Facebook - Strategy Analysis (2004 - 2011)

Presenter: Vishal

Table of Contents

Growth & Revenue Split

Insights, Footprint

Evolution - Social Networks

Platforms & Emerging Networks

Threat to Telco's

Facebook Success vs Myspace Failure

Enterprise Play

Facebook vs Google vs Telco

Horizontal Play – Skype Acquisition

Social Web

Source: The Social Practice - 2011

Perceptual Map

Low High

Lo

w

Ability to Share

Wil

lin

gn

ess

to S

har

e

Hig

h

Web

Social Web

Social Networks

Source: HBR Facebook Platform 2010

97 Six

Degrees.com

Evolution

2000 MiGente

Six Degree Closes

2006 Windows Live,

Twitter, Mychurch

2001 Cyworld,

Ryze

2003 Linkedin, Myspace,

Last.fm, Hi5

99 Live Journal, Blackplanet

2002 Friendster,

Skyblog

2004 Flickr, Piczo, Mixi,

Facebook, Hyes, Orkut

2005 Youtube, Xanga, Bebo, Ning,

Yahoo!360

Social Networks Perceptual Map

Low High

Lo

w

Personal

Pro

fess

ion

al

Hig

h

Linkedin

Facebook

Twitter

Low High

Lo

w

Personal Updates

Kn

ow

led

ge

Up

dat

es

Hig

h

Linkedin

Facebook

Twitter

Facebook Insights

• Founded in 2004

• 2000 Employees

• Market Value - $60B to $70B

• 600 M users (3rd Largest Country)

• 200 M users access via Mobile

• 29 visits/month/user

• 55 minutes/day

• 55% Female Users (US)

• Average Age – 28.2 years

• 2nd Preferred way of sharing content

Ownership Pie

Microsoft – 1.6%

Source: Wikipedia, Reface.me – Who Owns Facebook, ExactTarget, Fans & Followers Report

Why Facebook

• Friends 63%

• Keep in Touch 59%

• Social Life 37%

• Guilty Pleasure 30%

Facebook Virtual Place & Growth

663

636

600

480

330

203

200

176.5

135

120

117

113

100

0 500 1000

Skype

Tencent QQ

Facebook

Qzone

Windows Mgr

Habbo

Twitter

Gmail

Vkontakte

Orkut

Bebo

Badoo

Sina Weibo

Active A/Cs (in Mill)

52 150

280

775

2000

0

500

1000

1500

2000

2500

2006 2007 2008 2009 2010

Revenue (Mill)

Source: Wikipedia

Facebook Revenue Split

Source: Stlpartners, Telco2.0 – Facing up to Facebook

• Revenue is dominated by advertising & sponsorship (2009)

Paid for Virtual Goods

Brand Advertising

Microsoft Advertising

Self Service Advertising

Facebook Footprint

Source: Facebook InsideOut, 2010

Year Wall Post

Photos Likes Name Picture Gender Birthday Friends Contact

Info Networks

Other Data

Email & Chat

2005

2011

High Medium Legend Low

Platforms Social, Mobile, Search

Source: TOP MOBILE INTERNET TRENDS , KPCB, 2011

Facebook 622 M Users + 41% Y/Y

550 K Apps

500 M Downloads

iPhone/iPad/iTouch 130 M Users + 103% Y/Y

350 K Apps

10 B+ Downloads

Google 972 M Users

+ 8% Y/Y

Paid Clicks +18 Y/Y

Platforms APIs – Billion Club

Source: Open APIs -State of the Market, 2011, Glue Conference

5 billion API calls / day (April 2010)

1.6 billion API-delivered stories / month (October 2010)

5 billion API calls / day (October 2009)

8 billion API calls / month (Q3 2009)

3 billion API calls / month (March 2009)

13 billion API calls / day (May 2011)

Over 260 billion objects stored in S3 (January 2011)

10 billion API calls / month (January 2011)

2 Sided Market

• Value moves in both direction from Left to Right and Right to Left

• Marginal Revenue and Profit contribution is always increasing as user base grows, Network effect leads

to infinite economies of scale (for information goods only)

Customers Customers

Revenue

Source: Strategies for 2 Sided Markets, Thomas Eisenmann, HBR

PLATFORM

Revenue

Upstream Downstream Value Chain

Overview

Co

st

Co

st

Integration & Distribution

Facebook Platform

Source: Facebook.com

Emerging Networks Information, Gaming, Commerce

Source: TOP MOBILE INTERNET TRENDS , KPCB, 2011

Twitter 253 M Users + 85% Y/Y

Zynga (Farmville on FB)

130 M Active Users

+15% Y/Y

Groupon 51 M subscribers

+ 25x Y/Y

Facebook Commerce

Image Source: F-commerce, Leveraging Facebook to develop – Barry Sweeney,2011

Facebook Commerce

Image Source: http://www.socialmediaexaminer.com/facebook-credits/

Source: Nielsen monthly time spent November 2010, Telco2.0 – Facing up to Facebook

Facebook

• Users 600M

• Avg Time Spent (week) – 7hrs 7 mins

Google

• Avg Time Spent (week) – 1hr 16 mins

• Users – 972M

• Rev/User - $3.3 US • Rev/User - $30.2 US

• Avg Price and CTR are low

CTR – 0.1%, CPM/CPT - $0.6

• CTR – 1.5%, CPM/CPT - $2.5

• Users - Transaction Mode • Users – Communication Mode

• Fulfilling Demand • Generating Demand

Facebook Threat to Telcos

Facebook

• Social Networking (communication) as a core business service, largely asynchronous group comm.

