caso facebook

April 15, 2015. Sheryl Sandberg, Facebook’s chief operating officer (COO) and second in command, was paging through the latest iteration of the company’s first quarter earnings report in preparation for the earnings announcement to be held a week later. She was impressed again at the strong growth, and it was not lost on her that the revenue numbers staring up at her represented incredible effort on her team’s part to not only monetize the Facebook user base, but even more so to convince Chief Executive Officer (CEO) Mark Zuckerberg that monetization of his creation was critical to the future of the company. Indeed, she recalled times when the subject of the company’s bottom line could not even be raised with the young company head without an ensuing discussion about the ideals of building the best product and user experience in connecting every person on the planet.

However, Sandberg had since set her sights on a much bigger target: dominance in the digital adver-tising space. Traditionally the realm of Google, Sandberg knew all too well how efficient the Google machine was at generating ad revenue in both the display ad and search ad space, particularly since she came to Facebook in 2008 after six years as Google’s vice president of global online sales and opera-tions. And she knew all too well what it would take to topple them from their perch as the leader in online advertising; after all, she was at the helm of Google’s AdSense and AdWords programs when it scaled from a unit of just 300 staff to one of over 4,000 employees.

Sandberg had learned hard lessons from Facebook’s sluggish response to the advent of mobility, and she suspected that Google was in the process of repeating Facebook’s mistakes and that the company’s grip on the market was slipping.

However, Google was dominant not least because it had a strong presence in both search advertis-ing and display advertising. Facebook, by contrast, had only its display ad revenue to fall back on. Yet Sandberg knew that the key to becoming the dominant player in digital advertising was not in where Facebook played, but how. The company’s meteoric growth in mobile advertising was an indication that if she could somehow sustain the results that mobile was generating, then Google would be up for the taking. . . especially if they were slow to react to the changing landscape of mobile advertising. Regaining her focus, she continued to read over the earnings report intent on looking for any possible insight as to how Facebook might further its gains in mobile advertising.

FRANK T. ROTHAERMEL

MICHAEL MCKAY

Facebook, Inc.

Professor Frank T. Rothaermel and Research Associate Michael McKay prepared this case from public sources. The authors are indebted to Professor Marne Arthaud-Day and Research Associate Seth Taylor for contributions to an earlier version of this case. This case is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the authors. © by Rothaermel and McKay, 2015.

MH00301259420477

REV: APRIL 30, 2015

For the exclusive use of F. Martin, 2016.

This document is authorized for use only by Fabiana Martin in ANALISIS DEL ENTORNO 2016-1 taught by Adriana Mart?nez Mart?nez, Universidad Nacional Autonoma de Mexico UNAM from August 2016 to January 2017.

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Facebook, Inc.

A Brief History of Facebook

While attending Harvard University in the fall of 2003, Mark Zuckerberg and some of his college buddies created an on-campus website called Facemash, which was similar to Hot or Not—a social media site that prompted users to submit photographs that were judged by other users as either “hot” or “not.” Zuckerberg’s Facemash site placed pictures of two female students next to each other and asked fellow students to choose the more attractive person. To collect student images, Zuckerberg and his friends hacked into Harvard’s computer network and copied files from campus houses. The site proved popular, attracting 22,000 views within its first four hours online.2 After a few days, almost all Harvard students had either viewed the site or, at the very least, received an invite to view it. University officials, however, quickly shut down Facemash and placed Zuckerberg on a six-month academic probation for breach of security.

The following semester, Zuckerberg began work on a new website—The Facebook—that lever-aged some of the features from Facemash. Designed initially to replace Harvard’s printed student directory, Zuckerberg and several fellow students officially launched The Facebook in February 2004 (the “The” was dropped shortly thereafter). Joining members were allowed to add a pic-ture, major, and hometown to their profile and could link their profile to those of their friends.3 Half of Harvard’s undergraduates had signed up within just over a month of the launch. Realizing the site’s potential, Zuckerberg opened the platform up to other universities in the Boston area, as well as to Stanford, Columbia, and Yale. The only requirement to join was an e-mail address ending in .edu.4

Facebook continued to grow rapidly over the next several years. In May 2005, the website was in use at more than 800 colleges and universities and received $12.7 million in investment from venture capital firm Accel Partners.5 High school and international school networks were added in the fall of 2005. By year’s end, Facebook had achieved $9 million in revenue and accumulated six million monthly active users (MAUs).6 The following year was another strong one for the company. In addition to launching Facebook Mobile, it hit 12 million MAUs and earned $48 million in revenue. In April of 2006, Greylock Partners, Meritech Capital Partners, and PayPal co-founder Peter Thiel invested $27.5 million in Facebook. By September, anyone with a verifiable e-mail address could sign up, which paved the way for exponential user growth. More features were added over the next several years to further enhance the site’s user functionality, including a developer platform, chat capabilities, the Like button, and an ecommerce payment feature, among other things.

By the time the company filed for an initial public offering (IPO) in 2012, the global footprint Facebook had achieved was astronomical. Facebook tracks the number of MAUs and daily active users (DAUs) as a means to assess users’ engagement. Users who have logged into Facebook within a 30-day period are counted as MAUs. In the same way, DAUs measure the number of users who have logged in within a 24-hour period. In addition to 1.06 billion MAUs, Facebook had 618 million DAUs worldwide by December 2012. There were, on average, 2.7 billion likes and comments per day and more than 100 billion friend connections by the end of 2011.7 As of December 2014, Facebook had 1.39 billion MAUs and 890 million DAUs worldwide. Eighty-two percent of the site’s users live outside the United States and Canada, and the website is available in over 70 languages.8 Exhibit 1 shows the MAUs, DAUs, mobile MAUs, and mobile DAUs from 2009 to 2014.

The growing user base also brought more revenues. The increase in MAUs from 2010 to 2014 led to a corresponding increase in average revenue per user (ARPU) worldwide, from $1.26 to $2.81, respec-tively.9 Overall, revenues over the same period of time increased from $1.97 billion to $12.46 billion.



Facebook, Inc.

3

See Exhibit 2 for more information about Facebook’s revenue and profitability growth. Year-on-year double-digit growth in monthly active users and annual revenue has been the norm since 2009. See Exhibit 3 for more comprehensive financial data.

In 2014, the company generated 92 percent of its revenue through third-party advertising services and collected the rest through social gaming fees charged to platform developers; this was up from 84 percent in 2012 and 89 percent in 2013. Significantly, in the fourth quarter of 2014, 69 percent of revenues were generated from mobile advertising alone.10 Facebook’s worldwide ad revenues are predicted to rise to $18.19 billion in 2016 (see Exhibit 4), with mobile projected to constitute 75 percent of that total.11

ARPU has become the go-to metric for how well a company like Facebook is capturing value from its user base, particularly in North America’s well-developed advertisement industry. Facebook places significant focus on ARPU as a tool for assessing its ability to monetize its users, and the growth of the company’s ARPU over the last five years illustrates Facebook’s growing ability to monetize its user base. However, the company is still far behind the likes of Google: In 2014, Facebook had an ARPU of approximately $9 (by December 2014; see Exhibit 5), whereas Google’s ARPU was approximately $45.12

Facebook has ambitious plans for the future. Zuckerberg has stated that while the company is cur-rently serving greater than 1.3 billion MAUs, he wants to connect everyone in the world, “even if it means that Facebook has to spend billions of dollars over the next decade making this happen.”13 Its success in penetrating different countries, however, has varied. In most of North America, South America, Asia, and Europe, Facebook reaches anywhere from 40 to 60 percent of Internet users (see Exhibit 6).14 Notable exceptions are Germany, South Korea, and Japan where penetration rates are less than 35 percent. In Germany, users are quite concerned about data privacy, and culturally tend to use the Internet as a source of information and passive communication rather than active self-expression. This sentiment, however, is slowly changing.15, 16 Similarly, culture also underpins low penetration in Japan and South Korea: Self-promotion and boasting are discouraged, which is thought to be a primary reason for the lack of uptake across all social media in these geographies.17 In Russia, Facebook battles VKontakte for dominance, and in China, Facebook is currently blocked by the government. This ban leaves a gap in the company’s social network. Facebook’s equivalent in China is Renren, a network with roughly 200 million users.

Facebook’s Business Model: The Three Pillars

Facebook’s business model operates off of three pillars: News Feed, Timeline, and Graph Search.

NEWS FEED

Released in September 2006, News Feed quickly became a core feature of Facebook. It is at the heart of a user’s homepage and provides regular updates of friends’ posts, photos, events, group member-ships, and so on. The priority of items displayed in the News Feed is based on a complex algorithm. Several factors, such as the number of friend comments on an item, who posted the original item, and the actual content, play a critical part in the priority ranking.18 The success of the logic behind News Feed has kept users engaged and has contributed to the immense popularity of the site. Zuckerberg claims that News Feed answers the question, “What’s going on in the world around you?”19



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Facebook, Inc.

TIMELINE

An updated version of the profile page, called Timeline, was launched in September 2011. It allows each user to paint a complete life story on his or her profile. Users can select what information to share and with whom to share it. Milestones older than 2004 (Facebook’s launch year) are now easily repre-sented on a graphical display. Inspiration for this product came when its creator, Sam Lessin, viewed a hard copy of his profile stretched across the office.20 According to Zuckerberg, Timeline answers the question, “Who is this person?”21

GRAPH SEARCH

Zuckerberg calls the network of connections between people the social graph. Facebook, as a product, is an attempt to map the global social graph in the form of a massive database. Graph Search is a search bar that hovers at the top of every Facebook page. In addition to acting as a title for the content of that page, Graph Search also allows users to search for people, places, photos, and interests in their portion of the social graph. Zuckerberg stated that Graph Search is meant to help people “discover and make new connections,” whereas the previous two pillars helped people maintain their connections.22 Later releases of the tool will include information from Open Graph (described in the following “Creating Value for Developers” section) and allow users to search Facebook posts. It is also expected to migrate to Facebook mobile.

