 25
•••
  Facebook’s main asset is the map generated by users data : the Social Graph
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




         Women


           Men




    The Social Graph is in fact the digital map of real-life connections and interactions between users.

    Facebook stores more than 100 Petabytes of user data. That’s 2x the size of the entire written works of
    mankind (from the beginning of recorded history, in all languages).

    In order to enrich this database, Facebook opened its Social Graph to third-party developers and app
    editors.


 Source: Facebook S-1
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                                                                                                           faberNovel 2012 ••• 26
•••
   Facebook opened its data to third-party developers with an API: Open Graph
  …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
  	
  


                              Open Graph
                              Open Graph is an API provided by Facebook. With users’ authorization, third-party
                              developers can access users’ data or publish new data on user profiles.

                              What’s an API? It is an Application Programming Interface, basically it is an interface through which software
                              components communicate with each other.




                               Access                                                               Publish & Access
                              Access user’s data                                                    Publish rich actions and objects
                              with Facebook Connect                                                 in users’ timelines with Open
                                                                                                    Graph 2.0


                                                                                                      Now, users can like but also:
                                                                                                      listen, watch, read, cook…
      Publish
                                                          Publish
      Include links into
      status updates                                      Publish likes in users’ timelines
                                                          with Open Graph 1.0




                                  2008                         2010                                       2012
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                                                                                                           faberNovel 2012 ••• 27
•••
   Analyzing this graph with algorithms creates the Edge Rank
  …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
  	
  

   The Edge Rank is a score given to a piece of content for every user, depending on its interests.
   Whether a particular content will be displayed or not in the News Feed of a user will depend on its Edge Rank.



                                           Friend 1                   The Edge            It doesn’t
                                           doesn’t like               Rank of the         appear on
                                                                      post is low         his News
                                                                      for Friend 1        Feed




  User A
  posts
  something
  about
  on his Timeline                                                   The Edge              It appears
                                            Friend 2
                                            likes                   Rank of the           on his
                                                                    post is high          News Feed
                                                                    for Friend 2



   It is an major improvement of the News Feed, increasing content relevancy for each user.
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 28
•••
   Before going further, let’s review some key Facebook concepts
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




    News Feed                                     Timeline                                       Social Graph
    It’s the user’s Facebook                      It’s the profile page of every                 I t ’s t h e u s e r s ’ d a t a
    home page which                               user. It displays a timeline                   accumulated by
    displays the user ’s                          o n w h i c h a r e                            Facebook on its
    network activity: status                      chronologically placed the                     platform. It can be
    updates, photos                               main events of his social                      visualized as a social
    uploaded, links shared…                       life.                                          map if each element is
                                                                                                 put into its context.




    Open Graph                                    Edge Rank
    It’s Facebook’s API that                      It’s the relevancy coefficient
    enables any third-party                       calculated on content shared
    developer to connect to                       on Facebook’s platform. This
    Facebook’s database and                       relevancy is calculated for
    access the Social Graph                       each piece of content
    (with Authorization) to read                  relatively to every user.
    it and/or write new data.

…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 29
•••

    2.  Business Model exploration
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 30
•••
   Facebook’s key figures
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                                       million users                   users connecting every day



                                               million                          million
                                               Pages                            apps



                                                                   in revenues in 2011
                                               [Over $4 per user per year]
                                  In 2009, Facebook was profitable for the first time.
                                            In 2011 it generated $1b profit !
                                                     [$1 per user per year]
 Source: Facebook S-1, May 2012
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 31
•••
   Facebook’s actual business model is mainly advertising
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



                                                                             In 2011 it generated

                                                                                                     billion
                                                                                                     in revenue,
                                                                                                     for $1b       profit!

                                                                                                      billion
                                                                                                      Advertising
                                                                                                      +17% of average
                                                                                                       growth per quarter.


                                                                                                       million Sale
                                                                                                       of Facebook
                                                                                                       Credits
                                                                                                       +89% of average
                                                                                                       growth per quarter.


