MASTER OF BUSINESS ADMINISTRATION

MGT 6798

CASE METHODOLOGY:

An Individual Assignment

Submitted to: Mr. Ayub bin Hj. Khalid

Submitted by: Fakhrul Anour bin Abdullah G1136857

0|Page

CONTENTS

1- ABSTRACTS 2- INTRODUCTION 3- PROBLEM STATEMENT 4- SWOT ANALYSIS 5- CONCLUSION 6- RECOMMENDATION 7- OTHER REFERENCES

Page 02 Page 03 Page 06 Page 08 Page 09 Page 10 Page 13

1|Page

ABSTRACT

A lot of them (a ton of random things) just werent meant for other people to see, and they were just things that I made for myself because I thought that they would be cool.
Mark Zuckerberg (founder of FACEBOOK)

The main objective of this case is to DEVELOP A DECISION to keep up with the fast growing technology based business while ensuring FACEBOOKs user experience was better than its competitors. To do that it has to use all its internal forces to be different and unique in order to remain popular an able to overcome competitors threats and intense media scrutiny.

2|Page

INTRODUCTION

The Social Network is one industry that venture into a business that the financial strength mostly comes from investments of advertisements, supporting funds and sponsorships. All it takes for a social network to gain such strength is by increasing number of users to raise a community that can easily be reached by businesses. Looking at FACEBOOK, this case analysis will foresee how a social network established and gain profitable income to support its long run.

The predecessor of FACEBOOK was called facemash which brought in 450 visitor and 22,000 photo views in its first four hours online based at Harvard University.

FACEBOOK was officially launched on 4th February 2004 for college students by the Harvard drop-out, Mark Zuckerberg with his college mate Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes. It all started with nothing but intuition to get along with other at ease by network technology. With his coding talent to write software, this 21 years old man who supposed to be major in psychology quit Harvard to concentrate on his successful creation. FACEBOOK is an online social networking service. Its name stems from the colloquial name for the book given to students at the start of the academic year by some American university administrations to help students get to know one another consisting of individuals photographs and names. It is a free service and accessible to anyone with .edu email account which limits its use to college student. They can create personal profile, interest & current course scheduleyour friends are your peers & have own privacy settings.
3|Page

It started off without any business vision, it was just an idea and intuition to create a college wide FACEBOOK online where students could communicate regardless of where they lived. But within 2 years the organization had grown from a few friends programming around a kitchen table to a full fledge technology business to over 100 employees and 7.5 million users! Since it has grown BIGGER unexpectedly so why not explore further, expand and continue to sustain in the market.

It was not really scientific; it was just intuition and probably wrong.

I guess its mostly a utility for people to figure out just whats going on in their friends lives, (and those) people they care about.
Mark Zuckerberg

Mark Zuckerberg had been programming since he was 10 years old, and his skills had, in his words reached a point where it went into my intuition, and I wasnt really thinking that much about it consciously. He had created (unlike FACEBOOK) many computer programs which went unnoticed.

By June 2004, FACEBOOK was serving about 30 colleges in United States and had about 150,000 registered users. Eleven months later it has reached into a million users! By late May 2005, FACEBOOK had attracted 2.8 million registered users on more than 800 college campuses.
4|Page

Then by September 2005, FACEBOOK entered the market of high schools at United States which the users increased much fasterin six to seven months the users reached a million registered! The popularity just not ends there when the management starts to figure another group of users, the alumnithose graduated from high schools and colleges still return to FACEBOOK each day.

At the end of this school year, were going to have a group of seniors graduate who has been on FACEBOOK for 2 years. Instead of just saying well let you on if have an alumni e-mail address, we might try to do something more proactive to get them on the site.
Mark Zuckerberg

As of April 2006, FACEBOOK organization had grown to over 100 employees, and most were located in a single office in Palo Alto, CA. Its user base was growing at an impressive rate; from ~5.0 million users in late October 2005 to over 7.5 million in mid April 2006, when FACEBOOK was available in over 2,100 colleges and over 22,000 high schools. Through Sean Parker, the co-founder of Napster that became the first president of FACEBOOK, the leverage strength of the companys financial stability increased. He helped the company to secure a number of meetings with potential investors & entrepreneurs. As the company needs money to support its cost of servers and operational activity, the first investment came from Peter Thiel, a venture capitalist and founder of PayPal with the value of $500,000. From there, a vision followed by mission started to flourish in the organization to turn the social network into a successful internet business.

A few other people have invested a few thousand dollars here and there, but Im sort of the main investor, pre-venture,
Peter Thiel (founder of PayPal)

Note: PayPal was acquired by eBay in 2002.

