Facebook, The Perfect Startup

Facebook, The Perfect Startup
the Perfect Startup Five keys to their unprecedented success LOGO . …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 1
••• A quick word from Stéphane Distinguin ( CEO – faberNovel ) …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... It is not about the IPO the entire world is We all know Facebook. commenting on: an IPO is certainly not an We all know Mark Zuckerberg. end, but a point on a startup trajectory. These are the names. It’s all about perfection. Up to now, Facebook has been the perfect startup, not because it has We all know the figures, succeeded in everything, but because its has built they are mind-blowing: more than itself step by step, in a very pragmatic way. There is no miracle here: it is just a startup that has had an 900 million members for a current almost perfect stance towards every challenge it has valuation of over 100 billion dollars. faced to date, and has built the most fascinating innovation platform. At first sight, we all knew Facebook Perfection is rarely encountered and even harder to would be the biggest start up "after analyze… At faberNovel, as we do every year, and Google", Mark Zuckerberg, the Social after Google, Apple and Amazon, we wanted to Network hero, a juvenile CEO signing highlight what could be the formula behind Facebook's roaring success. Is there a formula for perfection? We autographs and striking the pose like would like to share our discoveries, our dissection of one of the biggest rock stars of his this marvel just to make it more useful for all of you. I generation. am not sure perfection will be achievable for all of us, but it certainly is our best source of inspiration. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 2
••• This work was made for you to share, reuse, remix, rework… …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... It is licensed under the Creative Commons BY-NC-SA license to allow for further contributions by experts and users in the coming months. You are free to share and remix/adapt the work. You must cite this document: faberNovel, Facebook: The Perfect Startup, May 2012. You may not use this work for commercial purposes. You may distribute a modified work under the same or similar license. Why do we release this kind of work for free? Our job is to help big organizations think and act like startups. And we believe that this cannot be achieved without causing people to want to innovate and explore new business models. Our ambition is to inspire you by giving you the keys to understand new markets like Russia or successful companies like Apple, Amazon… or Facebook. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 3
••• Facebook is quite a big 8 year old … …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... billion Likes & Comments per day million Photos uploaded per day million user accounts 12.8% global market share! Average Time spent by users in a month Source: Facebook S-1, May 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 4
••• … with many characteristics of a giant . …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Instagram Snaptu Friendfeed $1 billion $65 million $47.5million (2012) (2011) (2009) The largest tech IPO in history $16 billion raised on the day of the IPO Which ranks its CEO among the TOP10 World’s Billionaires Source: Based on information disclosed by Facebook, May 2012; Facebook’s IPO commented by Bloomberg …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 5
••• Altough still a small company, relative to other tech giants …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Facebook’s Page Views = 10x Youtube’s but… Facebook’s Revenues = 10% Google’s 1 trillion $37b 100 billion $3.7b 26 years ld average Facebook employee age Source: Facebook, Google, Adplanner June 2011 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 6
••• Its meteoric growth results in a remarkably high valuation per employee …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... 3500 employees $30 million valuation per employee Obviously, they must be doing something right Estimates: Fabernovel, based on a $100b valuation; Number of employees: Facebook, May 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 7
We believe that Facebook’s amazing performance was driven by excellency in business management. Facebook is remarkable not so much in its product or usage, but in the way they built themselves as a company, from inception to maturity. What’s Facebook story? …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 8
••• Facebook isn’t the first social network in history …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... •  Created as an embryonic •  Probably the first genuine •  A reaction to Friendster social community. social network •  Chose an absolute freedom •  Bought by Yahoo in 1999 •  Faced technical difficulties policy for $3.57 billion. from 2004 to 2006 •  Huge success among artists •  Yahoo turned the service •  Lacked activity & content and celebrities into free web hosting in for the users •  Too much freedom attempts to monetize it. •  Chose a restrictive policy deteriorated the quality of •  Having lost the social (e.g. no pseudonym) the website element, the service •  Refused a $30 million •  Lacked activity for the users closed in 2009. buyout offer from Google •  Acquired by News Corp. for •  Acquired in 2009 for $26 $580 million in 2005 million after its reboot •  Sold for $35 million in 2011 to Specific Media These three social networks were short-lived leaders. Why would Facebook be different? …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 9
••• Facebook managed to survive 3 classical challenges …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Focus Technology Policy Facebook always kept the Facebook only experienced 3 Facebook has learned from the social feature at the center of severe outages: mistakes of its predecessors, the user-experience: •  The most severe outage keeping a balance between “Facebook’s mission is to Facebook faced was in 2010 freedom and control: make the world more open for 2.5 hours •  Allowing users to modify the and connected.” •  They experienced a few content difficulties later in 2010, •  Preventing users from Facebook stayed focused on unveiling new pages modifying the interface the “big idea”. •  In early 2012, some •  Allowing brands and artists Facebook’s European users to create special pages could not connect to the platform for a few hours …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 10