 Source: Facebook S-1, May 2012
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 32
•••
   An advertising-based business model inspired by Google’s
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                                                          Google implements CPC
                                                             Google revenues
                                                             increase x7 from
                                                             2002 to 2004


    CPM advertising era                                      Performance based advertising business
    Inherited from Print, TV & Radio advertising             models are born
                                                                                                2008
                                                      2002

                                                                              Performance based advertising market
                                                                                 gets larger than CPM advertising




  CPM: Cost-per-Mille                                                 CPC: Cost-per-Click
    The Advertiser buys space to the Media Sales                    The Advertiser negotiates the price of one click-
    Agency for a thousand prints of the ad.                         through on its ad with the Media Sales service of
                                                                    the platform.

    This is usually display advertising.                            This is performance advertising.

 Source: Google
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 33
•••
   How Facebook tried to replicate Google’s formula… to find out it wasn’t working
   for them
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  


                                           Facebook tried to replicate Google’s high-value proposition: large
                                           traffic, targeting and performance driven by search context, and
                                           tools for advertisers.

                                                   Facebook offered two types of advertising: CPM and CPC.
                                                   Both were placed on the same spot on the right bank of the page.




      Traffic:                         Performance:                       Targeting:                      Tools:
      Facebook is the most             Facebook enhances                  Facebook uses the               Facebook sets up its
      time-consuming                   action by introducing              data provided by                own advertising
      website with 8h18                rich ads, with a Title,            users. It supposedly            platform with all the
      per user per month,              Picture, and Text.                 provides a 90%                  targeting options.
      and 1 trillion PV.                                                  accuracy.


  The average click-through rate in 2010 proved Facebook’s advertising weakness :

           Google                       Traditional banner advertising                                 Facebook
 Source: WordStream, 2010
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 34
•••
   And yet, Facebook has generated a lot of money out of its advertising
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  

    Revenue from advertising:

         Q4 2011
                                                                  With the average user spending 8
                                                                  hours and 18 minutes a month on
                                                                  Facebook, there is potential for much,
     million $                 increase YoY
                                                                  much more.

     Revenue per minute of user activity (Q4 2011)




 Source: Facebook S-1, May 2012; Estimates Fabernovel
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 35
•••
   So Facebook decided to do what it is best at
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                                                      Facebook
                                                        invents
                                                      SOCIAL
                                                      advertising

                                        And extends its platform philosophy
                                           to its monetization strategy.

                             It is neither an epiphany nor a direct strategy:
                                        it has been implemented
                              Facebook-style, through small iterations.


                                                       Let’s see how.
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 36
•••
   A critical notion to understand: Facebook is not a social network…
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                      The network is how each person is related to another.
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 37
•••
   … it is a social media
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




      Facebook is also a digital content exchange platform of our social network.
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 38
•••
   A simple feature led to a whole new social thinking strategy
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




                            In 2009, Facebook introduced the “Like” action
                            The “Like” feature generated so much traction that Facebook
                            was eager to implement it everywhere.




…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 39
•••
   Applied to brands, the like button developed the social graph even further
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 40
•••
   Applied to third-party content, it improved social discovery
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




   In one-click on any type of content, users could recommend the content they
   stumbled upon to their friends. With this feature, Facebook deeply evolved:



                News about user’s                                                   Content sharing
                social network                                                      (articles, videos,…)

…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 41
•••
   Facebook’s Like had become a real economy
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



   In 2011…           More than                        There were                                   Average Like User

                                                                                                     years old


                      million websites                 million
                                                                                                     average amount of friends
                      had integrated the              “likes” a day
                      Like button
                                                                                                     more clicks on external links



     A few examples:




                           On Gawker.com                               On NHL.com                             On NBA.com
                         Facebook integration                      Facebook visitors are                     Facebook was #2
                       increased traffic by 200%                 reading 92% more articles                   referral source.
 Source: Facebook, 2011
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 42
•••
   Focus on: the Viral Loop
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




   *139 is the average size of Facebook users’ networks, Source: Facebook S-1
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 43
•••
   Facebook decided to look for new interactions that could strengthen and qualify
   this relationship with brands
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  




…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 44
•••
   With its new version of Open Graph, Facebook is able to qualify the actions of its
   users more precisely
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  

                                                                        2012




       Facebook now has a granular view of how its users are related to brands, products, services…


       Case Study: Spotify

       Spotify was one of the first to set the example, at f8                                Example:
       conference* in 2011.
       How did it use the new Open Graph features?
       User’s activity on Spotify is recorded and published on
       Facebook. The action is defined as “listening” and both the song
       and the artist are identified.

