The Growth of Facebook
Even if you are the person with the original idea, you don't have to develop it alone, and should avoid even trying to do so.
My goal was never to just create a company. A lot of people misinterpret that, as if I don't care about revenue or profit or any of those things. But what not being just a company means to me is not being just that - building something that actually makes a really big change in the the world - Mark Zuckerberg
The Facebook's expansion begin in March 2004, when the site was opened up to students at the universities of Columbia, Stanford, and Yale. The utility of the network, combined with the some of exclusivity - you had to be at one of these elite universities to join - make it instantly popular
Exclusivity is a powerful marketing tool as you can create demand for a product before it is even a available.
In summer of 2004, Zuckerberg and his colleagues travelled to palo Alto, in the centre of silicon Valley. They incorporated The Facebook as a company, and sean Parker, co-founder of the file sharing site Napster, became the company's first president. He had already been advising Zuckerberg informally for some time, and he convinced Zuckerberg and his colleagues ( barring Hughes, see above ) to stay. Venture as the co-founder of PayPal alongside Elon Musk, made a $500,000 angel investment in exchange for a 10.2% equity stake in The Facebook. Other seed round investment were made by Reid Hoffman, CEO of LinkedIn; entrepreneur Mark pincus, who had sold his first start-up, Freeloader, Inc., for $38 million and would later found online games company Zynga; and Maurine Werdegar of Western Technology Investment.
By giving people the power to share, we're making the world more transparent. By Mark Zuckerberg
Even digital business need to have a physical home.
The facebook was supposed to take off in 2005. It now had its base in Palo Alto, where entrepreneurs and investors were two a penny, yet all excited about zuckerberg's idea. He dropped the "The" from The Facebook's name, and henceforth the company was simply Facebook.
The company opened out to 21 universities in the United Kingdom ( Oxford and Cambridge first amongst them, in keeping with the idea that this was a network for elite university students and alumni); they launched a version for high schools which was by invitation only; and additional networks were created for the employees of Apple, Microsoft, and other major tech companies.
By the end of the year Facebook was available to more than 2,000 colleges and universities, and 25,000 high schools, in the United States, Canada, the United Kingdom, Ireland, Australia, New Zealand, and Mexico. The company raised $12.7 million in venture capital from Accel Partners, valuing Facebook at $98 million.
A company cannot grow without money, either from income that it has generated, or from investors.
In summer 2006, Facebook opened up to anyone around the world, so long as they were age 13 and older, and had a vali email address. Zuckerberg closed Facebook's Series B funding round with investments from Greylock Partners and Meritech Capital, as well as additional funds from Thiel and Accel Partners. The valuation of Facebook stood at $500 million, not bad for 18 months' work.
I mean, we've built a lot of products that we think are good, and will help people share photos and share videos and write messages to each other. But it's really all about how people are spreading Facebook around the world in all these different countries. And that's what's so amazing about the scale that it's at today." - Mark Zuckerberg
Sales Negotiations and Profitability
Facebook had grown very quickly, and it seemed inevitable that Zuckerberg and his co-founders would want to realise their investment, selling out at least part of their stakes as soon as possible. Facebook's main competitor, MySpace, was sold to News Corp in 2005, and market analysis thought Zuckerberg would avail himself of a similar exit strategy.
In quick succession, however, Zuckerberg turned down a $750 million offer from an unknown bidder, and a $1 billion offer from yahoo! Microsoft suggested it would make a $300-500 million investment in exchange for a 5% stake, and Google followed suit. but Zuckerberg wasn't interested. He wanted to keep Facebook independent, stating:
We're not really looking to sell the company... we're not looking to IPO anytime soon. It's just not the core focus of the company.
His view may well have been shaped by the fact that Thiel had already created an internal valuation of $8 billion for Facebook, based on its predicted revenues. Microsoft was allowed to invest $240 million for a 1.6% stake, implying a valuation of $15 billion, and Hong Kong billionaire Li Ka-shing invested a further $60 million.
Every company must have an exit strategy.
The interesting thing is that all of these investments were speculative: Facebook had a huge network of users, but they paid no subscription fees, and the site generated almost no revenue. Zuckerberg was quite open about his failure to monetise the site, saying: I don't think social networks can be monetized in the same way that search did.. In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.
For Facebook's board members, monetisation was a priority, however. THe board recruited Sheryl Sandberg, Vice President of Global Online Sales and Operations at Google, as Facebook's chief operating officer in 2008. Zuckerberg had known Sandberg for just a few months, having met her at a christmas drinks party and then again at the World Ecnomic Forum in Davos, but he was convinced she was the perfect fit the role. he wasn't wrong.
A company has to make a profit: that is its purpose.
Sandberg was the first women in a senior role at Facebook. As far as she was concerned, the company was "primarily interested in building a really cool site; profits, they assumed, wound follow." Sandberg decided a more proactive approach was required. She brainstormed ideas with Facebook employees, and concluded that advertising revenues would be the main source of monetisation. The board agreed with her findings, and Sandberg changed the company's adverting model. As a result Facebook had positive cash flow for the very first in september 2009.
Advertising works most effectively when it's in line with what people are already trying to do. And people are trying to communicate in a certain way on Facebook- they share information with their friends, they learn about what their friends are doing- so there's really a whole new opportunity for a new type of advertising moel within that." - Mark Zuckerberg