••• It has done so with a perfect scaling strategy …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Test Growth Consolidation College Networks Gradual opening to the world Self-sustaining community •  Low-scale •  Word-of-mouth extension (through •  Improvement of existing features •  High-density invitations) •  New features to maintain engagement •  High need to connect •  New features that drive engagement Build the platform Scale the platform Maintain the platform 2004-2006 2007-2010 Nowadays Source: Quora, “What are some decisions taken by the Growth team at Facebook […]?”, answered by Andy Johns …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 11
••• 2006 breakthrough: The News Feed – Your friends ticker tape …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... With the News Feed launched in 2006, Facebook managed to automate relevant content creation… from friends’ activity. The News Feed aggregates the user’s friends activity: status updates, photos uploads, comments… The more friends, the more content to explore. As every webmarketer knows: fresh content is key to generate stickiness. Facebook’s News Feed concept goes even further: providing user-centric content from his network, hence tastes and interests. News Feed gave a considerable competitive advantage to Facebook in its battle against MySpace, because it provides permanent user-centric content renewal. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 12
••• Facebook motto : “Product First”, but with business sense …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Mark Zuckerberg "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" But Zuckerberg quickly understood that business perspective benefits the overall management: •  Straightforward and quantifiable objectives •  Money can assemble the best team of developers In order to enforce these objectives, he hired Sheryl Sandberg as COO in 2008. Zuckerberg met Sandberg in 2007, at a Christmas party, while she was still Vice President of Online Sales and Operations at Google. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 13
••• With 56.6% of voting rights, M. Zuckerberg can keep the shareholders at bay …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Here’s an enlightening extract from Facebook S-1: “Our CEO has control over key decision making as a result of his control of a majority of our voting stock. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares,[…], in his own interests, which may not always be in the interests of our stockholders generally. “ Source: Facebook S-1 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 14
••• Zuckerberg even refused several opportunities to sell out …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... “I admire Mark Zuckerberg for not selling out, for wanting to make a company. I admire that a lot.” Steve Jobs (1955-2011) Revenue $3.7 billion $300 million invested by DST Global $15 billion to postpone IPO acquisition offer $10 million by Microsoft acquisition offer by Friendster $1.6 billion acquisition offer by Yahoo Revenue Revenue $777 million $382,000 Source: Steve Jobs quoted in Walter Isaacson biography; acquisitions offers reported by TechCrunch …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 15
••• To sum up, Facebook managed to tackle one of the most common tensions in any startup: Product vs. Business …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Product Business vs. Many startups struggle or fail when they find themselves prioritizing one over the second. Facebook seems to have passed this test quite brilliantly. What is fascinating with Facebook ? The way it deals with most startup challenges. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 16
••• Facebook’s excellency lies in managing classical startup challenges …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Technology & User Experience Business model exploration Business & Ecosystem Disruption Long term vision …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 17
••• 1.  Technology & User Experience …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 18
••• Facebook’s platform is both a best practice in user-centric design… …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Customizable appearance thanks to new Cover Picture Timeline featuring the user’s story, with milestones and events. Engaging content thanks to smart display Facebook New Timeline, released in 2011, replaced “The Wall” …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 19
••• … and technical wizardry …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Visual aggregation of numerous sources of content Third-party apps integration Action links to out-of-platform apps and software …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 20
••• The result let people and brands tell their story in a way that is engaging and new …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 21
••• Facebook accomplishes all of this at a breakneck, startup pace …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... A new version of Facebook million is released every Tuesday to users! = 12,000 modifications per month More than 1,000 developers deliver code to be released each week, most of the time small iterations… sometimes completely new features. Facebook manages to do this with a few simple rules: #1 #2 #3 Developers are “Move Fast and individually responsible “Mark is always right” Break Things” for the code they write. Source: Arstechnica.com, A behind-the-scenes look at Facebook release engineering, April 2012; Facebook Developer Garage, Paris, April 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 22
••• The key to Facebook’s agility: its testing process …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Facebook teams’ tools prove there’s no need to be sophisticated to be efficient. They work with hacker tools, such as: IRC chat (a geek instant messaging system) and P2P file- sharing technology (basically content piracy tools) to release Facebook each week! Source: Arstechnica.com, A behind-the-scenes look at Facebook release engineering, April 2012; Facebook Developer Garage, Paris, April 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 23
