Facebook

by
Snehashis Khan (17810072),
Pavankumar S (17810044),
Akshay Kumar Jain (17810011)
Facebook was founded by Mark Zuckerberg along with Eduardo
Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes.
It is currently the largest social network in the world, with over
1.4 billion members.

Despite the firm’s rapid growth and initially high stock market
valuation, Facebook faces several challenges.

The firm’s rapid growth and high user engagement allowed

Facebook’s founder to demand and receive an exceptionally high
degree of control over the firm even after the firm went public.
 Zuckerberg Rules
When Facebook filed to go public, Zuckerberg’s ownership stake stood
at 28%, but Facebook created two classes of shares, ensuring that
Zuckerberg maintained a majority of voting rights in the public
company and virtually guaranteeing that his control of the firm
continued, regardless of what investors say. Maintaining this kind of
control is unusual (although not unprecedented—Google’s founders
have a similar ownership and voting structure).

It empowered Zuckerberg (considered the firm’s visionary) to make

bold, long-term, potentially money-losing bets with less shareholder
scrutiny than a typical public company.
 The Social Graph (Facebook’s Core Competency)

Refers to Facebook’s ability to collect, express, and leverage the connections

between the site’s users, or as some describe it, “the global mapping of everyone
and how they’re related.”

Trust is one of Facebook’s most distinguishing features—bringing along with it a

degree of safety and comfort that enabled Facebook to become a true social utility
and build out a solid social graph consisting of verified relationships (“friends”).

Social Graph:
The global mapping of users and organizations and how they are connected.
Network Effect (Metcalfe’s Law):
The value of a product or service increases as the number of users of that
product or service expands.

Strong Network Effect:

People are more attracted to Facebook as compared to similar platforms
because others they care about are more likely to be on Facebook than
anywhere else online.
High Switching Costs:
A move to another service means recreating your entire social graph. The
more time a user spends on Facebook, the more they are invested in their
graph and the less likely they are to move to a rival social media site.

Switching Cost:
The cost a consumer incurs when moving from one product to another.
Facebook Feed: Viral Sharing Accelerated

News Feeds concentrate and release value from the social graph.

Firms and products that a user “likes” on Facebook can post messages that may
appear in their news feed where they can like and comment on their posts and
share the messages virally. This makes Facebook a key channel for continuous
customer engagement.

Games firms, music services, video sites, daily deal services, publishers, and
more all integrate with Facebook, hoping that posts to Facebook will spread
their services virally.

Facebook also encourages users to advertise to extend a post’s reach through

Facebook Ads while discouraging organic reach.
Facebook vs Search Engines

Google (most popular search engine) indexes some Facebook content, but
since much of Facebook is private, accessible only among friends, most
Facebook activity represents a massive blind spot for Google search. Sites
that can’t be indexed by Google and other search engines are referred to as
the “Dark Web”.

Dark Web:
Internet content that can’t be indexed by Google and other search engines.

Graph Search:
Facebook allows users to draw meaning from the site’s social graph and to
find answers from social connections.
Major Acquisitions:
Bringing Potential Rivals and Platform Powerhouses into the Facebook Family
for $1 billion or more.
Major Acquisitions:
Bringing Potential Rivals and Platform Powerhouses into the Facebook Family
for $1 billion or more.
Instagram:
• When Facebook acquired
Instagram for $1 billion, it
turned its potential rival
into an asset for growth and
another vehicle for
Facebook to remain central
to users’ lives.
• Since its acquisition,
Instagram has continued to
operate as a separate
brand, tripling its user base
the year following
acquisition.
Major Acquisitions:
Bringing Potential Rivals and Platform Powerhouses into the Facebook Family
for $1 billion or more.
Instagram: WhatsApp:
• When Facebook acquired • Facebook’s acquisition of
Instagram for $1 billion, it WhatsApp for $ 19 billion wasn’t
turned its potential rival about increasing its total revenue,
into an asset for growth and it was about surviving the global
another vehicle for shift to mobile.
Facebook to remain central • From the perspective of securing
to users’ lives. a large user base and taking out a
• Since its acquisition, potentially threatening
Instagram has continued to competitor, Wired labelled the
operate as a separate Instagram and WhatsApp
brand, tripling its user base acquisitions as “two of the
the year following greatest bargains in recent tech
acquisition. history."
Major Acquisitions:
Bringing Potential Rivals and Platform Powerhouses into the Facebook Family
for $1 billion or more.
Instagram: WhatsApp: Oculus VR:
• When Facebook acquired • Facebook’s acquisition of • For $ 2 billion, Facebook
Instagram for $1 billion, it WhatsApp for $ 19 billion wasn’t acquired Oculus VR, a firm
turned its potential rival about increasing its total revenue, that had no customers, no
into an asset for growth and it was about surviving the global revenue, and no complete
another vehicle for shift to mobile. product.
Facebook to remain central • From the perspective of securing • “Strategically we want to
to users’ lives. a large user base and taking out a start building the next
• Since its acquisition, potentially threatening major computing platform
Instagram has continued to competitor, Wired labelled the that will come after
operate as a separate Instagram and WhatsApp mobile.” – Mark
brand, tripling its user base acquisitions as “two of the Zuckerberg about
the year following greatest bargains in recent tech Facebook’s acquisition of
acquisition. history." Oculus VR
Hardware Requirements:

“Each day, Facebook processes 2.7 billion ‘Likes,’ 300 million photo uploads, 2.5 billion
status updates and check-ins, and countless other bits of data” – BusinessWeek

Facebook also crunches data to customize feeds, estimate which ads to serve, and
refine and improve the Facebook experience.

Facebook has extraordinary data storage needs that are growing at breakneck speeds.
Facebook’s storage needs have grown by a factor of 4,000 in just four years, and
amount to a total storage well north of three hundred petabytes and growing at more
than six hundred terabytes a day.
Cloud:
A collection of resources available for access over the Internet.

The Facebook cloud (group of connected servers) is scattered across

multiple facilities, including server farms in San Francisco, Santa Clara,
northern Virginia, Oregon, North Carolina, Iowa and Sweden.

Facebook’s servers are custom built, stripping out nonessential parts but
adding in components such as massive and super-fast flash memory
based storage for some of its custom database servers as per need.
Open Source Software (OSS):
Software that is free and whose code can be accessed and potentially
modified by anyone.

Facebook is mostly powered by Open Source Software (OSS). The firm is a

major contributor to open source software efforts and was the force
behind Hive, an open source product used to provide query support for
big data projects, and Presto, another open source effort.
Content Delivery Networks (CDN):
Systems distributed throughout the Internet (or other network) that help to
improve the delivery and loading speeds of web pages and other media,
typically by spreading access across multiple sites located closer to users.

Facebook also developed its own media serving solution, called Haystack.
Haystack coughs up photos 50% faster than more expensive, proprietary
solutions, and since it’s done in house, it saves Facebook costs that other
online outlets spend on third-party content delivery networks (CDN).
Facebook’s annual spend on networking equipment and infrastructure was
estimated to come in at $2.5 billion in 2014, 84% higher than 2013 levels.
The firm spends over $1 million and $0.5 million a month on electricity and
telecommunications bandwidth respectively.

Facebook made public the detailed specifications of its homegrown servers

as well as plans used in the Prineville site’s building design and electrical and
cooling systems. Facebook claims its redesigned servers are 38% more
efficient and 24% cheaper than those sold by major manufacturers, and that
these designs have resulted in yearly energy savings estimated about
roughly $52 million, and infrastructure savings of more than $1 billion.
Application Programming Interfaces:
Programming hooks, or guidelines, published by firms that tell other
programs how to get a service to perform a task.
Facebook published a set of APIs that specified how programs could be
written to run within and interact with Facebook.

Now, any programmer can write an application that would live inside a
user’s profile. Developers can charge for their wares, offer them for free,
or even run ads.

Facebook, becoming an app platform meant that each new third-party app
potentially added more value and features to the site without Facebook’s
active involvement.
Just one year since Facebook published its APIs, the firm had
marshalled the efforts of over 400,000 developers, 24,000
applications had been built for the platform, 140 new apps were
being added each day, and 95% of Facebook members had
installed at least one Facebook application.
Technical Testing (Challenge with Mobile App Testing):

On the Web, Facebook can test an innovation by rolling it out to a subset

of users and gauging their reaction.

However, the same A/B testing model is harder with mobile. Google and
Apple release apps and updates to all of their users at once, so
experimental feature testing with a subset of users is far more difficult to
accomplish on a mobile phone. The app updating process is also usually
slower than the instant “it’s here” that occurs when visiting a Web page
that automatically loads the latest version on a server, making fixes for app
development mistakes more challenging to distribute.
Facebook Messenger:

“Messaging is one of the few things that people actually do more

than social networking.” – Mark Zuckerberg

Messenger has over 700 million users, with over 1 billion downloads for
Android alone. In messaging, only WhatsApp has a larger user community.

Facebook Messenger is evolving into a platform. Headed by David Marcus

(CEO of PayPal), Messenger also supports payments.

Developers can create apps linked to Messenger and offer them via the
Messenger app store.
Facebook’s Open Graph:

Facebook’s Open Graph initiative allows developers to link web

pages and app usage into the social graph, placing Facebook directly
at the centre of identity, sharing, and personalization not only on
Facebook but also across the web.

