In order to understand the future issues that Facebook will encounter, it is important to have an understanding of where the company came from and how it has grown since its inception. Facebook was founded as a grassroots, innovative communication device in the Harvard University dorms. Certainly nobody could have expected it would become such a ubiquitous and important product in our society today. Highlighted below are the milestones which have shaped Facebook’s corporate identity.
Starting in February 2004, Facebook launched as an online social network to connect university students with their friends by letting users create personal profiles and upload photos. Other than basic layout changes, the first important technological advancement was the implementation of the News Feed in September 2006. Facebook compiled the recent activities of users’ friends and listed them in a timeline format on the user’s homepage. This change highlighted what drew users to Facebook—an easy way to find out what your friends were doing.
Facebook’s first advertising initiative (Facebook Ads) began in the fall of 2007, which included Display Ads, Facebook Pages, Facebook Beacon, and Social Ads. These services allowed advertisers to target their campaigns to specific users on the “basis of gender, age, geographic location, marital status, languages spoken, places of education, workplaces, and interests as stated on the user’s profile.”  Facebook generated revenue from the advertisements that were clicked most often by users and those advertisers who paid substantially more (in an auction-type process) to have their ads placed. Facebook Pages and Social Ads were successful at generating revenue, but Facebook Beacon encountered problems due to users’ perceived invasion of privacy.
Facebook’s next step was to partner with third-party websites to increase user engagement. Facebook for Websites was launched in 2008 and third-party websites could access the enormous volume of data stored by Facebook to attract users to their site by allowing users to login with their Facebook username and password. There were many successes seen with this advancement including a 15-100% increase in Facebook-user engagement and third-party sites saw a 30-200% increase in registration on their sites, with two out of three new registrations resulting from Facebook for Websites integration. Inevitably, Facebook for Websites came across problems with privacy controls due to the amount of data shared between Facebook and the third-party site. Regardless, over 10,000 websites and applications incorporated some level of functionality by mid-2009.
Another important technological development was the implementation of Facebook Platform, which enabled third-party developers to build applications, including games, on top of Facebook’s network. These applications attracted 40% of users and accounted for 10% of Facebook’s total revenue, approximately $427,000,000. The revenue came from a 30% commission charge on developers’ sales of virtual goods.
In conjunction with Platform, the company rolled out a pay-to-play system in May 2009. Facebook Credits could be purchased and used as virtual currency for goods across Facebook applications. Overall, Facebook Platform increased user engagement on the website and within six months of launching, applications were responsible for more than one-third of the growth in the site’s traffic. Usage of Facebook’s applications and games greatly increased, but the company was not able to appropriately monetize this usage.
3. Critical Issue The critical issue is that Facebook’s current technologies are not sufficient enough to help drive short-term revenues in anticipation of its IPO. 4. Measure Metrics Revenue vs. Time to Realize With this metric we will measure how much revenue Facebook receives from implementing the project and the time it will take to earn the revenue. The metric will be measured using a multi-dimensional table with weights of Low, Moderate, and High. To measure this metric, we will use the quarterly profit reports.
Percent of Facebook users logging on to the site daily vs. Time to Realize With this metric we will determine how much user daily log-in will increase from the selected project. Currently, 70% of Facebook users log-in daily. This metric will be measured across time. The metric will be measured using a multi-dimensional table with weights of Low, Moderate, and High. To measure this metric, we will track, by quarter, user daily log-ins. Money to Implement vs. Time to Realize With this metric we will measure the amount of money required to implement the project against the time to realize its completion.
The metric will be measured using a multi-dimensional table with weights of Low, Moderate, and High. To measure this metric, we will use the project budget and quarterly profit reports. Site ease of use With this metric we will measure how easy or difficult it is to use the Facebook site and/or the Facebook application on another website. The metric is subjective and will be measured by comparing the site and applications to previous applications and gauging the similarities and differences in user application. To measure this metric, we will use past application program settings. Opt-in vs. Opt-Out Privacy Controls With this metric, we will determine if the project requires privacy controls and will base our analysis on the ability to opt-in or opt-out of the privacy controls.