••• Acting like a startup is not just a question of process: it’s a question of culture …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Two atypical leaders…. Mark Zuckerberg, CEO Sheryl Sandberg, COO The Genius who hacked into Named in the top 100 most Harvard’s security network to influential people in the world, create the first version of and still leaving work at 5:30 Facebook at only 20. everyday to pick-up her children at school. … managing an army of highly-talented youngsters Avada Kedavra, Expecto Facebook average Patronum, Alohomora employee is 26 years-old Names of Facebook’ HQ meeting By comparison, IBM’s average rooms, inspired by Harry Potter magic employee is 44 year old… spells Source: Mashable …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 24
••• When it comes to new features, Facebook takes a pragmatic approach …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Customer feedback Fail fast, fail often Constant improvement New News Feed Deals Groups In 2011, Facebook introduced a new With Facebook Deals, the engineering Through analytics, Facebook News Feed which presented “Top team faced a lack of traction: the discovered that Groups were Stories” first. Despite the business product wasn’t used enough to justify it cannibalizing a large portion of opportunity offered by this new to continue. They simply shut the their new Pages. feature, Zuckerberg decided to service down. They decided to improve their Groups remove it and set up the “latest to meet the genuine objective of the updates first” as demanded by the feature, differentiating it from User vast majority of users. Pages. At Facebook, modifications or removals are not seen as failures: everything is constantly tested and modified. It is a never ending beta, with high-quality user-experience. Source: Facebook Blog …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 25
••• Facebook’s main asset is the map generated by users data : the Social Graph …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Women Men The Social Graph is in fact the digital map of real-life connections and interactions between users. Facebook stores more than 100 Petabytes of user data. That’s 2x the size of the entire written works of mankind (from the beginning of recorded history, in all languages). In order to enrich this database, Facebook opened its Social Graph to third-party developers and app editors. Source: Facebook S-1 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 26
••• Facebook opened its data to third-party developers with an API: Open Graph …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Open Graph Open Graph is an API provided by Facebook. With users’ authorization, third-party developers can access users’ data or publish new data on user profiles. What’s an API? It is an Application Programming Interface, basically it is an interface through which software components communicate with each other. Access Publish & Access Access user’s data Publish rich actions and objects with Facebook Connect in users’ timelines with Open Graph 2.0 Now, users can like but also: listen, watch, read, cook… Publish Publish Include links into status updates Publish likes in users’ timelines with Open Graph 1.0 2008 2010 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 27
••• Analyzing this graph with algorithms creates the Edge Rank …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... The Edge Rank is a score given to a piece of content for every user, depending on its interests. Whether a particular content will be displayed or not in the News Feed of a user will depend on its Edge Rank. Friend 1 The Edge It doesn’t doesn’t like Rank of the appear on post is low his News for Friend 1 Feed User A posts something about on his Timeline The Edge It appears Friend 2 likes Rank of the on his post is high News Feed for Friend 2 It is an major improvement of the News Feed, increasing content relevancy for each user. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 28
••• Before going further, let’s review some key Facebook concepts …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... News Feed Timeline Social Graph It’s the user’s Facebook It’s the profile page of every I t ’s t h e u s e r s ’ d a t a home page which user. It displays a timeline accumulated by displays the user ’s o n w h i c h a r e Facebook on its network activity: status chronologically placed the platform. It can be updates, photos main events of his social visualized as a social uploaded, links shared… life. map if each element is put into its context. Open Graph Edge Rank It’s Facebook’s API that It’s the relevancy coefficient enables any third-party calculated on content shared developer to connect to on Facebook’s platform. This Facebook’s database and relevancy is calculated for access the Social Graph each piece of content (with Authorization) to read relatively to every user. it and/or write new data. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 29
••• 2.  Business Model exploration …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 30
••• Facebook’s key figures …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... million users users connecting every day million million Pages apps in revenues in 2011 [Over $4 per user per year] In 2009, Facebook was profitable for the first time. In 2011 it generated $1b profit ! [$1 per user per year] Source: Facebook S-1, May 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 31
••• Facebook’s actual business model is mainly advertising …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... In 2011 it generated billion in revenue, for $1b profit! billion Advertising +17% of average growth per quarter. million Sale of Facebook Credits +89% of average growth per quarter. Source: Facebook S-1, May 2012 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 32