 * The f8 conference is the annual meeting of Facebook developers, similar to Apple’s WWDC
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 45
•••
   How powerful is this relationship exactly? We asked Dailymotion
   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...	
  
   	
  



                                                          Dailymotion is YouTube’s main competitor. They saw
                                                          the potential of Open Graph at the f8 Conference in
                                                          September 2011.


    After f8, technical teams at Dailymotion were granted a direct access to Facebook Tech Support in order to
    integrate Open Graph publications on their service.




                                                    +10% in 4 months
                                                    with Open Graph
                   million                                                                   million
           video views per day                                                       video views per day


    Though beneficial for Dailymotion, they didn’t                          Dailymotion worked with Facebook to improve
    really enjoy it at first: many users complained                         the user experience: implementing Privacy
    that it was too invasive and spammed their                              buttons (turn off Open Graph publications) on
    News Feed.                                                              their video, and aggregating the publications
                                                                            on Facebook’s walls to avoid spam.


 Source: Dailymotion
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
…………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..	
  
                                                                                                           faberNovel 2012 ••• 46
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup
Facebook, The Perfect Startup

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Facebook, The Perfect Startup

  • 1. the Perfect Startup Five keys to their unprecedented success LOGO .   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 1
  • 2. ••• A quick word from Stéphane Distinguin ( CEO – faberNovel ) …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     It is not about the IPO the entire world is We all know Facebook. commenting on: an IPO is certainly not an We all know Mark Zuckerberg. end, but a point on a startup trajectory. These are the names. It’s all about perfection. Up to now, Facebook has been the perfect startup, not because it has We all know the figures, succeeded in everything, but because its has built they are mind-blowing: more than itself step by step, in a very pragmatic way. There is no miracle here: it is just a startup that has had an 900 million members for a current almost perfect stance towards every challenge it has valuation of over 100 billion dollars. faced to date, and has built the most fascinating innovation platform. At first sight, we all knew Facebook Perfection is rarely encountered and even harder to would be the biggest start up "after analyze… At faberNovel, as we do every year, and Google", Mark Zuckerberg, the Social after Google, Apple and Amazon, we wanted to Network hero, a juvenile CEO signing highlight what could be the formula behind Facebook's roaring success. Is there a formula for perfection? We autographs and striking the pose like would like to share our discoveries, our dissection of one of the biggest rock stars of his this marvel just to make it more useful for all of you. I generation. am not sure perfection will be achievable for all of us, but it certainly is our best source of inspiration. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 2
  • 3. ••• This work was made for you to share, reuse, remix, rework… …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     It is licensed under the Creative Commons BY-NC-SA license to allow for further contributions by experts and users in the coming months. You are free to share and remix/adapt the work. You must cite this document: faberNovel, Facebook: The Perfect Startup, May 2012. You may not use this work for commercial purposes. You may distribute a modified work under the same or similar license. Why do we release this kind of work for free? Our job is to help big organizations think and act like startups. And we believe that this cannot be achieved without causing people to want to innovate and explore new business models. Our ambition is to inspire you by giving you the keys to understand new markets like Russia or successful companies like Apple, Amazon… or Facebook. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 3
  • 4. ••• Facebook is quite a big 8 year old … …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     billion Likes & Comments per day million Photos uploaded per day million user accounts 12.8% global market share! Average Time spent by users in a month Source: Facebook S-1, May 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 4
  • 5. ••• … with many characteristics of a giant . …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Instagram Snaptu Friendfeed $1 billion $65 million $47.5million (2012) (2011) (2009) The largest tech IPO in history $16 billion raised on the day of the IPO Which ranks its CEO among the TOP10 World’s Billionaires Source: Based on information disclosed by Facebook, May 2012; Facebook’s IPO commented by Bloomberg …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 5
