41126-piy-ch07-01.pdf_18891 - CHAPTER 7 Facebook: Building...

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CHAPTER 7 Facebook: Building a Business from the Social Graph 1. INTRODUCTION LEARNING OBJECTIVES 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 [1] ) 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.” [2] An early business card read “I’m CEO . . . Bitch.” [3] 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. [4] By the age of 23, Mark Zuckerberg had graced the cover of Newsweek , been profiled on 60 Minutes , 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. [5] 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.).
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This note was uploaded on 02/02/2012 for the course BMGT 301 taught by Professor Wang during the Spring '08 term at Maryland.

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41126-piy-ch07-01.pdf_18891 - CHAPTER 7 Facebook: Building...

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