Facebook has taken a giant step into Google’s territory with the release of Graph Search. The years that Facebook spent attracting users and their personal information have come together to give Facebook an edge over Google’s user database. In fact, in anticipation of such a move by Facebook, Google launched its own social networking tool, Google+ in 2011. So far, Google+ has made little headway against Facebook’s massive head start in the social network space.23 Facebook search capabilities will also directly compete with other social-based information services like Yelp, LinkedIn, and Amazon.com in the areas of finding restaurants and shops, making business connections, and buying goods.24

Facebook’s Consumer-facing Products

Facebook has evolved tremendously over its lifetime. The company strives to build the tools neces-sary for users to connect, share, and communicate with each other across the Internet. To this end, the company has developed a number of products to facilitate engaging and meaningful connection and communication among its users.

MESSAGES

Included with the initial launch of Facebook, messaging has remained a core feature of the social networking site. Today, Facebook’s messaging products include e-mail (i.e., users can opt to utilize a [email protected] e-mail address), chat, and text messaging. Since November 2010, users have seamlessly accessed all three products in one integrated location. A separate mobile application (app) called Messenger was launched in November 2012. This app allows users to quickly message with their Facebook friends and supports image attachment and audio messages.



Facebook, Inc.

5

GROUPS

Facebook Groups provide users with an online space to discuss common interests. Examples of Groups include family, sports teams, and church groups. Launched in September 2004, the feature allows users to control the content they share—for example, pictures, calendars, and comments—via customizable privacy settings.

EVENTS

The Event feature lets users create an event, invite other Facebook users to the event, and track RSVPs for the event. An event can include a map location for the address and a host for the event who is also a Facebook user. In addition, guests can communicate with each other on the event page. A new version of Facebook Events was launched in May 2010. This upgrade made it easier for users to create events from their homepage while adding more details about an event.

PLACES

Launched in August 2010, Places is a Facebook mobile feature that lets users share their physical location with other users by “checking in.” Users can tag other Facebook users who are with them as well and, if their Facebook friends have visited the same location and left comments about their experi-ence, users can see that information.

NOTIFICATIONS

Introduced in May 2009, Facebook Notifications are visual alerts that signal users to activity on their page or within their social graph. Separate notifications appear for friend requests, messages, and gen-eral activity. Notifications accumulate and are displayed as numbers within red notification bubbles located on the Facebook page.

PHOTOS AND VIDEOS

Originally designed by a single engineer and designer in October 2005, the ability to share pictures is one of Facebook’s most popular features. Users upload more than 250 million photos on average each and every day, making it the most popular photo uploading service on the web.25 Users can share an unlimited number of photos, photo albums, and videos with friends, family, or the world, depending on their profile’s privacy settings. They can also add captions and locations to their photos and identify other users by “tagging” them. On May 22, 2012, Facebook released a Facebook Camera mobile app that made it easier for mobile users to take pictures and upload them to their account directly from their phone.

FRIENDS LISTS

Launched in December 2007, Friends Lists added another layer to the News Feed algorithm. Users can use Friends Lists to create Smart lists or Friends and Acquaintances lists to ensure that content from specific friends is given the highest priority on their homepage. Friends Lists was updated in



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Facebook, Inc.

September 2011 to compete with circles on Google+, which some considered superior to Facebook’s solution.26 Lists, like Google’s circles, help users focus on content that they are immediately interested in reviewing, eliminating the need to wade through mundane updates from those to whom they aren’t as closely connected. This feature also provides users with a way to share information privately.27

PAGES

Also launched in late 2007, Facebook Pages allow any individual or group (e.g., celebrities, public figures, businesses, colleges, or organizations) to create a public profile page in order to interact with the Facebook community. When users like a page, they automatically sign up for content published through that page; this content is then posted to the users’ News Feeds. Pages operate similarly to the model of Facebook competitor Twitter in that the owner of a Facebook Page need not approve likes from users (unlike a friendship between individual Facebook users, which requires dual acceptance). Through effective use of pages, an owner can increase his or her exposure by taking advantage of the algorithms associated with the News Feed. By 2015, there were more than 50 million Facebook Pages, including ones for most Fortune 500 companies, a large number of public and private universities, and many national and local celebrities.28

VIDEO CALLING

In the summer of 2011, Facebook partnered with Skype (which had been purchased by Microsoft in May 2011) to form Video Calling, a feature intended to compete directly with the Hangouts feature on Google+. Video Calling enabled users to call friends for free directly from Facebook after installing the Skype plug-in.

SUBSCRIBE

September 2011 brought another new feature to Facebook: Subscribe, which promotes the further customization of the Facebook experience. The Subscribe feature gives users the option to tailor what they pull into their News Feed, allowing them to turn on or off comments, photos, life events, or games from individual Facebook friends. In addition, a user can subscribe to articles authored by his or her favorite journalists from sites such as CNN, USA Today, The Wall Street Journal, and Forbes. From then on, any time a favorite journalist authors an article, it is posted to the Facebook user’s News Feed.

GIFTS

The Facebook Gifts feature was rolled out in December 2012 as a way to capitalize on ecommerce beyond the cut that Facebook takes from game developers on the Facebook platform. Users can visit a friend’s Timeline, click “Give Gift,” select a gift, insert a message, and send a physical gift to that friend. Currently, this feature is only available in the United States, but Facebook plans to expand it to other countries.



Facebook, Inc.

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Facebook’s Initial Public Offering (IPO)

Facebook’s IPO on May 18, 2012, was one of the largest in U.S. history, dwarfing even that of Google in 2004.29 With an IPO price set at $38 per share, Facebook was valued at $104 billion and planned to raise approximately $18.4 billion through its IPO.30 Facebook valuations historically have been opti-mistic. Before its IPO, Facebook was valued by several companies—Yahoo offered $1 billion for the company, Microsoft invested in October 2005 at a valuation of $15 billion, Accel Partners sold its stake at a $35 billion valuation in November 2010, and Goldman Sachs led funding at a $50 billion valuation in January 2011. These valuations and the hype around Facebook’s IPO made it one of the most antici-pated public offerings to date.

However, as if a prophetic signaling of the company’s future fortunes, problems arose just moments before Facebook’s initial public offering. To start, the NASDAQ exchange’s system entered an auto-mated loop that delayed trading by 30 minutes. Another glitch occurred once trading started, when investors were unable to check the size or value of their trades because confirmations on orders from the NASDAQ system were delayed three hours.31 Errors of this variety and magnitude had never occurred during an IPO and made it appear as though fate was against a publicly traded Facebook. The calamitous opening may have cost firms as much as $500 million in investments, leaving many inves-tors with an unpleasant feeling about Facebook stock.32

The accuracy of Facebook’s pre-IPO assessments was to be tested as Wall Street determined the market-driven public value of the social network. After one month of public trading, the stock price had fallen from $38 to $32, and early investors suffered significant losses (see Exhibit 7 for Facebook’s stock price since IPO). Despite the suffering stock price, analyst ratings remained optimistic about Facebook’s future, believing that the company would lead an Internet revolution and estimating that its user base would grow 70 percent by 2014. Morgan Stanley, J. P. Morgan, and Goldman Sachs rated the stock as a “buy” and gave price targets of $38, $45, and $42, respectively.33 Only one analyst from BMO Capital Markets called for an underperform rating and gave a price target of $25, citing his con-cern about Facebook’s advertising revenue.34 Facebook stock continued its downward trend in July and August of 2012. By August 2012, the market cap was $48 billion, 54.2 percent ($56.8 billion) less than the IPO market cap.35 In the months following the IPO, Facebook far underperformed its closest comparable IPOs, namely Google and LinkedIn.

Discussions over the declining stock prices put Morgan Stanley, the NASDAQ exchange, and Facebook executives under great public scrutiny. Morgan Stanley’s and Facebook’s CFO had been criti-cized for making changes to the price and number of shares just before the offering. Facebook shares and price were set at the far upper limit for the company.36 As a result, the NASDAQ faced a review of its systems and procedures by the SEC.37

But the sharpest criticism was directed at Mark Zuckerberg, whom many have perceived as an untested CEO.38 (Exhibit 8 provides detailed biographical information about the Facebook leadership team.) The underwhelming IPO prompted Zuckerberg to take stock a few weeks after the company’s listing: how was he going to resurrect the company’s fortunes? An obvious area was the company’s then shaky mobile-ad business, which brought in almost no revenues.39 He enlisted the help of Facebook’s top engineer and friend Andrew Bosworth, posing to him the question: “Wouldn’t it be fun to build a



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Facebook, Inc.

billion-dollar business in six months?” To Bosworth, ads did not sound like fun, but persisted on the idea and soon generated a spreadsheet of ad-related, money-making ideas that morphed into the mani-festo that formed the basis of a project dubbed “Prioritization” by Zuckerberg.40

Meanwhile, concerns about Facebook stock deepened in late 2012 as investors prepared for the release of a large portion of public shares scheduled to hit the market in November. Zuckerberg and other company executives had indicated on September 5, 2012, that they would not sell more shares than were necessary to cover their tax liabilities. This measure was taken as a statement of faith in the company’s future. Facebook also sought to protect its stock prices by buying back 101 million shares before the lockup periods expired and more shares become available for sale.41 In an interview with Michael Arrington at TechCrunch’s Disrupt conference on September 11, 2012, Zuckerberg publicly confessed to feeling disappointed in Facebook’s stock performance and conceded that it wasn’t good for company morale. Even so, Zuckerberg reassured shareholders, employees remained motivated by their desire to “[build] stuff they are proud of.”42 In addition, he issued formal responses to rumors, denying development of a Facebook phone and hinting at future work with search engines.

