Facebook Case Study

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Facebook was launched in February 2004 by Harvard undergrad students as an alternative to the traditional student directory. Its popularity quickly spread to other colleges in the US by word of mouth, and the site now registers close to 15M monthly UVs and over 6B page views per month. Facebook has completed two rounds of venture financing at very high valuations, the first at a valuation of ~$100M and the second at ~$550M (valuations are unconfirmed). These valuations were driven by the multiple acquisition offers that Facebook has reportedly turned down (the latest was a rumored $750M offer). Facebook is already generating significant revenue, so despite all the valuation and web traffic metric hype, it has also established a very real business. Interviews conducted: Noah Kagan, early product manager for Facebook. Noah will soon release an e-book on Facebook, with good insight on the social networking space. You will be able to download the book at Noah’s blog, okdork.com. I have had plenty of informal conversations with people close to Facebook over the last two years, while not formal interviews, I would regard these as quality sources – employees, investors, and competitors. I would also like to thank Nick Macey, a student at the University of Utah for helping in the research and writing of this case study, and providing the ever valuable user perspective as a current college student. Nick will be helping with some of the writing on Startup Review in the future.

Key success factors
Provide pre-existing offline community with a complementary online service Facebook had its initial success with college students by providing an information service that was not available offline – an interactive student directory containing each student’s class schedule and social network. Before Facebook added the feature sets it has today, it was simply a more complete student directory. Facebook did not create a community where one never existed before; rather they provided an important information and communication service to a pre-existing offline community. While students already had a loose affiliation with all fellow students at a college, they didn’t have an easy way to learn more about their fellow students outside their direct social network. Given the large class sizes at most universities today, students don’t have the opportunity to interact with very many of their fellow classmates during class. I remember the days I spent at Berkeley in 200+ student lecture halls scanning the crowd for attractive girls or previous acquaintances. Facebook organized students by class schedule for the first time, making it possible to learn more about that classmate you might have a crush on. Although I am highlighting one particular use case, initial Facebook usage was indeed driven by dating type activity – checking people out, learning more about crushes, light stalking type of activity, etc. The larger picture here is that Facebook created a high utility online service for enabling pre-existing social behaviors within an offline community. This makes for an interesting lesson learned: it’s easier to piggyback off a pre-existing community with offline behaviors that drive online service usage. Restrict user registration (and other behaviors) to build desired online service Facebook made important product decisions that ensured harmony and trust between the offline community and the online service created. Facebook originally limited membership to those users who could verify they had a “.edu” e-mail address for the college they attend. Facebook also placed limits on the ability to search or browse users to the college that the user attends. These measures aim to make users feel that the site is exclusive and limited to members in their offline community (colleges and universities). In the early days of Facebook, something like 30% of users actually posted their cell phone number on their profile. I’m not sure whether this statistic is...
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