Facebook: Building a
Business from the Social
After studying this section you should:
1. Be familiar with Facebook’s origins and rapid rise.
2. Understand how Facebook’s rapid rise has impacted the ﬁrm’s ability to raise venture funding
and its founder’s ability to maintain a controlling interest in the ﬁrm.
Here’s how much of a Web 2.0 guy Mark Zuckerberg is: during the weeks he spent working on Face-
book as a Harvard sophomore, he didn’t have time to study for a course he was taking, “Art in the
Time of Augustus,” so he built a website containing all of the artwork in class and pinged his classmates
to contribute to a communal study guide. Within hours, the wisdom of crowds produced a sort of cus-
tom Cliﬀ Notes for the course, and after reviewing the web based crib sheet, he aced the test. Turns out
he didn’t need to take that exam, anyway. Zuck (that’s what the cool kids call him
) dropped out of
Harvard later that year.
Zuckerberg is known as both a shy, geeky, introvert who eschews parties, as well as for his brash
Silicon Valley bad-boy image. After Facebook’s incorporation, Zuckerberg’s job description was listed
as “Founder, Master and Commander [and] Enemy of the State.”
An early business card read “I’m
. . Bitch.”
And let’s not forget that Facebook came out of drunken experiments in his dorm
room, one of which was initially to have compared classmates to farm animals (Zuckerberg, threatened
with expulsion, later apologized). For one meeting with Sequoia Capital, the venerable Menlo Park
venture capital ﬁrm that backed Google and YouTube, Zuckerberg showed up in his pajamas.
By the age of 23, Mark Zuckerberg had graced the cover of
, been proﬁled on
and was discussed in the tech world with a reverence previously reserved only for Steve Jobs and the
Google guys, Sergey Brin and Larry Page. But Mark Zuckerberg’s star rose much faster than any of
these predecessors. Just two weeks after Facebook launched, the ﬁrm had 4,000 users. Ten months later
it was up to 1 million. The growth continued, and the business world took notice. In 2006 Viacom
(parent of MTV) saw that its core demographic was spending a ton of time on Facebook and oﬀered to
buy the ﬁrm for three quarters of a billion dollars. Zuckerberg passed.
Yahoo oﬀered up a cool $1
billion (twice). Zuck passed again, both times.
As growth skyrocketed. Facebook built on its stranglehold of the college market (85 percent of four
year college students are Facebook members), opening up ﬁrst to high schoolers, then to everyone.
Web hipsters started selling shirts emblazoned with “I Facebooked your Mom!” Even Microsoft wanted
some of Facebook’s magic. In 2006, the ﬁrm locked up the right to broker all banner ad sales that run
on the U.S. version of Facebook, guaranteeing Zuckerberg’s ﬁrm $100 million a year through 2011. In
2007, Microsoft came back, buying 1.6 percent of the ﬁrm for $240 million, and securing the rights to
sell banner ads on all Facebook sites worldwide (70 percent of Facebook users are outside the U.S.).