More important, he revealed the strategic focus for Facebook’s future: mobile devices. After admit-ting that Facebook had made a mistake in its early mobile strategy by focusing development on HTML5, Zuckerberg said the company would concentrate on native applications for mobile devices going for-ward. While there was no mention of immediate opportunities in the mobile market, Zuckerberg did explain how the task of monetizing Facebook mobile products was up to the product development teams.

Monetizing Facebook Users: The Rise of Advertising

In a Securities and Exchange Commission (SEC) filing in early 2012, Mark Zuckerberg stated, “Simply put: we don’t build services to make money; we make money to build better services.”43 Such a dis-missal of the importance of monetization scared investors. Indeed, this view underscored a personal view of Zuckerberg’s, who had historically paid little attention to many of the numbers that sharehold-ers habitually zeroed in on. In 2010, he was quoted as saying that there was “no point in having a mas-sive profit,” and that the ad business “factors in, like, not at all” to decisions about the Facebook platform and consumer facing products. At that time, however, most Facebook users viewed the platform from a desktop and ads were relegated to the sidelines of the screen where they were ineffective at engaging users. Consequently, Facebook was ill prepared for the surge in popularity of smartphones by the end of 2011, which was resulting in users spending less time on computers in general, let alone desktops.44

The lackluster 2012 IPO, while tarnishing the company to a degree, proved to be a reality check on a number of levels for the company. First, it proved to be the culmination of a fundamental transforma-tion by the notoriously stubborn and idealistic Zuckerberg: once called the “toddler CEO” in Silicon Valley, the IPO forced the CEO to dedicate much needed attention to the company bottom line. The pro-cess of taking the company he conceived and built from scratch public forced him to mature as a busi-ness leader. Second, the IPO process brought to the fore just how fast the mobile shift was happening, and shareholders and executives alike were concerned that Facebook was falling behind at an alarming rate. Finally, the shift to smartphones posed significant challenges to Facebook: internal data indicated



Facebook, Inc.

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that many users were highly frustrated with the company’s mobile offerings and often resorted to the more tedious mobile web browser to access the platform. It also complicated the company’s ad busi-ness: there was no easy way for the company to sideline ads on the small screen of a mobile device the way the company did on the desktop platform. Worse still, while efforts to sell older desktop-based ads yielded ever decreasing return as users embraced mobile devices, Facebook had no mobile ads to sell.45

One of Facebook’s first moves was to explore the use of ads in the News Feed, prime real estate on the user interface and where the social-networking site’s 1.3 billion members spend most of their time. The idea was purportedly conceived by Zuckerberg himself shortly before the May 2012 IPO, after being presented with mock ups of ads for the company’s iPad app that appeared to be marooned to the side of the News Feed. The next move by the company was to develop ads for incorporation into the News Feed that were not intrinsically tied to “likes” by the user. Testing by the company over the next several months revealed that adding these “nonsocial” ads improved the user’s perception of Facebook’s ad quality. This was initially perceived as breaking from Facebook’s traditional focus on word-of-mouth based pitches, but the data suggested that resistance to veering from this traditional focus was hurting the company’s business. The final step in the company’s transformation to becoming mobile- and ad-centric involved yet another sea change. Zuckerberg had long resisted any sacrifices related to user experience; however, the company’s vice president of product was allowed to sacrifice user experience as an acceptable trade-off towards generating higher ad revenue with the caveat that Facebook be improved elsewhere to more than offset the anticipated decline in usage. Initial testing highlighted that while more ads reduced user activity by 2 percent, overall engagement (a broad gauge of user activity) increase by a much larger percentage.46

The changes also manifested in Facebook as an organization. In early 2012, less than two-down engi-neers were working on the company’s mobile platform, whereas the focus on mobile increased that to hundreds.47 But more importantly, the intensified focus on advertising, which was long ignored and deemed less important than photos and status updates posted by users, generated a much-welcomed surge in revenue. Corporate giants Samsung, Proctor & Gamble, Microsoft, AT&T, and Amazon are the five largest individual brands advertising Facebook.48 While these represent the company’s sin-gle biggest marketing clients, they are certainly not Facebook’s largest media-buying clients. Instead, Facebook instituted an ecosystem of media buyers that bundle together large corporate ad budgets called Preferred Marketing Developers. The ecosystem underwent an overhaul in October 2014 to become the Facebook Marketing Partner program, which involved morhping the ecosystem into a more objective-focus entity. The program also places partner companies into one of nine categories according to any given partner’s marketing aims.49 As of 2014, the company generated 92 percent of its revenue through advertising services. In the United States, growth in mobile ad revenue has been spectacular: year over year growth in 2013 was 315 percent, 118 percent in 2014, and is anticipated to be approximately 40 percent in 2015.50 By the end of December 2014, 69 percent of company-wide revenues were generated from mobile advertising alone.51 Facebook’s worldwide ad revenues are anticipated to reach $18.19 billion in 2016 (see Exhibit 4), with mobile projected to constitute 75 percent of that total.52 The success of advertising has renewed shareholder confidence in the company as evidenced by the company’s share price (see Exhibit 7). On July 31 2013, a little more than one year after going public, Facebook’s stock price again reached the IPO price of $38 and in so doing recouped the losses it suf-fered in the second half of 2012 when the share price hit an all-time low of $17.73 (September 4, 2012).53 Since then, the price has more than doubled, reaching a high of $83.42 in the first quarter of 2015.



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Facebook, Inc.

CREATING VALUE FOR ADVERTISERS AND MARKETERS

Facebook seeks to provide value for a host of different marketers, including brand, direct response, small and medium-sized enterprises and developers.54 Accordingly, Facebook has identified four value propositions for advertisers and marketers: reach, relevance, social context, and engagement.55

Reach. With more than one billion MAUs, if Facebook were a country, it would be the third largest in the world by population—that amounts to quite a reach. Companies have the abil-ity to purchase lists of the users who subscribe to the pages of other companies, which can be used to target a specific audience. As an example, in 2010 IronPlanet Motors (a competitor to eBay Motors) purchased the BMW and Mercedes-Benz Fan Page subscriber lists in order to advertise the launch of its new car auction website to those users. Similarly, movie studios can notify fans on their page of an upcoming movie release. Paramount Studios, for example, reached 65 mil-lion fans in one day when it advertised the release of Transformers: Dark of the Moon on Facebook.56 Facebook also offers free tools for tracking the performance of ads called the Ads Manager. With the release of Graph Search, Facebook created new opportunities for advertisers and marketers: Companies that have a page can be discovered by users as a result of their Graph Search queries based on the infor-mation the organization posts on its page.57

Relevance. Relevance is important to advertisers because, in today’s economy, marketers are being asked to do more with less. This is where Facebook can play a vital role. Users identify themselves based on many demographic factors—for example, age, gender, race, location, education level, and special interests—which allow Facebook to deliver targeted ads with a higher success rate than indus-try averages.58

Social Context. With sponsored stories and social ads, Facebook provides a rich social context for advertisers. Sponsored stories (e.g., a friend checking in to a Starbucks) are prominently displayed directly in a user’s News Feed. The friend has now automatically become an advocate for the company across his or her social graph, driving company awareness. Social ads allow marketers to add context to their ads. This enables product differentiation and increases ad recall substantially.59

Engagement. The social web is an evolving species, and Facebook has been a leader in identifying new advertising tactics that improve user engagement. For instance, dynamic ads that include a poll, hit upon a user’s special interest, or encourage feedback all improve awareness.

Market Opportunities. Facebook ads can display in multiple locations on the screen, and Facebook’s ad system guarantees a fixed number of ad impressions for a fixed price. Most important, Facebook invests in technology that dynamically decides the best available ad to display to a user depending on that user’s unique attributes. The system does a real-time comparison of the bids that different advertisers have offered to pay to advertise to that type of user. This type of technology helps Facebook maximize ad revenue.

As Facebook continues to expand its advertising offering, it expects its ad revenue to follow suit. Additional advertising opportunities for Facebook could arise from three main areas: traditional offline branded advertising, online advertising, and mobile advertising. In 2014, traditional offline advertis-ing—television, print, and radio— was a $337 billion industry, representing 67 percent of the total worldwide advertising spent.60 As marketers continue to gravitate toward online advertising, a large percentage of this offline budget will be allocated to advertisers such as Google and Facebook. Indeed, digital advertising is the fastest growing channel through 2018, and will nearly match ad spending



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attracted by TV, traditionally the prime focus of advertisers (see Exhibit 9). Similarly, the global mobile advertising market is expected to grow to $166 billion by 2018, at which point it will account for almost a quarter of total media ad spend, and 66 percent of digital ad spend.61 Currently, Facebook’s mobile app is one of the most popular downloads; Facebook boasts 1.19 billion mobile MAUs. However, the mobile path has an added challenge in that greater mobile use generally reduces ads per user, given the smaller screen size of mobile devices.62

CREATING VALUE FOR DEVELOPERS

Approximately 8 percent of Facebook’s revenue is generated through its developer platform, which was first launched in May 2007 with 85 developers and 65 apps.63 The platform is a set of development tools and application programming interfaces (APIs) that enables software and web developers to cre-ate innovative experiences for the Facebook community. Facebook’s f8 conferences, held near-annually, bring together developers, entrepreneurs, and innovators to collaborate on new websites, apps, and devices that take advantage of the Facebook platform.64 Substantially all of the company’s revenue in the form of payments is derived from developers of social games, who use personal computers as their platform. As a result, the company expects that revenue from this source will decline as the use of per-sonal computers declines. Certainly, in 2012, Facebook collected approximately 15 percent of revenue from developers, almost double what was reported in 2014.65

Other examples of developer integration using the platform include the ability for users to listen to music on Spotify, read news and sports articles on Yahoo, track runs via MapMyRun, and use the Nike mobile app to share their exercise activity.