  • 6. ••• Altough still a small company, relative to other tech giants …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Facebook’s Page Views = 10x Youtube’s but… Facebook’s Revenues = 10% Google’s 1 trillion $37b 100 billion $3.7b 26 years ld average Facebook employee age Source: Facebook, Google, Adplanner June 2011 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 6
  • 7. ••• Its meteoric growth results in a remarkably high valuation per employee …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     3500 employees $30 million valuation per employee Obviously, they must be doing something right Estimates: Fabernovel, based on a $100b valuation; Number of employees: Facebook, May 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 7
  • 8. We believe that Facebook’s amazing performance was driven by excellency in business management. Facebook is remarkable not so much in its product or usage, but in the way they built themselves as a company, from inception to maturity. What’s Facebook story? …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 8
  • 9. ••• Facebook isn’t the first social network in history …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     •  Created as an embryonic •  Probably the first genuine •  A reaction to Friendster social community. social network •  Chose an absolute freedom •  Bought by Yahoo in 1999 •  Faced technical difficulties policy for $3.57 billion. from 2004 to 2006 •  Huge success among artists •  Yahoo turned the service •  Lacked activity & content and celebrities into free web hosting in for the users •  Too much freedom attempts to monetize it. •  Chose a restrictive policy deteriorated the quality of •  Having lost the social (e.g. no pseudonym) the website element, the service •  Refused a $30 million •  Lacked activity for the users closed in 2009. buyout offer from Google •  Acquired by News Corp. for •  Acquired in 2009 for $26 $580 million in 2005 million after its reboot •  Sold for $35 million in 2011 to Specific Media These three social networks were short-lived leaders. Why would Facebook be different? …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 9
  • 10. ••• Facebook managed to survive 3 classical challenges …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Focus Technology Policy Facebook always kept the Facebook only experienced 3 Facebook has learned from the social feature at the center of severe outages: mistakes of its predecessors, the user-experience: •  The most severe outage keeping a balance between “Facebook’s mission is to Facebook faced was in 2010 freedom and control: make the world more open for 2.5 hours •  Allowing users to modify the and connected.” •  They experienced a few content difficulties later in 2010, •  Preventing users from Facebook stayed focused on unveiling new pages modifying the interface the “big idea”. •  In early 2012, some •  Allowing brands and artists Facebook’s European users to create special pages could not connect to the platform for a few hours …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 10
  • 11. ••• It has done so with a perfect scaling strategy …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Test Growth Consolidation College Networks Gradual opening to the world Self-sustaining community •  Low-scale •  Word-of-mouth extension (through •  Improvement of existing features •  High-density invitations) •  New features to maintain engagement •  High need to connect •  New features that drive engagement Build the platform Scale the platform Maintain the platform 2004-2006 2007-2010 Nowadays Source: Quora, “What are some decisions taken by the Growth team at Facebook […]?”, answered by Andy Johns …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 11
  • 12. ••• 2006 breakthrough: The News Feed – Your friends ticker tape …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     With the News Feed launched in 2006, Facebook managed to automate relevant content creation… from friends’ activity. The News Feed aggregates the user’s friends activity: status updates, photos uploads, comments… The more friends, the more content to explore. As every webmarketer knows: fresh content is key to generate stickiness. Facebook’s News Feed concept goes even further: providing user-centric content from his network, hence tastes and interests. News Feed gave a considerable competitive advantage to Facebook in its battle against MySpace, because it provides permanent user-centric content renewal. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 12
  • 13. ••• Facebook motto : “Product First”, but with business sense …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Mark Zuckerberg "Facebook was not originally created to be a company. It was built to accomplish a social mission - to make the world more open and connected" But Zuckerberg quickly understood that business perspective benefits the overall management: •  Straightforward and quantifiable objectives •  Money can assemble the best team of developers In order to enforce these objectives, he hired Sheryl Sandberg as COO in 2008. Zuckerberg met Sandberg in 2007, at a Christmas party, while she was still Vice President of Online Sales and Operations at Google. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 13