Facebook also offers a system where website operators can choose

to accept a user’s Facebook credentials for logging in. Users like this
because they can access content without the hurdle of creating a
new account. Websites like it because with the burden of signing up
out of the way. Similar efforts allow firms to leverage Facebook data
to make their sites more personalized.
Colossal Walled Garden:
A closed network or single set of services controlled by one dominant
firm. The fear is that if increasingly large parts of the Web reside inside a
single and, for the most part, closed service, innovation, competition,
and exchange may suffer.

Facebook’s increasing dominance, long reach, and widening ambition

have a lot of people worried, including the creator of the World Wide
Web. Sir Tim Berners-Lee recently warned that the Web may be
endangered by Facebook’s colossal walled garden.
Content Adjacency:
Concern that an advertisement will run near offensive material, embarrassing
an advertiser and/or degrading their products or brands.

Example: Facebook saw several advertisers, including the UK media giant

BSkyB and retail giant Marks and Spencer, pull their ads after they ran on a
sexually themed Facebook page.
An IDC report suggests that it’s because of content adjacency
that “brand advertisers largely consider user-generated content
as low quality, brand-unsafe inventory” for running ads.

Factors: evolving public attitudes toward content adjacency

issues in social media, and better technology and policing of the
context in which ads appear.
Attention Challenges: The Hunt versus the Hike

Users of search sites are on a hunt i.e. a task-oriented expedition to collect

information that will drive a specific action. Search users are expressing intent
in search. They want to learn something, buy something, research a problem,
or get a question answered.
Attention Challenges: The Hunt versus the Hike

Users of search sites are on a hunt i.e. a task-oriented expedition to collect

information that will drive a specific action. Search users are expressing intent
in search. They want to learn something, buy something, research a problem,
or get a question answered.

Users go to Facebook as if they were going on a hike i.e. they have a rough
idea of what they’ll encounter, but this often lacks the easy-to-monetize,
directed intent of search.
Attention Challenges: The Hunt versus the Hike

Users of search sites are on a hunt i.e. a task-oriented expedition to collect

information that will drive a specific action. Search users are expressing intent
in search. They want to learn something, buy something, research a problem,
or get a question answered.

Users go to Facebook as if they were going on a hike i.e. they have a rough
idea of what they’ll encounter, but this often lacks the easy-to-monetize,
directed intent of search.

Result: Google users click on ads 1-2%of the time (and at a higher rate when
searching for product information). At Facebook, click-throughs can register as
low as 0.02% (can go higher with targeting).
Precise Targeting

Advertising networks track users to develop a target profile based on effective

segmentation criteria such as demographics, likes, and interests of users.
Precise Targeting

Advertising networks track users to develop a target profile based on effective

segmentation criteria such as demographics, likes, and interests of users all of
which Facebook already has.
Precise Targeting

Advertising networks track users to develop a target profile based on effective

segmentation criteria such as demographics, likes, and interests of users all of
which Facebook already has.

Example:
A wedding photography studio targeted ads at women aged twenty-four to
thirty whose relationship status was engaged. $600 in Facebook ads resulted in
$40,000 in revenue.

Facebook also allows brands to upload e-mails, phone numbers, and addresses
from their proprietary CRM (customer relationship management) databases to
show ads to existing customers who are on Facebook.
News feed ads

Better performance even as fewer ads are shown.

News feed ads put a message right in the area of the screen that a
user is paying attention to.

News feed ads deliver 26 times higher ROI than sidebar ads.
Facebook Audience Network (Facebook’s Ad Network)

Google earns 20% of its revenue from ads it runs on third-party sites.

Similarly, with the launch of the Facebook Audience Network, the firm can
earn advertising revenue by leveraging its billion-plus users, even when they’re
not on Facebook’s own sites and apps. All developers need to do is put a
snippet of pre-existing Facebook code into their apps and websites.

Facebook’s ad network doesn’t give advertisers or publishers any personal

data of users, it simply performs matching on its own servers, then delivers the
appropriately targeted ad to the app or website.
A Facebook ad network might be able to offer ad targeting that performs
better than Google’s AdSense product.

Google targets ads on other web sites based largely on keywords found on
those sites, also using details it can glean from tracking a person’s web
browsing history.

Facebook can do the same, but it can also add in data from the dark Web that
Google can’t see: data from a user’s social activity, their highly accurate
personal profile, and more.

Facebook can also use its ad network to boost revenue without increasing the
density of ads in its own products.
Culture:
“Done is Better than Perfect”

“Move Fast, Break Things”

“Either Be Quick Or Be Dead”

“No Beta”
Beta testing does not occur

“The Hacker Way”

“HACK”: term used by software engineers to refer to a clever solution rather than the negative connotation used in security circles
The willingness to take bold risks on new initiatives has allowed the
firm to push forward with innovations that many users initially
resisted but eventually embraced. However, moving fast with less
forethought has also led to alienating mistakes and that have
damaged the firm’s reputation.
Innovation Culture

Every eighteen months employees are required to leave their teams and
work on something different for at least a month.