Through products such as Open Graph, Social Plugins, and Payments, Facebook offers significant value to developers.

Open Graph. Open Graph allows app developers to map the content of their apps and see how users can interact with it. In this way, developers can learn how to connect user Facebook accounts from within their app. This enables users to share personal content generated by the app with their friends on Facebook through their News Feed and Timeline.

Social Plugins. The Facebook platform can carry over the social experience from Facebook to any website that has the Facebook social plugins enabled. Social plugins include the Like, Send, Subscribe, and Login buttons, comments, the activity feed, registration, and the Facepile feature, which displays thumbnails of friends’ profile pictures. Social Plugins give website owners the opportunity to broad-cast interests from one friend to another non-connected friend. As an example, the Yahoo Social Plugin shares articles directly to Facebook’s News Feed.

Social Channels. Social channels provide a way for developers to integrate with News Feeds and requests. Content can be generated from the app and distributed to a user’s News Feed using Social Channels. Developers can also integrate with requests that allow a Facebook user to encourage other friends to use an app.

Graph API. This application programming interface feature of the Facebook platform allows apps to read and write data to Facebook.

Login. Users can log in to an app or website using their Facebook credentials, speeding up the reg-istration process.



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Facebook, Inc.

Payments. Finally, Payments create an infrastructure for developers to receive funds for the pur-chase of their virtual and digital goods. This well-established, safe, and secure system has streamlined the transactions between users and third-party developers.66 Currently, fees collected from Facebook Payments almost exclusively come from the purchase of virtual goods used in social games; how-ever, the company highlights that only a relatively small percentage of users have transacted with Payments.67

RECENT DEVELOPMENTS

Facebook’s initial response to the advent of mobile and the company’s focus on advertising have been instrumental in turning the post-IPO fortunes of the company around. However, the company has been proactive in developing products that can help bolster its current position in online advertis-ing and paid search. Importantly, the company continues to actively respond to the rapidly changing dynamics of consumer habits and the technology industry; behavior that is in contrast to the inertia that characterized Facebook’s pre-IPO reaction to the mobile shift.

In early 2014, the company began testing the delivery of online advertising directly to apps operat-ing beyond its immediate social network. Similar to Google’s AdSense, a network that delivers ads across numerous third-party sites, Facebook’s ad network is geared towards creating a similar network specific to a mobile interface. Thus, the company aims to target ads on outside mobile apps in the same way if does within its own mobile app. In addition to affording the company an effective way in which to spread ads across smartphones and tablets and further its reach, it also improves the relevance of ads in a mobile context and gives third-party app developers an additional and more effective way of generating revenue.68 The testing culminated in the company launching its Audience Network product in October 2014. The product is highly reliant on the Facebook user login, which allows marketers to track people across multiple devices and understand user behavior while allowing advertisers to cir-cumvent the use of ad blockers.69

In September 2014, Facebook formally launched its new Atlas advertising platform. A re-engineered platform of the Atlas Adviser Suite business that Facebook acquired from Microsoft, the product aims to help marketers understand which Facebook users have seen, interacted with or acted upon ads both on the Facebook platform and on third-party apps and websites. It also equips marketers with a “demand-side platform” or “bidder” tool, an automated ad-buying functionality allowing marketers to buy ads that target Facebook users as they navigate around the web. This extends the reach, rel-evance, and engagement of advertisers and marketers using the Facebook ad platform with the added benefit of generating data that helps to inform and measure ad campaigns. Atlas marks a move away from the typical means through which marketers target and track ads by moving away from cookies which are often inaccurate, unreliable, and ineffective in a mobile setting. By linking user ad interaction to their Facebook accounts, the company can help marketers circumvent these issues. Indeed, in light of this capability and the value of the login across devices in the case of the Audience Network product, a Facebook ID is considered to be a marketer’s “holy grail” given that it is persistent and high fidelity for a consumer.70

Facebook is also making a push in video ads via an aggressive approach aimed to gain ground quickly in a space traditionally dominated by Google’s YouTube. The company has made a concerted effort to place more video into News Feed, and work with premium advertisers on high-end, broad-cast-like spots that are now available on its Premium Video Ads platform. The company has also made videos difficult to ignore by incorporating auto-play videos that begin playing in a user’s feed with



Facebook, Inc.

13

no click or interaction required. As a result of the approach, the amount of video in users’ News Feed has more than tripled in the last year, and as of November 2014, 95 million users in the United States watched video from desktops, representing 44 percent year-on-year growth.71 The opportunity for Facebook is significant: digital video advertising in the United States is expected to reach $7.77 billion, marking an increase of nearly 34 percent relative to 2014. By 2019, the market is anticipated to be worth $14.38 billion.72 Currently, Facebook does not break out revenue from video advertising, but analysts speculate 2015 revenue to be anywhere from $700 million to $3.3 billion, and they add that video has the potential to become “big business” for Facebook.

Also in February 2015, Facebook launched Product Ads, a service that allows marketers to show users a portion or all of their product catalogs. Advertisers had been able to do this prior to the launch; however, doing so was complicated and few retailers made use of the service. The new service auto-mates the process and helps advertisers to tailor ads to increase relevance, before allowing posting to News Feed, which was not possible before. The product is also amenable to the Facebook mobile platform, which is deemed as critical for retailers: not only is it easier for marketers to targeting users, it is purportedly more targeted on mobile. As a result, advertisers are viewing Product Ads as a means to access a meaningful source of demand.73

In addition to augmenting advertising capabilities, Facebook has also augmented its core consumer-facing products through acquisition. On April 9, 2012, Facebook acquired Instagram for $1 billion, at the time the largest deal ever for Facebook. Instagram, a photo-sharing service for iPhones and Android phones, was founded in October 2010 and quickly became a leader in online photo sharing. By March 2012, CEO Kevin Systrom announced that registered Instagram users had nearly doubled to 27 million, up from 15 million just three month prior.74 By 2014, U.S. users topped 64 million, and it is anticipated that this number will top 100 million by 2018. Faster-than-expected growth in 2014 actually propelled Instagram passed Twitter to become the second largest social network behind parent net-work Facebook. Given Twitter’s stagnating user growth, this gap is set to widen. A primary reason for this stellar growth lies in the simplicity of the app that “has stayed true to its core mission—delivering beautiful imagery and videos—while other services, such as Snapchat, have loaded on lots of new fea-tures.”75 For its part, Facebook retained Instagram as a separate business unit post-acquisition, while tapping into its talent and innovation to benefit the parent company, a likely contributor to Instagram’s continued dedication to its core mission and subsequent success.

Zuckerberg saw the acquisition as a “milestone” for the company and said, “We don’t plan on doing many more of these, if any at all.”76 Photo sharing, which is one of Facebook’s core features, has been a vital element in the company’s success and efforts to drive user engagement. By acquiring Instagram, Facebook eliminated a potential competitor and gained access to the talent that created the robust Instagram app for iPhone and Android.

The acquisition of mobile messaging service WhatsApp that was announced in February 2014 proved to be an exception for Zuckerberg. WhatsApp is a text-based messaging service that functions over the Internet. While Facebook already has its own Messenger service, which is used by users to commu-nicate with each other, WhatsApp complements this service by enabling users who are not connected on social media to communicate cost effectively. Facebook closed the deal in October 2014, ultimately paying $22 billion for the service in exchange for $10.2 million in sales, according to a regulatory filing. However, this seemingly hefty price tag overshadows the exceptional growth that WhatsApp has expe-rienced in terms of users and the potential it has to become a core revenue generator for Facebook.77



14

Facebook, Inc.

The service, as of late 2014, had 450 million active users; a level of activity that was reached faster than any other company in history. It is estimated that more than 1 million people have installed the app, and DAUs of the service has climbed to 72 percent of its user base. Astonishingly, WhatsApp has managed to establish and support a reliable service (99.9 percent uptime) on this scale with only 32 engineers and one developer, which is unheard of in the industry. The service is also highly focused on offering a pure messaging experience (just as Instagram is dedicated to its core mission), and WhatsApp founders lived by the mantra of “No Ads! No Games! No Gimmicks!” Finally, WhatsApp is yet to spend any money on marketing and user acquisition, and rather markets itself through a strong emotional connection with its user base and satisfying customers.78 It remains to be seen if Zuckerberg can mon-etize the service without violating the founders’ mantra of staying away from advertising. Certainly, he appears to be in no rush to do so until the service reaches 1 billion users. Said Zuckerberg, “The right strategy is to focus on connecting the people before aggressively turning them into businesses.”

Current Competitors

Facebook’s social network platform together with its evolution into a platform for marketers and advertisers has placed the company in competition with some notable players. However, with the company generating the vast majority of its revenue from advertsing, and given its push into video advertising and advertising via third-party apps and websites, Google is undeoubtedly Facebook’s biggest rival.

GOOGLE

Founded in 1998 as a provider of Internet search results, Google has become a leader in cloud com-puting and advertising, particularly since its highly successful IPO in 2004. A major driver of revenue for Google, as with Facebook, is online advertising. In the large $50 billion U.S. online advertising market, Google holds a commanding lead over its competitors. It currently has a 38.4 percent share of the market by revenue, with Facebook, Microsoft and Yahoo trailing with 10.4, 5.7 and 5.0 percent respectively. Through 2017, however, Google is set to relinquish some of their market share primarily to Facebook, and to a lesser extent Twitter (see Exhibit 10). Notably, Google’s YouTube is a primary driver of Google’s dominance in the online ad market, and by 2017 it is forecast to account for almost 14 percent of the company’s net ad revenue.79

Not surprisingly, Google dominates the search ad domain, commanding 71.4 percent ($16.43 bil-lion) of the total market revenue ($23.02 billion) from search ads in 2014. In 2015, it is expected that the company will derive almost 84 percent of its aggregate digital ad earnings from search ad revenue. The company is also strong in terms of mobile search, claiming over two-thirds of the total mobile search ad market. As a result, approximately 47 percent of Google’s overall search ad revenue is expected to come from mobile in 2015. Further, as of 2016, it is anticipated that mobile will for the first time drive more revenue (nearly 60 percent) for the company than will desktop.80 However, Google has a weaker grip on the overall mobile space for several reasons:81

1. Real Estate: Fewer ads on mobile means declining click volume, and in search advertising in a mobile context, the valuable space at the top of a page of search hits is highly limited. Consequently, fewer ads are able to be placed at the top of a search, resulting in reduced click volume. Social media by contrast, has, in theory, infinite space as feeds/timelines can be swiped down repeatedly.