  • 14. ••• With 56.6% of voting rights, M. Zuckerberg can keep the shareholders at bay …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Here’s an enlightening extract from Facebook S-1: “Our CEO has control over key decision making as a result of his control of a majority of our voting stock. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares,[…], in his own interests, which may not always be in the interests of our stockholders generally. “ Source: Facebook S-1 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 14
  • 15. ••• Zuckerberg even refused several opportunities to sell out …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     “I admire Mark Zuckerberg for not selling out, for wanting to make a company. I admire that a lot.” Steve Jobs (1955-2011) Revenue $3.7 billion $300 million invested by DST Global $15 billion to postpone IPO acquisition offer $10 million by Microsoft acquisition offer by Friendster $1.6 billion acquisition offer by Yahoo Revenue Revenue $777 million $382,000 Source: Steve Jobs quoted in Walter Isaacson biography; acquisitions offers reported by TechCrunch …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 15
  • 16. ••• To sum up, Facebook managed to tackle one of the most common tensions in any startup: Product vs. Business …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Product Business vs. Many startups struggle or fail when they find themselves prioritizing one over the second. Facebook seems to have passed this test quite brilliantly. What is fascinating with Facebook ? The way it deals with most startup challenges. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 16
  • 17. ••• Facebook’s excellency lies in managing classical startup challenges …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Technology & User Experience Business model exploration Business & Ecosystem Disruption Long term vision …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 17
  • 18. ••• 1.  Technology & User Experience …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 18
  • 19. ••• Facebook’s platform is both a best practice in user-centric design… …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Customizable appearance thanks to new Cover Picture Timeline featuring the user’s story, with milestones and events. Engaging content thanks to smart display Facebook New Timeline, released in 2011, replaced “The Wall” …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 19
  • 20. ••• … and technical wizardry …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Visual aggregation of numerous sources of content Third-party apps integration Action links to out-of-platform apps and software …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 20
  • 21. ••• The result let people and brands tell their story in a way that is engaging and new …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 21
  • 22. ••• Facebook accomplishes all of this at a breakneck, startup pace …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     A new version of Facebook million is released every Tuesday to users! = 12,000 modifications per month More than 1,000 developers deliver code to be released each week, most of the time small iterations… sometimes completely new features. Facebook manages to do this with a few simple rules: #1 #2 #3 Developers are “Move Fast and individually responsible “Mark is always right” Break Things” for the code they write. Source: Arstechnica.com, A behind-the-scenes look at Facebook release engineering, April 2012; Facebook Developer Garage, Paris, April 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 22
  • 23. ••• The key to Facebook’s agility: its testing process …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Facebook teams’ tools prove there’s no need to be sophisticated to be efficient. They work with hacker tools, such as: IRC chat (a geek instant messaging system) and P2P file- sharing technology (basically content piracy tools) to release Facebook each week! Source: Arstechnica.com, A behind-the-scenes look at Facebook release engineering, April 2012; Facebook Developer Garage, Paris, April 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 23
  • 24. ••• Acting like a startup is not just a question of process: it’s a question of culture …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Two atypical leaders…. Mark Zuckerberg, CEO Sheryl Sandberg, COO The Genius who hacked into Named in the top 100 most Harvard’s security network to influential people in the world, create the first version of and still leaving work at 5:30 Facebook at only 20. everyday to pick-up her children at school. … managing an army of highly-talented youngsters Avada Kedavra, Expecto Facebook average Patronum, Alohomora employee is 26 years-old Names of Facebook’ HQ meeting By comparison, IBM’s average rooms, inspired by Harry Potter magic employee is 44 year old… spells Source: Mashable …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 24
  • 25. ••• When it comes to new features, Facebook takes a pragmatic approach …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Customer feedback Fail fast, fail often Constant improvement New News Feed Deals Groups In 2011, Facebook introduced a new With Facebook Deals, the engineering Through analytics, Facebook News Feed which presented “Top team faced a lack of traction: the discovered that Groups were Stories” first. Despite the business product wasn’t used enough to justify it cannibalizing a large portion of opportunity offered by this new to continue. They simply shut the their new Pages. feature, Zuckerberg decided to service down. They decided to improve their Groups remove it and set up the “latest to meet the genuine objective of the updates first” as demanded by the feature, differentiating it from User vast majority of users. Pages. At Facebook, modifications or removals are not seen as failures: everything is constantly tested and modified. It is a never ending beta, with high-quality user-experience. Source: Facebook Blog …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 25
