Facebook IPO Analysis
Facebook, Inc:
The Initial Public Offering
1. How does Facebook make money? What are the value drivers of its business? What is its comparative advantage relative to other social networking companies?
(1) Facebook makes money from the following three main fields
First is the advertising. According to the case, we know that the major revenue of Facebook is advertising, which took up 98 percent in 2009, 95 percent in 2010 and 85 percent in 2011. Facebook uses all information uploaded by users to become the property of the firm. By analyzing database, Facebook provides advertisers target customized services and products based on users’ preferences and connections. In its view, the advertising which based on social context could be better received by consumers.
Second is the sale of virtual goods. The majority of Facebook’s payment business comes from the sale of virtual goods, which was sold to the online gaming company as social games. According to the data we can see that the revenue of virtual goods sale is increasing enormously.
Third is about geography. According to the case we know that about 56 percent of Facebook’s 2011 revenues came from the United States.
(2) The value driver of Facebook is everything that can be added to the service in order to increase the value to users. As a company, Facebook’s own products and services can be divided into two aspects, social network service for common users and directional advertising platform for advertising companies. The first aspect, for common user, the value driver of Facebook is excellent user experience. Specifically, the simple and clean user interface (UI) can be widely accepted and Facebook has powerful server to guarantee the rapid website response. The second aspect, for Advertising Company, the core value driver of Facebook is “social context”, the feature that advertisers could directionally deliver advertisements based on the big data that Facebook collected from every user’s
The Initial Public Offering
1. How does Facebook make money? What are the value drivers of its business? What is its comparative advantage relative to other social networking companies?
(1) Facebook makes money from the following three main fields
First is the advertising. According to the case, we know that the major revenue of Facebook is advertising, which took up 98 percent in 2009, 95 percent in 2010 and 85 percent in 2011. Facebook uses all information uploaded by users to become the property of the firm. By analyzing database, Facebook provides advertisers target customized services and products based on users’ preferences and connections. In its view, the advertising which based on social context could be better received by consumers.
Second is the sale of virtual goods. The majority of Facebook’s payment business comes from the sale of virtual goods, which was sold to the online gaming company as social games. According to the data we can see that the revenue of virtual goods sale is increasing enormously.
Third is about geography. According to the case we know that about 56 percent of Facebook’s 2011 revenues came from the United States.
(2) The value driver of Facebook is everything that can be added to the service in order to increase the value to users. As a company, Facebook’s own products and services can be divided into two aspects, social network service for common users and directional advertising platform for advertising companies. The first aspect, for common user, the value driver of Facebook is excellent user experience. Specifically, the simple and clean user interface (UI) can be widely accepted and Facebook has powerful server to guarantee the rapid website response. The second aspect, for Advertising Company, the core value driver of Facebook is “social context”, the feature that advertisers could directionally deliver advertisements based on the big data that Facebook collected from every user’s