Facebook, Inc.

15

2. With such infinite scrolling, companies like Facebook, Twitter, etc. are able to embed ads within the content that the users are accessing. Google, by contrast, does not have any such native display footing. It is for this reason that uploading a video to Facebook is more appealing than uploading it to YouTube.

3. Google has relatively nascent audience targeting tools within its mobile platform, which makes advertisers seeking to exploit mobile look elsewhere—such as Facebook’s Audience Network—to place ads.

4. Apps are fragmenting the attention of users, such that apps essentially cut into the market share of Google given that advertisers have alternative ways of reaching users. In the case of Facebook and even Yahoo, companies own multiple apps, each of which have built-in search functionalities and each of which thus take users away from Google.

5. Google is still trying to compete with Twitter, Apple’s iAd, and Yahoo Gemini to win over app developers. In particular, they are some way behind in offering ads for app marketers.

6. Google is yet to fully demonstrate to advertisers that their mobile campaigns result in more conversion activity beyond the last click in a mobile search context. Until this is demonstrated, ad prices will remain low.

7. Google continues to neglect reporting separately its mobile performance, in contrast to the likes of Twitter, Facebook, and Yahoo. This makes it challenging for advertisers to gauge how effective mobile ads on Google are, and it raises the concern that if Google had a good mobile story to tell, it would be telling it in a fashion similar to its competitors.

In digital display, however, Google is playing second fiddle to Facebook. In 2015, Google is expected to capture 13 percent of the U.S. digital display market ($27.05 billion in total), compared to fully one quarter of the market captured by Facebook. While revenues from digital display ads are projected to increase slightly, bolstered by YouTube’s ad platform, the company’s large Display Network and higher AdSense revenue, Google will continue to lose share in the market through 2017. By contrast, Facebook is set to assume almost 27 percent of the market by this point in time, generating over $10 billion in rev-enue. Exhibit 11 summarizes market share dynamics for Facebook and its competitors.82 Importantly for Google, this revenue will be fueled in part by Facebook’s News Feed video ads, as well as their AdSense equivalent Atlas. Indeed, Google has not been clear with how it intends to respond to the lat-est products that Facebook has released which are aimed squarely at competing with the company. A primary example of this is the technology behind Facebook’s Audience Network product. Google has the capability to create a similar product, but it was Facebook who has first-mover advantage. Google, in response, unveiled a tool that allows marketers to identify when an ad delivered on one platform resulted in a purchase on another, but stops short of being able to effectively do cross-device targeting the way Facebook does.83 This may also help to explain Google’s comparatively poor performance in mobile digital display, where the company is again a distant second to Facebook, capturing only 11.8 percent of the market relative to Facebook’s 36.7 percent in 2014.84

For Facebook, however, one potential area of competition is Google+. Google + has several improved and additional features over Facebook. Google + circles allow users to organize the people they are connected to and give them better control over their privacy settings. Hangouts is a video chat feature that allows up to 10 friends to communicate through videoconferencing. The integration of Google+ with YouTube and the image organizer and viewer, Picasa, allows for improved video and photo shar-ing. What’s more, the third-party developer platform associated with Google+ (which is similar to Facebook’s developer platform) is completely free, while Facebook charges a 30 percent commission. This incentive could drive developers away from Facebook and to the Google+ platform, which would



16

Facebook, Inc.

parallel Google’s initiative of driving iPhone developers to the Android operating system through more attractive developer commissions. Overall, Google+ has encouraged millions of users to establish Google accounts and (thanks to a controversial change to Google’s privacy policy) facilitates the con-nection of Google’s various services, from search to maps to Gmail. As a result, it allowed the company to track logged-in users, which is important to advertisers, assisting Google to level the playing field with Facebook.85

Yet, Google+ lacks Facebook’s installed base of users as of late 2014. Google+ had 343 million active users August 2014, up from 150 million in June 2012.86 This is a fraction of the 1.39 billion active users Facebook reports. Still, Google has seen a boost in click-through rates on some display ads of any-where from 2 percent to 15 percent due to the additional user information provided by its social media product.87

Google’s drive for Internet dominance and social strategy includes a suite of products and services (e.g., Chrome, Google.com, Picasa photo software, YouTube, Translate, Analytics, AdWords, and oth-ers). Rather than focusing on any single product, what matters most to Google is how much time users spend within the Google ecosystem once logged in to their account.88 Now that all of these products and services are linked to Google+, Google will be able to paint a more complete picture of each of its users. Such fine-grained data will be vital in Google’s push to become the dominant online presence delivering customized advertising.

TWITTER

Launched in July 2006, Twitter has become an extremely popular free micro-blogging and social net-working service. Twitter gives users the ability to communicate with friends and family via text-based posts in real time. Users submit a tweet, which is limited to 140 characters in length, to their profile page. A subscriber to the user’s page (known as a follower) then receives the tweet automatically. Unlike Facebook, which requires the dual acceptance of friend requests, Twitter stimulates interaction between complete strangers because users don’t need to approve who follows them.

Individuals, organizations, and companies have quickly realized the benefit of this type of interac-tion: the ability to reach an unlimited, yet targeted, audience. TV channels such as CNN, MSNBC, and ESPN now use Twitter as part of their broadcasts. And celebrities, athletes, and politicians have accepted the technology as well; 75 percent of NBA players, 82 percent of U.S. Congress members, and 85 percent of U.S. Senators are active Twitter users.89 Former vice president of product, Jason Goldman, attributes Twitter’s appeal to the fact that it “delivers interesting, relevant timelines . . . about the people and places that matter to you. Giving people better information about the world around them and the things they care about has become the cornerstone of the product offering.”90

Even though mainstream adoption has quickly become a reality, Twitter is still growing its business model. Notably, growth is at a healthy clip: Twitter’s total ad revenue in 2014 was $830 million, up 91 percent over the $430 million ad revenue generated in 2013. Forecasts point to further healthy growth for 2015, with revenues expected to breach the $1 billion mark to $1.34 billion, over 62 percent growth from 2014. Substantially all of this revenue is generated from digital display advertising, which repre-sents 3.7 percent of the total display revenue generated in the U.S. market. By 2017, this is expected to reach $2.54 billion or 6.8 percent of the market, which is the fastest growth rate among its peers over the same time period (see Exhibit 10). With respect to mobile, the company is a juggernaut. It has the



Facebook, Inc.

17

highest share of mobile ad revenues among the total digital ad revenues of its competitors: 90 percent of earnings are derived from mobile ad placements (see Exhibit 11). By 2017, it is expected that mobile revenues will nearly double from 2015, from $1.19 billion to $ 2.29 billion.

This growth is fueled by the company’s recent deal with Google.91 Twitter struck a deal in February 2015 to monetize its “logged-out” audience by partnering with Google to have tweets made visible in Google search results. In this way, Twitter is hoping to draw more people to its site to counteract the platform’s slow user growth, which has troubled the company and its investors. Indeed, in the fourth quarter of 2014, Twitter’s user growth fell below that of Facebook for the first time ever.92 The benefits will be mutual: Twitter will have the opportunity to convert and possibly monetize logged-out users, and Google can generate enhanced search results inclusive of real-time tweets and broader content, while aiding to keep users in their ecosystem longer. However, the deal does not involve advertising revenue, suggesting that Twitter will receive data-licensing revenue.93 The implications of this deal for Google’s own Google+ platform is yet to play out, although analysts believe it to be yet another indica-tion of the company treating it more so as a platform than a product.94

In sum and for the time being, Twitter generates only a fraction of the ad revenue and user interest of Facebook. As of December 2014, Twitter had over 288 million MAUs, and users represented a 12.2 percent share of social network users worldwide in 2014.95, 96 By comparison, Facebook has 1.39 bil-lion MAUs, and user penetration as a percentage of social network users is 60.7 percent.97 However, as Twitter continues to grow, particularly in the mobile space, the chance of users spending more time with it communicating with friends and family will grow as well. Professor Tim Loughran of Notre Dame summed it up as follows: “Facebook is in the business of communication. Anybody who can facilitate a more precise or quicker communication should be perceived as a threat to Facebook.”98

MICROSOFT

Even though it owns a 10 percent equity stake in Facebook (which it bought in 2007 for $240 mil-lion), Microsoft remains a Facebook competitor across several market segments. Similar to Google, Microsoft commands a large percentage of advertising revenue and both online and offline user inter-action. Microsoft offers a fleet of products and services that competes directly with Facebook. Windows Mobile, the Xbox 360, the Bing search engine, and MSN (a portal to news, sports, games, shopping, and videos) all drive traffic away from Facebook and Google. In 2014 alone, Microsoft accounted for 5.7 per-cent of U.S. online advertising revenue and was projected to remain third behind Google and Facebook over the next several years (see Exhibit 10). The key driver of digital ad revenue for Microsoft is its digital search ad revenue. Second behind Google, the company is set to derive $2.84 billion from search advertising on its Bing search engine in 2015, representing 86 percent of its digital ad dollars and 11.1 percent of the U.S. search space. By contrast, Microsoft’s display ad revenue is on the decline. By 2017, it is expected to hold only 1.2 percent of the overall display ad market, down from 1.7 percent in 2015.99