  • 26. ••• Facebook’s main asset is the map generated by users data : the Social Graph …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Women Men The Social Graph is in fact the digital map of real-life connections and interactions between users. Facebook stores more than 100 Petabytes of user data. That’s 2x the size of the entire written works of mankind (from the beginning of recorded history, in all languages). In order to enrich this database, Facebook opened its Social Graph to third-party developers and app editors. Source: Facebook S-1 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 26
  • 27. ••• Facebook opened its data to third-party developers with an API: Open Graph …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Open Graph Open Graph is an API provided by Facebook. With users’ authorization, third-party developers can access users’ data or publish new data on user profiles. What’s an API? It is an Application Programming Interface, basically it is an interface through which software components communicate with each other. Access Publish & Access Access user’s data Publish rich actions and objects with Facebook Connect in users’ timelines with Open Graph 2.0 Now, users can like but also: listen, watch, read, cook… Publish Publish Include links into status updates Publish likes in users’ timelines with Open Graph 1.0 2008 2010 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 27
  • 28. ••• Analyzing this graph with algorithms creates the Edge Rank …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     The Edge Rank is a score given to a piece of content for every user, depending on its interests. Whether a particular content will be displayed or not in the News Feed of a user will depend on its Edge Rank. Friend 1 The Edge It doesn’t doesn’t like Rank of the appear on post is low his News for Friend 1 Feed User A posts something about on his Timeline The Edge It appears Friend 2 likes Rank of the on his post is high News Feed for Friend 2 It is an major improvement of the News Feed, increasing content relevancy for each user. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 28
  • 29. ••• Before going further, let’s review some key Facebook concepts …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     News Feed Timeline Social Graph It’s the user’s Facebook It’s the profile page of every I t ’s t h e u s e r s ’ d a t a home page which user. It displays a timeline accumulated by displays the user ’s o n w h i c h a r e Facebook on its network activity: status chronologically placed the platform. It can be updates, photos main events of his social visualized as a social uploaded, links shared… life. map if each element is put into its context. Open Graph Edge Rank It’s Facebook’s API that It’s the relevancy coefficient enables any third-party calculated on content shared developer to connect to on Facebook’s platform. This Facebook’s database and relevancy is calculated for access the Social Graph each piece of content (with Authorization) to read relatively to every user. it and/or write new data. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 29
  • 30. ••• 2.  Business Model exploration …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 30
  • 31. ••• Facebook’s key figures …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     million users users connecting every day million million Pages apps in revenues in 2011 [Over $4 per user per year] In 2009, Facebook was profitable for the first time. In 2011 it generated $1b profit ! [$1 per user per year] Source: Facebook S-1, May 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 31
  • 32. ••• Facebook’s actual business model is mainly advertising …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     In 2011 it generated billion in revenue, for $1b profit! billion Advertising +17% of average growth per quarter. million Sale of Facebook Credits +89% of average growth per quarter. Source: Facebook S-1, May 2012 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 32
  • 33. ••• An advertising-based business model inspired by Google’s …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Google implements CPC Google revenues increase x7 from 2002 to 2004 CPM advertising era Performance based advertising business Inherited from Print, TV & Radio advertising models are born 2008 2002 Performance based advertising market gets larger than CPM advertising CPM: Cost-per-Mille CPC: Cost-per-Click The Advertiser buys space to the Media Sales The Advertiser negotiates the price of one click- Agency for a thousand prints of the ad. through on its ad with the Media Sales service of the platform. This is usually display advertising. This is performance advertising. Source: Google …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 33