5|Page

PROBLEM STATEMENT

Security and privacy Since the existence of FACEBOOK until the end of 2005, the target users are only students with the age ranged between 15 until 35 years and above. Therefore the limitation that this social network had to face was on the security and privacy factors. For example in 2005, various media outlets offered condemning reports on social networking sites upon many topics of security and privacy. Even the users (in this case the students) complained about how the websites were being abused.

Our mission is to increase information flow between people and to help people learn whats going on in their world and express themselves. Mark Zuckerberg
Business Model In the beginning, FACEBOOK was never made for financial profit but more on social platform to extend communication ability among users. But as the number of users started to grow rapidly, it has provided a certain value of credibility to attract businesses in utilizing increasing network. Thus FACEBOOK needed to re-evaluate its strategy from a free platform into a profitable social network. Legal Issues Entering into business means that FACEBOOK need to increase its shield by investing into legal protection and at the same time preparing verdicts for any legal attacks from competitors or users. For example in 2nd September 2004, ConnectU.com (an online meeting place for student) filed a lawsuit against Facebook for stealing idea & source code. Apart from that the security and privacy need the legal protection from being breached.

6|Page

Competition Since late 1990s, the creation and discovery of social networks has become an explicit website designed to connect people online. The attention received through registered users with average not less than 500,000 has attracted businesses to utilize the accumulative community potential for marketing and sales purposes through advertising and spread awareness. The social network has become another alternative to easily spread information with less cost. Before FACEBOOK, there already existed a few successful social network especially MySpace. The incoming of FACEBOOK either was a sign of threat, or juggernaut from extreme competitors.

create friends and post bulletins board items in first, second and

1997, created by Andrew Weinreich from New York City. Meant to third degrees. It failed after year 2000.

became eGroups to share calendar, file space, group chat & simple

1997 (Jan.), Scot Hassan started the e-mail comm. svc which later database. Bought by Yahoo! Groups in year 2000.

1998, AOL acquired for $287 million the ICQ, an instant message

setup program by Israeli-based (svc) created in 1996.

2000s (early), a recreational social networks service formed in by Jonathan Abrams. A prominent dating website & was use as a powerful human relationships to connect each other.

2003, an online business & professional services was created. These site help in hiring managers &talents referral that allow management to communicate and interviews them.

2003, founded by Chris DeWolfe & Tom Anderson, its an online community website that lets you meet friends Friend. Other features include group invitations, events, classified & forums.

2004 (Jan.), another network was found by Turkish born Google software engineer. This web restrict to membership by invitation only.

7|Page

Buyout As business grows bigger, the company value will increase to gain potential on attracting buyers to offer a luxury exit. When FACEBOOK accepted a venture capital from Accel Partners for $12.7 million at a reported $100 million valuation, the hunger of capital markets for business with such value gave a spark to bid. Though Mark Zuckerberg was not a businessman but he gave the final decision to the company. On 28th March 2006 reported by BusinessWeek Online, it had become quite a debate when FACEBOOK rejected $750 million buyout offer when he expected $2 billion in sale compared to its valuation of $100 million. Did Mark Zuckerberg with FACEBOOK made a proud decision with arrogant demand?

Facebook was not originally created to be a company. It was built to accomplish a social mission - to make the world more open and connected.
Mark Zuckerberg

8|Page

SWOT ANALYSIS

OPPORTUNITES
1) Facebook has an extensive opportunity to make use of the data collected 2) The current popularity 3) Expand their B2B Network.

THREATS
1) Competitive threats. The major SocialNetworking sites are actively trying to get a hold of Facebook. (Twitter, Tumblr, LinkedIn, Google +). 2) Highly competitive ad market 3) Low switching cost

STRENGTHS
1) Long term commitment 2) Wide range of users regardless of their age group or status 3) Daily retention 4) One of the fastest, evolving and adaptable websites 5) Translated in more than 70 languages 6) User-friendly

S-O
Its a social network for the users that involves one at a personal level. It possesses a clean layout that makes sharing is very easy through the website. Turn the introduction pages to a place of communication to expand awareness.

S-T
Spend on R&D in order to create advanced value to their website to exceed the competitors. And by having the collectivity of the users regardless of their age group or status, it will give FACEBOOK a competitive advantage against its competitors.

WEAKNESSES
1) Facebook privacy settings. (Leak of millions of private photos over the internet). 2) Dependence on Display Adds. Up to 80% of revenues come from ads. 3) Uneasy Customization

W- O
Through surveys and polls can expect information regarding different services for different businesses before making any investment decision. Its to create fair situation of free usage with benefit.

W-T
Invest on developing privacy policy to increase security over the users photo and privacy. Improve the service regard on their communication capability by improving the page interface and increase functional attribution.