In addition to the Microsoft investment in Facebook, Facebook and Microsoft have formed a strate-gic partnership that enables the two companies to compete directly with Google on several fronts. As far back as 2006 and predating the investment, Microsoft sold banner ads on Facebook in the United States. In light of the subsequent 2007 investment, this arrangement was extended, giving Microsoft the rights to split banner ad revenue on Facebook outside of the United States. This agreement dissolved in 2010, when Facebook removed Microsoft’s banner ads and replaced them with keyword search results generated using Microsoft’s Bing search engine. This afforded Microsoft a means by which to improve



18

Facebook, Inc.

the breadth and depth of its social search data, and Bing ultimately became the default search engine within Facebook. This partnership allows both Microsoft and Facebook to compete squarely with Google+ and Google.com search results. Moreover, Bing search queries conducted within Facebook are not directly accessible to Google for further data analysis. However, as of December 2014, the partner-ship based on the Bing search engine ended when Facebook decided to completely remove the Bing search results. While Facebook’s action does not bode well for the Bing search engine, it is by no means indicative of a strained partnership. On the contrary, Microsoft made a deal with Facebook in 2013 to gain insights into its social graph. In December 2014, Facebook added the ability for users to search for specific posts and content within graph search, and it is presumed that Microsoft is privy to data and insights generated from this functionality.100

In May 2011, Microsoft purchased Skype for $8.5 billion and soon after partnered with Facebook to challenge Google+’s videoconferencing capabilities.101 At the time of the deal, Zuckerberg said, “We have a really good relationship with Microsoft. Now that Skype is owned by Microsoft, that gives us the sense of stability that it’s going to be with a company we can trust—that we know we have a longstanding relationship with.”102 The truth of this statement seemed evident in May 2012, when Microsoft sold $550 million worth of patents and licenses to Facebook.103

Where to Next?

As Sandberg wrapped up her review of the earnings report and noted down of some of the key areas she anticipated analysts to zero in on, she leaned back in her chair and gazed out of her corner office window, taking a deep breath. She had a gut feeling that the company was on the right track in its pursuit of dominance in mobile advertising. Between the launch of the Facebook Audience Network, Atlas and its push into video, the company was carving out a substantial presence in mobile display advertising and she suspected that its market leadership would continue in the short term. But how could her team translate this into a sustained leadership that could topple Google as the market leader in digital advertising?

She was sure that the mobility revolution had not fully played out, and that Facebook had learned the hard way about how quickly a company can fall behind if it is not proactive about product develop-ment. The pressure always feel on finding ways to leverage data in new and interesting ways,to target users, and to increase click-throughs; Sandberg knew her team and the growing number of Facebook engineers would need to engage end-users with never-seen-before experiences that lend well to adver-tising. Not to mention, there was the increasing need to develop cross-platform solutions to capture user and marketer attention across multiple channels. Sandberg knew the current product offerings for advertisers were a good start in terms of the company’s mobile plans, but how could they be made even better, so as to challenge Google’s dominance? Would improvements be possible without signifi-cantly sacrificing user experience? And then, of course, Facebook could not afford to take its eyes off of the startup scene—one innovation is all it takes to break the mold and create new types of advertis-ing—something Sandberg knew all too well when it came to Instagram and WhatsApp.104 What was on the horizon that could help Facebook bolster its mobile objectives? Would Facebook be in a position to invest in or even acquire any exciting startups? With the pace that the industry was moving at, there would be no time to waste.



Facebook, Inc.

19

EXHIBIT 1 Facebook’s Global Usage, 2009–2014 (in millions)

(continued)

1,600

1,400

1,200

1,000

800

600

400

200

0

EuropeUS & Canada

2009 2010 2011 2012 2013 2014

Panel 1: Monthly Active Users (MAUs)

ROWAsia

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4



20

Facebook, Inc.

EXHIBIT 1 (continued)

1,600

1,400

1,200

1,000

800

600

400

200

0

EuropeUS & Canada

2009 2010 2011 2012 2013 2014

Panel 2: Daily Active Users (DAUs)

ROWAsia


(continued)



Facebook, Inc.

21

(continued)


1,400

1,200

1,000

800

600

400

200

0

2009 2010 2011 2012 2013 2014

Panel 3: MAUs on Mobile Devices




22

Facebook, Inc.


Source: Authors’ depiction of data in Facebook’s SEC 10-K filing, filed on January 29 2015.

800

700

600

500

400

300

200

100

0

2012 2013 2014

Panel 4: DAUs on Mobile Devices

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4



Facebook, Inc.

23

EXHIBIT 2 Facebook Revenues, Segmented into Advertising (Red) and Payments & Fees (Blue), 2010–2014 (in $ millions)


$3,800$3,600$3,400$3,200$3,000$2,800$2,600$2,400$2,200$2,000$1,800$1,600$1,400$1,200$1,000

$800$600$400$200

$0

2010 2011 2012 2013 2014

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4



24

Facebook, Inc.

EXHIBIT 3 Facebook Financial Data, 2010–2014 (in $ millions, except EPS data)

Source: Compustat.

Fiscal Year 2010 2011 2012 2013 2014

Cash and short-term investments 1,785 3,908 9,626 11,449 11,199

Receivables (total) 373 547 1,170 1,160 1,678

Inventories (total) - - - - -

Property, plant, and equipment (net total) 574 1,475 2,391 2,882 3,967

Depreciation, depletion, and amortization (accumulated) 246 450 882 1,260 1,817

Assets (total) 2,990 6,331 15,103 17,895 40,184

Accounts payable (total) 29 63 65 87 176

Long-term debt 367 398 1,991 237 119

Liabilities (total) 828 1,432 3,348 2,425 4,088

Stockholders’ equity (total) 2,162 4,899 11,755 15,470 36,096

Sales (net) 1,974 3,711 5,089 7,872 12,466

Cost of goods sold 354 537 720 756 945

Selling, general, and administrative expense 449 1,095 3,187 3,193 5,297

Income taxes 402 695 441 1,254 1,970

Income before extraordinary items 606 1,000 53 1,500 2,940

Net income (loss) 606 1,000 53 1,500 2,940

Earnings per share (basic) excluding extraordinary items 0.28 0.47 0.02 0.62 1.12

Earnings per share (diluted) excluding extraordinary items 0.28 0.47 0.02 0.60 1.10



Facebook, Inc.

25

EXHIBIT 4 Projected Worldwide Facebook Ad Revenues, 2013–2016 (in billions)

Source: Authors’ depiction of data from “Facebook Closes on 1 Billion Mobile Users Worldwide,” eMarketer, January 21, 2015.

$800

$700

$600

$500

$400

$300

$200

$100

$0

Appl

e

Goog

le

Micr

osof

t

Alib

aba

Face

book

Orac

le

Amaz

on

Sams

ung

Elec

troni

cs

Inte

l

IBM

696.4

356.9 343.2

223.9 211.7186.3 169.4

163.7 162.5 155.3



26

Facebook, Inc.

EXHIBIT 5 Facebook Average Revenue per User (ARPU), 2010–2014


$10

$9

$8

$7

$6

$5

$4

$3

$2

$1

$0

2010 2011 2012 2013 2014

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

US & Canada

Europe

ROWAsia



Facebook, Inc.

27

EXHIBIT 6 Facebook User Penetration by Country, as a Percentage of Internet Users

Source: “Facebook User Penetration Worldwide, by Country, 2013–2018,” eMarketer, December 15, 2014. Estimates are based on the analysis of survey and traffic data from research firms and regulatory agencies; Facebook company releases; his-torical trends; Internet and mobile adoption trends; and country-specific demographic and socioeconomic factors.

2013 2014 2015 2016 2017 2018

Indonesia 69.00% 69.90% 72.50% 75.60% 78.00% 78.30%

Mexico 65.60% 67.30% 70.00% 73.30% 75.30% 77.50%

Brazil 61.70% 66.90% 69.50% 72.60% 75.00% 75.30%

Argentina 65.00% 67.00% 68.00% 70.00% 71.00% 72.00%

Canada 62.00% 63.00% 64.00% 64.60% 65.20% 65.70%

Australia 59.40% 60.80% 62.10% 62.70% 63.30% 63.40%

Netherlands 61.30% 61.70% 62.10% 62.30% 62.40% 62.50%

Sweden 59.00% 61.30% 61.90% 62.20% 62.50% 62.80%

United Kingdom* 59.90% 61.10% 61.40% 61.70% 61.60% 61.50%

Norway 59.90% 60.30% 61.10% 61.80% 62.60% 63.30%

U.S.* 60.00% 60.10% 60.30% 60.70% 61.20% 61.70%

Finland 56.40% 58.60% 59.30% 60.10% 60.60% 61.40%

Denmark 55.00% 56.90% 57.70% 58.10% 58.90% 59.60%

Spain 52.60% 54.00% 56.40% 58.10% 59.20% 60.20%

Italy 49.20% 51.30% 53.40% 54.50% 56.30% 58.00%

India 45.50% 45.60% 48.50% 52.00% 55.00% 57.00%

France 43.80% 45.00% 46.40% 47.20% 47.90% 48.60%

Germany 35.30% 36.50% 38.00% 39.50% 41.10% 42.70%

South Korea 30.40% 31.20% 32.00% 32.70% 33.10% 33.60%

Japan 25.30% 26.00% 26.70% 27.20% 27.80% 28.30%

Russia 18.00% 19.00% 20.00% 21.00% 22.00% 23.00%



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Facebook, Inc.

EXHIBIT 7 Relative performance of Facebook’s Stock Price versus the NASDAQ 100 Index through April 7, 2015

Source: Bloomberg Data, April 7, 2015. The percentage change for each Facebook and the NASDAQ 100 Index are relative to the first day when both were trading (NASDAQ 100 Index began trading December 18, 1998).