• Subsidised (free) to the end user and funded by advertisers

• 200 M users on Mobile

Source: Google, Microsoft.com, Cisco.com, Telco2research.com, STL Partners

Telco

• Communications as core business service, largely synchronous Peer-to-Peer (P2P) communication

• Paid for by the end user

Calls

Conversations

Relationships

Communities

Tel

eph

on

y S

oci

al

Net

wo

rks

Rendezvous

Vo

lum

e

Facebook 1st 9 Years Revenue

Source: Wikipedia, Google Finance, Telco2.0 – Facing upto Facebook

Company Rev

(Mill, USD) Mkt Cap

(Mill, USD) Users

(in Mill) Rev/User

(USD) Value/User

(USD) Value/Rev

Facebook 2,000 60,000 600 3.3 100 30.3

(x6 Google)

Google 29,321 171,200 972 30.2 176.1 5.85

Vodafone 72,089 145,000 300 240.3 483.3 2.01

Facebook Horizontal Play - Skype

Skype

• Users - 663M, (only 8.8 M paid)

• Rev - $860Mill (Y/Y 20%), Ops Profit 20.8 M, Net Loss (7M)

• eBay – Bought in 2005 for 2.5B, sold 70% in 2009 for 2.75B

• Collaboration - Others (Google & Cisco )

Microsoft

• Acquired Skype 2011 – 8.5B (cash)

• Every PC to Mac, Linux, all flavors of Smart Phone (Strategic Shift)

• Xbox to Office

Company Rev

(Mill, USD) Net Profit

(Mill, USD) Users

Rev/User (USD)

Acquisition Price

Value/Rev

Skype (2011) 860M (7 M) 663M

(8.8 M paid) 1.3 8.5B 9.9

Webex (2007) 380M 47 M 2.2M (paid) 172.7 3.2B 8.4

Source: Google, Microsoft.com, Cisco.com, Telco2research.com

Myspace Failure – Old Media Model

MySpace vs Facebook

Reason

• Applied Old Media Model

• Locked in Advertisers (via Google Search) on Upstream Side, and let the Customers Create Content

(primarily blogs). Didn’t let/opened Upstream Side to other Customers

• Networks effects on Downstream side are not leveraged on Upstream side – leading deterioration in asset

and momentum shifting towards other platform (Facebook)

Only 1 Customer

(Advertisers)

Content Distribution Customers

(Subsidised)

Revenue

MYSPACE Platform

Upstream Downstream

Co

st

Source: Google, Strategies for 2 Sided Markets, Thomas Eisenmann, HBR

• Identified an opportunity with Myspace (Social Media), but couldn’t leverage it

• Turned out to be a losing bet, in discussions to sell for $100M

Facebook Success – New Media Model

MySpace vs Facebook

Reason

• Applied New Media Model in a 2 a Sided Market

• Opened Platform for various Upstream Customers – Hosted Content from various players, Ads, 3rd

Party Application Developers

• Opened Platform for various Downstream Customers – Market Research Companies

• Networks effects on Downstream side are leveraged on Upstream side – built mass and momentum

Various Customers

Content Distribution

Customers

Paid Data Research

Revenue

FACEBOOK Platform

Upstream Downstream

Co

st

Revenue

Revenue

Co

st

Source: Google, Strategies for 2 Sided Markets, Thomas Eisenmann, HBR

Competitive Growth Internet Companies – Information Goods

Source: http://blogs.wsj.com/venturecapital/2011/02/26/facebook-groupon-zynga-off-the-chart-revenue/

• No Diseconomies of Scale

Enterprise Play Social Stack - Top Down

Social Networks (Facebook, Twitter, Foursquare, Linkedin)

Monitoring & Analytics (Brand Monitoring, Insights)

Aggregation (Identity Brokers, Aggregators)

Publication (Apps, Management)

Social Platforms (Community, Collaboration, Blogging, Innovation, Social

Commerce )

Serv

ices In

fras

tru

ctu

re

Source: Altimeter Group, Business Stack

Summary

• Social Web has evolved and players like Facebook is driving the growth

• Facebook’s current business model is not sustainable, need to integrate horizontally, (Skype missed

opportunity)

• Digital Goods company have enormous potential to grow leveraging 2 sided model, doesn't suffer from

diseconomies of scale

• Early days in Facebook's journey, long way to go

Questions

Thank you

Source: Facebook World Map – All thingsD

World Map