The firm also runs all-night hackathons with one key rule: no one is allowed
to work on what they normally do. Engineers blue-sky innovate on something
new and show it to Zuckerberg and a senior staff brain trust, who then
decide which projects go forward.
Privacy

Perception that the company acts brazenly, without considering user needs,
and is fast and loose on privacy and user notification.

According to “New York” magazine Facebook’s Terms & Conditions can be

summarized as “We can do anything we want with your content, forever
even if a user deletes their account and leaves the service.”
Facebook Beacon: Facebook’s E-Commerce Failure

Hypothesis:

Word of mouth is considered the most persuasive and valuable form of

marketing. The energy and virulent nature of social networks can be
harnessed to truly offer useful consumer information to its users.

Facebook working with vendors and grabbing consumer activity at the point
of purchase to put it into the news feed and to post it to a user’s profile, it
would lead to higher vendor-sales.
Facebook Beacon: Facebook’s E-Commerce Failure

Results:

The commercial activity of users began showing up without their consent.

“Facebook Ruins Christmas for Everyone!” - MSNBC.com

“How Facebook Stole Christmas” - U.S. News and World Report

Facebook Beacon: Facebook’s E-Commerce Failure

Reasons:

Facebook Beacon used Opt-Out instead of Opt-In privacy practice.

Facebook and its partners assumed users would agree to sharing their
purchases data in their feeds.

Example: A man got a message from his wife just two hours after he bought
a ring on Overstock.com. “Who is this ring for?” she wanted to know.
Facebook had posted a feed not only that her husband had bought the ring
but also that he got it for a 51% discount (making him look cheap).
Overstock.com then announced that it was halting participation in Beacon
until Facebook changed its practice to Opt-In.
Facebook then experimented with allowing
consumers to vote on proposed changes regarding
its privacy policy and practices. However, only 1% of
Facebook users voted on proposed changes, leading
Facebook to reject voting in favour of focus groups,
question & answer sessions and nonbinding polls.
Crowdsourcing: Localization:

The act of taking a job traditionally performed Adapting products and

by a designated agent and outsourcing it to services for different
an undefined generally large group of people languages and regional
in the form of an open call. differences.

Facebook’s crowdsourcing localization efforts, where users were

asked to look at Facebook’s phrases and offer translation
suggestions for their local language, help the firm rapidly deploy
versions in various markets and increase its global reach.
However, while global growth appears lucrative, acquiring global users isn’t the
same as leveraging them for profit. Free sites with large amounts of users from
developing nations face real cost or revenue challenges.

Less than half of global internet users have disposable incomes high enough to
interest major advertisers. In terms of Average Revenue Per User (ARPU), these
new markets are less profitable than the firm’s present user community.

However, if Facebook ignores a market that’s unprofitable today, a rival could

establish network effect and other assets that are unbeatable tomorrow, but if
Facebook moves too early, losses could drag it down.

This requires an awareness of technological trends and an ability to make

accurate predictions regarding regional macroeconomic trends.
To make Facebook more appealing to low-end users
primarily in developing markets, Facebook has built
Facebook Lite, an app that requires just 1% of the
computing resources used by its main smartphone app.
To make Facebook more appealing to low-end users
primarily in developing markets, Facebook has built
Facebook Lite, an app that requires just 1% of the
computing resources used by its main smartphone app.

The firm sells ads through Facebook Lite.

To make Facebook more appealing to low-end users
primarily in developing markets, Facebook has built
Facebook Lite, an app that requires just 1% of the
computing resources used by its main smartphone app.

The firm sells ads through Facebook Lite.

However, Facebook Lite’s business objective is to increase
penetration among low-end users in developing markets,
not advertising revenue.
Internet.org

4.3 billion people (about 3 times Facebook’s size) are offline.

Internet.org

4.3 billion people (about 3 times Facebook’s size) are offline.

Reasons:
1. data is too expensive for many of the world’s poorest citizens
2. services aren’t designed for emerging market use
3. content is not compelling enough to draw in non-users
Internet.org

4.3 billion people (about 3 times Facebook’s size) are offline.

Reasons:
1. data is too expensive for many of the world’s poorest citizens
2. services aren’t designed for emerging market use
3. content is not compelling enough to draw in non-users

To fulfil Facebook’s goal of “everyone online”, Facebook and other tech

giants have formed Internet.org, a non-profit that partners non-exclusively
with local carriers to free access to a set of basic services through a
lightweight app that runs on low-end / feature phones.
Many have criticized Facebook and Internet.org as
violating principles of net neutrality and extending
Facebook’s walled garden as a proxy for the internet.
However Internet.org has opened their services to any
provider that can meet a basic set of criteria.
?