NASDAQ-100 Index

Facebook Inc.200%

150%

100%

50%

0%

-50%

5/17/2012 11/17/2012 5/17/2013 11/17/2013 5/17/2014 11/17/2014 5/17/2015



Facebook, Inc.

29

EXHIBIT 8 Detailed Biographical Information of Facebook’s Leadership

MARK ZUCKERBERG

Founder Mark Zuckerberg (nicknamed “Zuck”) remains the chief executive officer (CEO) and chairman of Facebook, despite the fact that many founders of successful technology startups are asked by venture capitalists to turn over the reins to more experienced, professional managers. Compelled by the company’s vision to connect the world by building a great user experience, Zuckerberg won’t see his ambitions sidelined by an outsider motivated primarily by increasing shareholder value. Facebook is the obvious fusion of Zuckerberg’s academic passions in psychology and computer science at Harvard. The website collects data to map out human relationships and social connectivity, which Zuckerberg refers to as a social graph. Taken together, it is a social graph that has mapped one-tenth of the world population in less than seven years.

In the early days, Facebook operated directly under Zuckerberg, who coded much of the original site and then managed the engineering teams in the next phase. As Facebook grew out of its start-up phase, however, some industry observers began to argue that the company was maturing faster than Zuckerberg was as its CEO. At times, Zuckerberg’s inexperience and casual appearance have received criticism. On several occasions, Zuckerberg has worn flip-flops and hoodies to meetings with other executives. With his habit of arriving late to work and staying into the middle of the night, even his work schedule hearkens back to college habits. He received more negative press over comments he made in a speech in 2007, when he stated that “young people are just smarter.” 1 In recent years, it seems that Zuckerberg has actively sought to improve his public image and culled his brashness and activities. He even hired a public speech coach, former president Bill Clinton’s speech adviser.

Even as Zuckerberg has adapted to his role as a business leader, the way the company has tried to juggle user privacy and the monetization during his tenure has opened him up to additional criticism. In December 2007, Facebook launched a new advertising mechanism called Beacon. The feature was designed to track users’ activity across all of the websites they visited and share their activity with friends via their Facebook account. Its release prompted condemnation from users and privacy groups alike. A similar situation occurred in 2009, when the company released new privacy controls that, under the new settings, made public some messages originally thought to be private. Addressing privacy concerns effectively remains in the front of Zuckerberg’s mind as he considers ways to monetize Facebook’s prime audience, mobile users.2

More recently, Zuckerberg’s ability to manage the company in light of its 2012 IPO was put in question after the company’s rocky start to life as a publicly traded company. It was speculated that Zuckerberg, as an entrepreneur at heart, was wary of the capital markets—suspicions that motivated him to keep the company private for much longer than the likes of Google or Amazon. Once public, he appeared to be unable to inspire confidence in investors that the company’s business model would propel the company forward.3

SHERYL SANDBERG

Sheryl Sandberg joined Facebook as chief operating officer (COO) in 2008, following a six-year stint as Google’s vice president of global online sales and operations. In that capacity, she worked with Google’s AdSense and AdWords programs; a unit that began with a staff of 300 but grew to 4,000, or about one-quarter of Google’s work force, under Sandberg’s leadership.4 Eric Schmidt, Google’s CEO at the time, considered her a “superstar,” but tensions grew between the companies after her departure, partly because Sandberg recruited Google executives and employees to work for Facebook.5 Sheryl Sandberg attended Harvard for both her undergraduate (economics) and graduate (MBA) degrees. She worked at McKinsey & Company and as chief of staff for Lawrence Summers at the U.S. Department of Treasury prior to working at Google.6 Time magazine considers her one of the “100 Most Influential People in the World,” and Fortune places Sandberg as one of the “50 Most Powerful Women in Business.”

Sheryl Sandberg is a vocal advocate for women in leadership. Her TED talk entitled “Why We Have Too Few Women Leaders” has some three million views,7 and her book Lean In is a bestseller. In both, Sandberg speaks about the low number of female leaders in today’s society and how to overcome this situation.8

As COO and Zuckerberg’s second in command at Facebook, Sandberg focuses on operations, revenue, and international reach. She was also tapped for her sales, business development, public policy, and communications prowess. Given Zuckerberg’s public relations challenges, many consider Sandberg the “professional face” of Facebook.9 Zuckerberg sought

(continued)



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out Sandberg amid a shakeup of his executive team. He was looking for someone who would be comfortable serving as his No. 2 within the company, allowing him to maintain a tight rein on Facebook’s activities. To some extent, the leadership dynamic between the CEO and his COO can be explained in simple terms: Zuckerberg brings in the users, while Sandberg brings in the money. The dynamic between the two is respected within both Facebook and its board of directors.

Sandberg has been able to attract high-profile advertisers by showing them how targeted their ads can be when they’re hooked into a network as intimately familiar with its users as Facebook is. She has also stepped up in unexpected areas when needed, such as when she completed a round of funding for Facebook when its chief financial officer (CFO) left suddenly.10 Sandberg is known for her ability to form teams and break deadlocks, bringing an analytics perspective and authentic communication to bear on the issues. In this way, Sandberg has been a key figure in reshaping Facebook’s business model. She is now working hard to help Zuckerberg find a viable business model that will monetize the company’s mobile users.11

DAVID EBERSMAN

After the departure of Facebook’s chief financial officer (CFO) Gideon Yu in 2009, the company sought a CFO with public company experience that could help it prepare to go public in the next few years.12 The search turned up David Ebersman, who was in his 15th year as CFO at the biotech company Genentech Inc. Prior to working at Genentech, Ebersman, who received an undergraduate degree in economics from Brown University, held positions with Oppenheimer & Co. Inc. and the U.S. Department of Treasury.13

Ebersman was indispensable to the launch of Facebook’s IPO on May 18, 2012, working closely with advisers from the institutions underwriting the offering, particularly those at J. P. Morgan. The SEC and the media criticized Ebersman for his decision to raise the number of shares offered in Facebook’s IPO three days before Zuckerberg rang the NASDAQ bell, even going so far as to blame this decision for the stagnant stock price on the day the IPO was issued.14

Sources: 1 “Facebook CEO seeks help as site grows up—Google veteran to be Zuckerberg’s no. 2,” The Wall Street Journal, March 5, 2008, http://on.wsj.com/TBMcIs.

2 Ibid.

3 Vardi, N. (2012), “Mark Zuckerberg’s Big Facebook Mistake,” Forbes, July 27.

4 Helft, M. (2010), “Mark Zuckerberg’s most valuable friend,” The New York Times, October 2, http://nyti.ms/1aiOvsN.

5 Ibid.

6 “Person of the Year: Mark Zuckerberg,” Time magazine, December 15, 2010.

7 http://www.ted.com/talks/sheryl_sandberg_why_we_have_too_few_women_leaders.html.

8 Sandberg, S. (2010), “Why we have too few women leaders,” TEDWomen, December.

9 “The acceptable face of Facebook,” The Economist, July 21, 2011, http://econ.st/VDqBi8.

10 Sandberg, S. (2013), Lean In (New York: Knopf).

11 “Facebook CEO seeks help as site grows up.”

12 “Facebook seeks a new finance chief as Yu leaves,” The Wall Street Journal, April 1, 2009, http://on.wsj.com/1jska.

13 “Facebook hires finance chief,” The Wall Street Journal, June 30, 2009, http://on.wsj.com/4vQ9Fa.

14 “Inside fumbled Facebook offering,” The Wall Street Journal, May 23, 2012, http://on.wsj.com/JEVdyb.



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31

EXHIBIT 9 Total Media Ad Spend Worldwide, by Media, 2013–2018 (in billions)

Source: Authors’ depiction of data in eMarketer’s report “Total Media Ad Spending Worldwide, by Media and Format, 2013–2018.”

Radio

TV

200%

150%

100%

50%

0%

-50%

2013 2014 2015 2016 2017 2018

Digital

Outdoor

Print



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EXHIBIT 10 Net U.S. Digital Ad Revenue by Company, as a Percentage of the Total Market, 2013–2017 (in percent)

Source: Authors’ depiction of data in eMarketer’s report “U.S. Ad Spending: Q1 2015 Complete Forecast.”

Twitter

Google

45

40

35

30

25

20

15

10

5

0

2013 2014 2015 2016 2017

Facebook

YahooMicrosoft



Facebook, Inc.

33

EXHIBIT 11 U.S. Ad Revenue Dynamics, 2013–2017

(continued)

80

70

60

50

40

30

20

10

0

Google Microsoft Yahoo IAC Yelp

2013 2014 20152016 2017

Panel 1: Net U.S. Search Ad Revenue, as a Percentage of Total. The Top 5 Companies Are Shown



34

Facebook, Inc.


(continued)

30

25

20

15

10

5

0

Facebook Google Twitter Yahoo AOL

2013 2014 20152016 2017

Panel 2: Net U.S. Display Ad Revenue, as a Percentage of Total. The Top 5 Companies Are Shown



Facebook, Inc.

35


(continued)

Display Mobile

70

60

50

40

30

20

10

0

2013 2014 2015 2016 2017

Search Desktop Search Mobile Display Desktop

Panel 3: Google’s Net U.S. Ad Revenues, by Device and Format (revenue in billions of dollars)



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Facebook, Inc.


Source: Authors’ depiction of selected data in “U.S. Ad Spending: Q1 2015 Complete Forecast,” eMarketer, March 24, 2015.

100

90

80

70

60

50

40

30

20

10

0

2013 2014 2015 2016 2017

Facebook Google Twitter

Panel 4: U.S. Ad Revenue Share for Mobile Devices, Relative to Total Marketing Revenue of Company (in percent)



Facebook, Inc.