The metric will be a binary measurement. To measure this metric, we will use the program requirements of the proposed solutions. Analyze Possible Solutions: 1. Implement site improvements to Facebook that are similar to those of Google+, such as video chat and the ability to separate friends into different “circles.” This will focus on eliminating competition from Google+ and possibly other social networking sites and driving more Facebook usage.
We are assuming this will take less than 6 months to implement and cost more than $5 million. Since these new features cannot be directly monetized, we are assuming the revenue will be less than $10 million. With these new features, we assume Facebook daily log-in will increase to between 75-85%. There will be partial changes to the Facebook site and this solution can have the ability for opt-in privacy controls.
2. Help large, established companies develop their own platform applications. The games and applications built by third-party developers attract 40% of Facebook users. Facebook users prove that they are receptive to Facebook Platform applications and will use them. Facebook can entice other companies to develop platform applications referencing the success of current applications. Zynga, one of the companies using Facebook Platform, booked $90 million in profit by the summer of 2011.
Facebook can help other companies to develop Platforms and increase Facebook’s revenue. This solution may take more than 9 months to accomplish, cost less than $5 million to implement, and may generate over $10 million in revenue. With other applications in place, this solution could cause partial changes to the current Facebook site. This solution can have the ability for opt-in privacy controls.
Score 3. Charge music, radio, and video sites, such as Spotify, for new subscriptions that originated from Facebook. “A substantial part of Facebook’s success lay in constant development of new social functionalities.” The functionalities that integrate Facebook with these sites are already in place and Facebook could then charge for the new subscribers that the sites generate from Facebook. This solution could create more than $10 million in revenue, take less than 6 months to implement and could cause partial changes to the current Facebook site. This solution may not have a direct impact on the amount of daily log-ins from Facebook users. This solution can have the ability for opt-in privacy controls.
Score 4. Create a photo ordering and photo products application. Facebook became “the largest photo-sharing site in the world, boasting 100 billion photos and growing by 200 million every day.” This solution could take more than 6 months to implement and cost more than $5 million. With this application, we assume that daily Facebook log-ins would increase to between 75-85%. The revenue could generate more than $10 million for Facebook. This solution would require a complete program change to the current Facebook website. This solution can have the ability for opt-in privacy controls.
We recommend Solution #3 for Facebook to charge music, radio, and video sites for new subscriptions that originated from Facebook. Facebook needs to drive short-term revenues in anticipation of its IPO. With the site applications already integrated with Facebook, Facebook will need to modify the current contracts with the music, radio, and video sites in order to include the charge. The sites benefit from integrating with Facebook because Facebook hosts 800 million users. The subscriptions to the sites generated from Facebook would only occur because of Facebook’s large customer base. Facebook can create a way to track the new subscriptions and automatically charge the site. The potential for revenue is great. In terms of ease, quickness, and revenue increase, this solution will serve Facebook the best.
Improve Project Leaders: Facebook’s Vice President of Partnerships and Platform Marketing, Dan Rose and Vice President of Advertising and Global Operations, David Fischer, will manage the implementation of these Platform integrations. Implementation Chart: Risks Involved: Facebook user’s do not use the platform. Potential risk of reputation if another company does not fulfill its services to Facebook’s users. Affiliated company does not find it to be a valuable service and does not want to pay the Facebook fees.
Mitigation: Try to make the platform as interactive as possible i.e. add a place for users to review the song, show, or movie that they streamed. Work with companies that have a positive reputation and corporate values that align with those of Facebook. Facebook must provide evidence that the 800 million Facebook users can provide substantial revenue potential for the companies. Facebook will need to add to the platforms which they already have in place. They will need to negotiate new contracts with the companies who will be using this platform.
These contracts should include elements that hold the business partner accountable to the quality standard of the customer. This will help to assure that Facebook’s image is not affected by a third party. Facebook will need to provide their business partners with details on the number of clients driven from Facebook to their websites. Additionally, their business partners will need to provide a detailed sales report stating the number of new customers as a result of this platform. Facebook will monitor usage of the platform and the quality of usage i.e. are people using this platform, writing opinions, posting them to their Facebook page, etc?