  • 34. ••• How Facebook tried to replicate Google’s formula… to find out it wasn’t working for them …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Facebook tried to replicate Google’s high-value proposition: large traffic, targeting and performance driven by search context, and tools for advertisers. Facebook offered two types of advertising: CPM and CPC. Both were placed on the same spot on the right bank of the page. Traffic: Performance: Targeting: Tools: Facebook is the most Facebook enhances Facebook uses the Facebook sets up its time-consuming action by introducing data provided by own advertising website with 8h18 rich ads, with a Title, users. It supposedly platform with all the per user per month, Picture, and Text. provides a 90% targeting options. and 1 trillion PV. accuracy. The average click-through rate in 2010 proved Facebook’s advertising weakness : Google Traditional banner advertising Facebook Source: WordStream, 2010 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 34
  • 35. ••• And yet, Facebook has generated a lot of money out of its advertising …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Revenue from advertising: Q4 2011 With the average user spending 8 hours and 18 minutes a month on Facebook, there is potential for much, million $ increase YoY much more. Revenue per minute of user activity (Q4 2011) Source: Facebook S-1, May 2012; Estimates Fabernovel …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 35
  • 36. ••• So Facebook decided to do what it is best at …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Facebook invents SOCIAL advertising And extends its platform philosophy to its monetization strategy. It is neither an epiphany nor a direct strategy: it has been implemented Facebook-style, through small iterations. Let’s see how. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 36
  • 37. ••• A critical notion to understand: Facebook is not a social network… …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     The network is how each person is related to another. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 37
  • 38. ••• … it is a social media …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Facebook is also a digital content exchange platform of our social network. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 38
  • 39. ••• A simple feature led to a whole new social thinking strategy …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     In 2009, Facebook introduced the “Like” action The “Like” feature generated so much traction that Facebook was eager to implement it everywhere. …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 39
  • 40. ••• Applied to brands, the like button developed the social graph even further …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 40
  • 41. ••• Applied to third-party content, it improved social discovery …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     In one-click on any type of content, users could recommend the content they stumbled upon to their friends. With this feature, Facebook deeply evolved: News about user’s Content sharing social network (articles, videos,…) …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 41
  • 42. ••• Facebook’s Like had become a real economy …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     In 2011… More than There were Average Like User years old million websites million average amount of friends had integrated the “likes” a day Like button more clicks on external links A few examples: On Gawker.com On NHL.com On NBA.com Facebook integration Facebook visitors are Facebook was #2 increased traffic by 200% reading 92% more articles referral source. Source: Facebook, 2011 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 42
  • 43. ••• Focus on: the Viral Loop …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     *139 is the average size of Facebook users’ networks, Source: Facebook S-1 …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 43
  • 44. ••• Facebook decided to look for new interactions that could strengthen and qualify this relationship with brands …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 44
  • 45. ••• With its new version of Open Graph, Facebook is able to qualify the actions of its users more precisely …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     2012 Facebook now has a granular view of how its users are related to brands, products, services… Case Study: Spotify Spotify was one of the first to set the example, at f8 Example: conference* in 2011. How did it use the new Open Graph features? User’s activity on Spotify is recorded and published on Facebook. The action is defined as “listening” and both the song and the artist are identified. * The f8 conference is the annual meeting of Facebook developers, similar to Apple’s WWDC …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 45
  • 46. ••• How powerful is this relationship exactly? We asked Dailymotion …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...     Dailymotion is YouTube’s main competitor. They saw the potential of Open Graph at the f8 Conference in September 2011. After f8, technical teams at Dailymotion were granted a direct access to Facebook Tech Support in order to integrate Open Graph publications on their service. +10% in 4 months with Open Graph million million video views per day video views per day Though beneficial for Dailymotion, they didn’t Dailymotion worked with Facebook to improve really enjoy it at first: many users complained the user experience: implementing Privacy that it was too invasive and spammed their buttons (turn off Open Graph publications) on News Feed. their video, and aggregating the publications on Facebook’s walls to avoid spam. Source: Dailymotion …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..   faberNovel 2012 ••• 46