9|Page

CONCLUSION

Legal issues on business lawsuits are a common attack on patent infringement especially upon new creation of a productonce compared. But with the growth of a business upon capital ventured and acquisitions, any competition brought to legaleither about issues of patents or lawsuits against security breach can be settled overtime. As FACEBOOK creation derived from the honest nature of a man in trying to build a platform that can easily build a social bridge, any faulty evidence can be repelled by the witness of community users or through business partnerships. For example (based on extended research), the lawsuit made by ConnectU.com in 2004 was settled five years later through acquisition with FACEBOOK.

They were three Harvard students with a bright idea but not a lot of computer expertise, so Cameron and Tyler Winklevoss with Divya Narendra (center) enlisted a sophomore named Mark Zuckerberg to help them build a socialnetworking site for college students named ConnectU. On September 2004, they filed a lawsuit against FACEBOOK for stealing ideas and source code. Then on June 2008, FACEBOOK settled by acquiring ConnectU for $20 million in cash and over $1.2 million in shares, valued at $45 million based on $15 billion company valuation.
1

http://www.boston.com/business/technology/articles/2008/06/27/facebook_connectu_settle_dispute/

10 | P a g e

Usually when it comes to high alert of security and privacy of social networks, most responsible companies will be on action to ensure they are always in the improvement site to reduce the matters. As FACEBOOK was very much aware that its core target of users was students; therefore a variety of proactive measures to protect its members has been taken into action, such as using technology to crawl the site for fake profiles. On the other side, FACEBOOK had built a directory utility that became more useful to its members the more they revealed themselves. Consequently, FACEBOOK was architected to enable a freer flow of information. Then when it comes to business model, FACEBOOK had built a systematic financial flow to attract profit through advertisements, funding and sponsors so those ventures could support the costs on operational activity and servers needed to ensure the long-run of its freebased social network.

The business model of FACEBOOK:

Operational costs Server costs

FACEBOOK Announcements: text-only school per day Fees: $5 - $20 (based on impressions) Banner Announcements: graphical ad national advertisers across websites pages Sponsored Groups: sponsor groups or promotional areas on the website Venture Capital: Accel Partners invested $12.7 million with reported valuation (expected return) of $100 million.

I think we had 30 VCs who had expressed an interest in the deal.

Sean Parker

Sponsored groups help us keep the service free & fast.

M. Zuckerberg

The most important thing in this business model is how FACEBOOK maintained its daily retention of its users by sustaining value and supporting the incoming of new users.

11 | P a g e

In order for businesses to buy advertisements is by looking at its potential rate to reach public. The more circulation provided in order to spread the information, then more value it can sells product through the widespread of advertisements. By looking at the daily retention rates of FACEBOOK users when compared to other social networks, even MySpace was not performing at how FACEBOOK could perform.

MySpace

Vs.

Friendster

5 most popular website! Music destination: 350,000 (bands + artists) Intermix Media, Inc. (sold): $580 million (cash)! 614.7% Oct. 2004 Oct. 2005: (24.3 million users!)

th

Technical scalability issues Paid for slow response times Expanded features: File-sharing capabilities for all media types Oct, 2003 - Oct. 2005: 2% (1.4 million unique visitors!)

FACEBOOK

Oct. 2005 Apr. 2006: ~5 million users to >7.5 million users! 2,100 colleges 22,000 high schools Usage patterns: 25% (MONTHLY RETENTION!) The BUYOUT Valuation value: $100 million Offer value: $750 million Sale value: $2 billion

During the period when FACEBOOK was in its growing process in the United States, two of its main competitors that went global, MySpace and Friendster were in comparison based on the level of performance in financial and users stability. When each of the social networks was trying to improve by adding new functions to its services, FACEBOOK was moving ahead on simple outlook with high circulation of active users online.

12 | P a g e

RECOMMENDATION

At this time of period when FACEBOOK was still in the United States, the decision of Mark Zuckerberg not taking any exit was considered a smart move, especially when he quoted much higher value of FACEBOOK ($2 billion) against the buyout value offered ($750 million). It was a signed that Mark Zuckerberg had a confident level based on his intuition towards the success of FACEBOOK in the future. With the rapid success of FACEBOOK in United States within that three years (20042006) since its existence, it is recommended that the company keeps its core value to growth organically. The strength of its operational value had been proven effective while the performance of its website had been certified affective by many users registered (with daily retention).

The organization

bridge

The community

The business

Through times ahead, as FACEBOOK going strong for global market, it should increases its value with expansion through merger and acquisitions or taking over other companies that can strengthen the performance of its financial without effecting its core business as a freer flow of information.

13 | P a g e

I think that it might be pretty relevant, but it requires some thought about what those specific cultures are & maybe the density of students in those cultures I think that, as time goes on, well definitely invest the time & resources into (growing internationally). Mark Zuckerberg

14 | P a g e