Facebook

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Take Home Exam in Corporate Finance |

Case Study: Facebook (FB) |

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Question 1 (Focus: FB’s 2012 annual report)

(1) What is the business model of FB, i.e., how do they generate revenues?

Facebook is the biggest social-media platform worldwide with $1.06 billion MAU (monthly active users) and $618 million DAU (daily active users).

Its business model is set up on three pillars: Facebook users, developers and marketers.

a) Users

Facebook creates a direct value proposition for Users.

The company creates value for users by enabling users to

* Connect and Share with friends

* Discover and Learn about News around the world shared by the user’s personal contacts

* Express themselves and share what they think about and what matters to them

* Stay connected everywhere, especially due to Facebook mobile applications.

With its users Facebook does not generate direct revenues, since the usage of all Facebook products are free of charge.

However the users indirectly generate revenues. It is only possible for Facebook to create revenues with marketers and developers because of its amount of users.

b) Developers

Developers get attracted by the huge customer base of Facebook. They have the opportunity to build up applications and websites which connect with Facebook.

Facebook offers a variety of tools and application programming interfaces on its Facebook Developers Platform that easily interacts with Facebook. Due to that easy access there are more than 10 Mio applications developed by 2012.

Facebook enables developers to

* achieve growth by using the global user base and distribution channels.

* develop more personalized products with a high customer Engagement

* use Facebook’s easy-to-use online payment infrastructure and get a fair Monetization for their applications.

Facebook provides developers with free-of-charge software tools on the Facebook Developer's Platform. This leads to the enormous amount...