37

Endnotes

1 Marvin, G. (2014), “7 Challenges Facing Google with the Rise of Native Mobile Advertising,” Marketing Land, December 22.

2 The Social Network [Film], 2010.

3 “Facebook IPO filing puts high value on social network,” USA Today, February 2, 2012, http://usat.ly/y5z8UK.

4 “A brief history of Facebook,” The Guardian, July 24, 2007, http://bit.ly/AHNfU.

5 “Facebook IPO filing puts high value on social network.”

6 “Facebook Form S-1 registration statement,” SEC, May 16, 2012, http://Lusa.gov/LJb1NN.

7 Ibid.

8 Facebook, Inc. 10-K Annual Report, filed 01/29/2015.

9 Ibid.

10 Ibid.

11 “Facebook Closes in on 1 Billion Mobile Users Worldwide,” eMarketer, January 21, 2015.

12 Garner, P. (2015), “Overview of Facebook’s 4Q14 earnings and business developments,” Market Realist, February 11.

13 Harrup, A. (2014), “Facebook’s Zuckerberg Says WhatsApp Could Reach Three Billion Users,” The Wall Street Journal, September 5.

14 “Facebook User Penetration Worldwide, by Country, 2013–2018,” eMarketer, December 15, 2014.

15 “Floating Facebook: The value of friendship,” The Economist, February 4, 2012, http://econ.st/yq7kQa.

16 Coleman, A. (2014), “What Germany Can Teach the Rest of Europe About Twitter,” Forbes, July 10.

17 Washenko, A. (2015), “How Social Media Behaviors Differ Across Asia Pacific,” Sprout Social, January 21.

18 “Facebook overview,” Facebook, http://bit.ly/GMr0Lq.

19 “Graph search event video,” FacebookNewsroom, January 15, 2013, http://bit.ly/14mMqrL.

20 “Facebook overview.”

21 “Graph search event video.”

22 Ibid.

23 “Facebook on collision course with Google on web searches,” The Wall Street Journal, January 16, 2013, http://on.wsj.com/14mMZBT.

24 Ibid.

25 “Facebook overview.”

26 Ibid.

27 “Facebook to organize friends into lists,” The Wall Street Journal, September 13, 2011, http://bit.ly/Vltapl.

28 Facebook Statistics; http://www.statisticbrain.com/facebook-statistics/.

29 “Facebook sets historic IPO,” The Wall Street Journal, February 2, 2012, http://on.wsj.com/xcZO7h.



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30 “Facebook prices IPO at record value,” The Wall Street Journal, May 17, 2012, http://on.wsj.com/J0D5tn.

31 “SEC could seek NASDAQ upgrading,” The Wall Street Journal, June 29, 2012, http://on.wsj.com/NHWO36.

32 “Facebook IPO hasn’t hit NASDAQ volumes,” The Wall Street Journal, June 29, 2012, http://bit.ly/ViCGcx.

33 “Analysts hit the tepid button on Facebook,” The Wall Street Journal, June 28, 2012, http://on.wsj.com/LB2NcX.

34 Ibid.

35 “Google edges closer to Facebook as U.S. display advertising becomes two-horse race.”

36 “Analysts hit the tepid button on Facebook.”

37 “SEC could seek NASDAQ upgrading,” The Wall Street Journal, June 29, 2012, http://on.wsj.com/NHWO36.

38 “Stock traders to Mark Zuckerberg: Do you hear us now?” Forbes, July 31, 2012, http://onforb.es/PkPafk.

39 Rusli, E. (2014), “Profitable Learning Curve for Facebook CEO Mark Zuckerberg,” The Wall Street Journal, January 5.

40 Ibid.

41 “Facebook plays defense,” The Wall Street Journal, September 5, 2012, http://on.wsj.com/PZnD7U.

42 “Zuckerberg admits to missteps,” The Wall Street Journal, September 11, 2012, http://on.wsj.com/OEFfmx.

43 “Facebook Form S-1 registration statement.”

44 Rusli, E. (2014), “Profitable Learning Curve for Facebook CEO Mark Zuckerberg,” The Wall Street Journal, January 5.

45 Ibid.

46 Ibid.

47 Rusli, E. (2013), “Even Facebook Must Change,” The Wall Street Journal, January 29.

48 Edwards, J. (2014), “Here Are Facebook’s 5 Biggest Advertisers,” Business Insider, May 6.

49 Lafferty, J. (2015), “Facebook PMD Program Officially Changed to Facebook Marketing Partners,” Social Times, February 17.

50 “Yahoo Poised to Pass Twitter in U.S. Mobile Ad Share by 2015,” eMarketer, December 4, 2014.


52 “Facebook Closes in on 1 Billion Mobile Users Worldwide,” eMarketer, January 21, 2015.

53 Rusli, E. (2013), “Facebook Crossed Its $38 IPO Price,” The Wall Street Journal, July 31.



56 Ibid.

57 “Introducing Graph Search: Help people discover your business,” Facebook-Studio, January 15, 2013, http://bit.ly/WcKyPl.


59 Ibid.



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39

60 “Total Media Ad Spending Worldwide, by Media and Format, 2013–2018,” eMarketer, March 6, 2015.

61 “Mobile Ad Spend to Top $100 Billion Worldwide in 2016, 51% of Digital Market,” eMarketer, April 2, 2015.

62 “Facebook annual report,” Facebook, 2012.

63 Ibid.; “Facebook IPO filing.”

64 “Facebook F8,” Wikipedia.https://en.wikipedia.org/wiki/Facebook_F8

65 Facebook, Inc. 10-K Annual Report, filed 01/29/2015

66 Ibid.

67 Ibid.

68 Metz, C. (2014), “Facebook Challenges Google with Its Own Mobile Ad Network,” Wired, January 22.

69 Estienne, S. (2014), “Facebook challenging Google in online ad market,” Yahoo News, October 15.

70 Marshall, J. (2014), “Facebook Extends Reach with New Advertising Platform,” The Wall Street Journal, September 22.

71 Van Grove, J. (2015), “Facebook Takes On Google’s YouTube in Competition for Video Ads,” The Street, January 20.

72 “U.S. Digital Video Ad Spending, 2013-2019,” eMarketer, March 9, 2015.

73 Barr, A. (2015), “Facebook Challenges Google with Product Ads,” The Wall Street Journal, February 17.

74 “Insta-Rich: $1 billion for Instagram,” The Wall Street Journal, April 10, 2012, http://on.wsj.com/IfvnR7.

75 “Instagram Will Top 100 Million U.S. Users by 2018,” eMarketer, March 4, 2015.

76 “Insta-Rich: $1 billion for Instagram,” The Wall Street Journal, April 10, 2012, http://on.wsj.com/IfvnR7.

77 Frier, S. (2014), “Facebook $22 Billion WhatsApp Deal Buys $10 Million in Sales,” Bloomberg, October 29.

78 “Four Numbers That Explain Why Facebook Acquired WhatsApp,” Jim Goetz, on behalf of Sequoia Capital, Tumblr, http://sequoiacapital.tumblr.com/post/77211282835/four-numbers-that-explain-why-facebook-acquired - comment-1253364330.

79 “U.S. Ad Spending: Q1 2015 Complete Forecast,” eMarketer, March 24, 2015.

80 Ibid.

81 Marvin, G. (2014), “7 Challenges Facing Google with the Rise of Native Mobile Advertising,” Marketing Land, December 22.


83 Estienne, S. (2014), “Facebook challenging Google in online ad market,” Yahoo News, October 15.


85 Winkler, R. (2015), “Google+, a Disappointment with a Purpose,” The Wall Street Journal, March 4.

86 Kemp, S. (2014), “Global Social Media Users Pass 2 Billion,” We Are Social, August 8.

87 Efrati, A. (2013), “There’s no avoiding Google+,” The Wall Street Journal, January 2.

88 “Why it doesn’t matter that Google+ users only spend three minutes a month on the site,” Forbes, February 28, 2012, http://onforb.es/yoxUre.

89 “Twitter shares active user numbers,” The Wall Street Journal, September 8, 2011, http://on.wsj.com/q27dF1.



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90 “Twitter VP Jason Goldman steps down,” The Los Angeles Times, December 8, 2010, http://lat.ms/fSWZnI.


92 Koh, Y. (2015), “Twitter’s User Growth Falls Below Facebook’s for the First Time,” The Wall Street Journal, February 5.

93 Frier, S. (2015), “Twitter Reaches Deal to Show Tweets in Google Search Results,” Bloomberg, February 4.

94 Patel, N. (2015), “Everything You Need To Know About The Google-Twitter Partnership,” Search Engine Land, March 20.

95 “Twitter Users Worldwide by Country, 2013–2019,” eMarketer, April 1, 2015.

96 “Twitter Share of Social Network Uses Worldwide by Country, 2013–2019,” eMarketer, April 1, 2015.

97 “Facebook Users and Penetration Worldwide, by Region, 2013–2018,” eMarketer, December 15, 2014.

98 “What keeps Facebook up at night,” Fox Business, February 2, 2012, http://fxn.ws/yRkBrc.


100 Chowdhry, A. (2014), “Facebook Removes Microsoft Bing Search Feature,” Forbes, December 15.

101 “Microsoft to acquire Skype,” Microsoft, May 10, 2011, http://news.microsoft.com/2011/05/10/microsoft-to-acquire-skype/

102 “Why the Facebook-Microsoft alliance should worry Google,” The Wall Street Journal, July 7, 2011, http://bit.ly/noRRYd.

103 Parkhurst, E. (2012), “Microsoft, Facebook get cozy as competitors hover,” Puget Sound Business Journal, May 4, http://bit.ly/17N5yzp.

104 Gupta, M. (2015), “A Battle for Dominance: Google vs. Facebook,” Techvibes, March 27.