••• An advertising-based business model inspired by Google’s …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Google implements CPC Google revenues increase x7 from 2002 to 2004 CPM advertising era Performance based advertising business Inherited from Print, TV & Radio advertising models are born 2008 2002 Performance based advertising market gets larger than CPM advertising CPM: Cost-per-Mille CPC: Cost-per-Click The Advertiser buys space to the Media Sales The Advertiser negotiates the price of one click- Agency for a thousand prints of the ad. through on its ad with the Media Sales service of the platform. This is usually display advertising. This is performance advertising. Source: Google …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 33
••• How Facebook tried to replicate Google’s formula… to find out it wasn’t working for them …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Facebook tried to replicate Google’s high-value proposition: large traffic, targeting and performance driven by search context, and tools for advertisers. Facebook offered two types of advertising: CPM and CPC. Both were placed on the same spot on the right bank of the page. Traffic: Performance: Targeting: Tools: Facebook is the most Facebook enhances Facebook uses the Facebook sets up its time-consuming action by introducing data provided by own advertising website with 8h18 rich ads, with a Title, users. It supposedly platform with all the per user per month, Picture, and Text. provides a 90% targeting options. and 1 trillion PV. accuracy. The average click-through rate in 2010 proved Facebook’s advertising weakness : Google Traditional banner advertising Facebook Source: WordStream, 2010 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 34
••• And yet, Facebook has generated a lot of money out of its advertising …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Revenue from advertising: Q4 2011 With the average user spending 8 hours and 18 minutes a month on Facebook, there is potential for much, million $ increase YoY much more. Revenue per minute of user activity (Q4 2011) Source: Facebook S-1, May 2012; Estimates Fabernovel …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 35
••• So Facebook decided to do what it is best at …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Facebook invents SOCIAL advertising And extends its platform philosophy to its monetization strategy. It is neither an epiphany nor a direct strategy: it has been implemented Facebook-style, through small iterations. Let’s see how. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 36
••• A critical notion to understand: Facebook is not a social network… …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... The network is how each person is related to another. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 37
••• … it is a social media …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Facebook is also a digital content exchange platform of our social network. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 38
••• A simple feature led to a whole new social thinking strategy …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... In 2009, Facebook introduced the “Like” action The “Like” feature generated so much traction that Facebook was eager to implement it everywhere. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 39
••• Applied to brands, the like button developed the social graph even further …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 40
••• Applied to third-party content, it improved social discovery …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... In one-click on any type of content, users could recommend the content they stumbled upon to their friends. With this feature, Facebook deeply evolved: News about user’s Content sharing social network (articles, videos,…) …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 41
••• Facebook’s Like had become a real economy …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... In 2011… More than There were Average Like User years old million websites million average amount of friends had integrated the “likes” a day Like button more clicks on external links A few examples: On Gawker.com On NHL.com On NBA.com Facebook integration Facebook visitors are Facebook was #2 increased traffic by 200% reading 92% more articles referral source. Source: Facebook, 2011 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 42
••• Focus on: the Viral Loop …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... *139 is the average size of Facebook users’ networks, Source: Facebook S-1 …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 43
••• Facebook decided to look for new interactions that could strengthen and qualify this relationship with brands …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 44
••• With its new version of Open Graph, Facebook is able to qualify the actions of its users more precisely …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... 2012 Facebook now has a granular view of how its users are related to brands, products, services… Case Study: Spotify Spotify was one of the first to set the example, at f8 Example: conference* in 2011. How did it use the new Open Graph features? User’s activity on Spotify is recorded and published on Facebook. The action is defined as “listening” and both the song and the artist are identified. * The f8 conference is the annual meeting of Facebook developers, similar to Apple’s WWDC …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 45
••• How powerful is this relationship exactly? We asked Dailymotion …………………………………………………………….…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………... Dailymotion is YouTube’s main competitor. They saw the potential of Open Graph at the f8 Conference in September 2011. After f8, technical teams at Dailymotion were granted a direct access to Facebook Tech Support in order to integrate Open Graph publications on their service. +10% in 4 months with Open Graph million million video views per day video views per day Though beneficial for Dailymotion, they didn’t Dailymotion worked with Facebook to improve really enjoy it at first: many users complained the user experience: implementing Privacy that it was too invasive and spammed their buttons (turn off Open Graph publications) on News Feed. their video, and aggregating the publications on Facebook’s walls to avoid spam. Source: Dailymotion …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. …………………………………………………………….………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….. faberNovel 2012 ••• 46

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