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in February 2004, owned and operated by Facebook. It was founded by Mark Zuckerberg with his college roommates and fellow Harvard University
students Eduardo Saverin, Andrew McCollum,Dustin Moskovitz and Chris Hughes. The website's
membership was initially limited by the founders to Harvard students, but was expanded to other
colleges in the Boston area, the Ivy League, and gradually most universities in Canada and the United States, corporations, and bySeptember 2006, to everyone of age 13 and older to make a group with a valid email address. Facemash Facemash, the Facebook’s predecessor, opened
on October 28, 2003. Initially, the website was invented by a Harvard student, Mark Zuckerberg,
and three of his classmates – Andrew McCollum, Chris Hughes and Dustin Moskovitz. Zuckerberg
wrote the software for the Facemash website when he was in his second year of college.
The website was set up as a type of “hot or not” game for Harvard students. The website
allowed visitors to compare two student pictures side-by-side and let them choose who was “hot”
and who was “not”. That night, Mark Zuckerberg wrote the following
blog entries: I'm a little intoxicated, not gonna lie. So
what if it's not even 3 pm and it's a Tuesday afternoon? What? The Kirkland dormitory facebook
is open on my desktop and some of these people have pretty horrendiedous facebook pics. I
almost want to put some of these faces next to pictures of some farm animals and have
people vote on which is more attractive. Yea, it's on. I'm not exactly sure how the
farm animals are going to fit into this whole thing, but I like the idea of comparing two
people together. Let the hacking begin. By Colsen: I posted awhile back. Support Mark Zuckerberg!
By Colsen: Wait!...why am I up this late? According to The Harvard Crimson, Facemash
"used photos compiled from the online facebooks of nine Houses, placing two next to each other
at a time and asking users to choose the 'hotter' person". To accomplish this, Mark Zuckerberg
hacked the "facebooks" Harvard maintained to help students identify each other and used
the images to populate his Facemash website. That the initial site mirrored people’s
physical community—with their real identities—represented the key aspects of what later became Facebook.
"Perhaps Harvard will squelch it for legal reasons without realizing its value as a venture
that could possibly be expanded to other schools," Zuckerberg wrote in his personal blog. "But
one thing is certain, and it’s that I’m a jerk for making this site. Oh well. Someone
had to do it eventually..." The site was quickly forwarded to several campus group list-servers.
However, the website was shut down by Harvard executives a few days after it opened. Mark
Zuckerberg faced charges of violating copyrights, breach of security, and violating individual
privacy for stealing the student picturesthat he used to populate the website. He later
faced expulsion from Harvard University for his actions. However, all the charges were eventually dropped. Zuckerberg expanded on this initial project that semester by creating a social study tool
ahead of an art history final. He uploaded 500 Augustan images to a website, with one image per page along with a comment section.
He opened the site up to his classmates and people started sharing their notes. "The professor
said it had the best grades of any final he’d ever given. This was my first social hack.
With Facebook, I wanted to make something that would make Harvard more open," Zuckerberg
said in a Tech Crunch interview. On October 25, 2010, entrepreneur and banker
Rahul Jain auctioned off FaceMash.com to an unknown buyer for $30,201. Naresh govinda
The facebook.com In January 2004, Mark Zuckerberg began writing
the code for a new website, known as 'the Facebook'. He said in an article in The Harvard Crimson
that he was inspired to make Facebook from the incident of Facemash: "It is clear that
the technology needed to create a centralized Website is readily available ... the benefits
are many." On February 4, 2004, Zuckerberg launched "Thefacebook", originally located
at the facebook.com. He told The Crimson, "Everyone’s been talking a lot about a universal face
book within Harvard. I think it’s kind of silly that it would take the University a
couple of years to get around to it as I can
do it better than they can, and I can do it
in a week." Zuckerberg also stated his intention
to create a universal website that can contact
people around the university. According to
his roommate, Dustin Moskovitz, "When Mark
finished the site, he told a couple of friends
... then one of them suggested putting it
on the Kirkland House online mailing list,
which was ... three hundred people." Moskovitz
continued to say that, “By the end of the
night, we were ... actively watching the registration
process. Within twenty-four hours, we had
somewhere between twelve hundred and fifteen
hundred registrants."
Just six days after the launch of the site,
three Harvard University seniors, Cameron
Winklevoss, Tyler Winklevoss, and Divya Narendra,
accused Zuckerberg of intentionally misleading
them into believing that he would help them
build a social network called HarvardConnection.com,
but instead using their idea to build a competing
product. The three complained to the Crimson,
and the newspaper began an investigation.
Zuckerberg knew about the investigation so
he used TheFacebook.com to find members in
the site who identified themselves as members
of the Crimson. He examined a history of failed
logins to see if any of the Crimson members
have ever entered an incorrect password into
TheFacebook.com. In the cases in which they
had failed to login, Mark tried to use them
to access the Crimson members' Harvard email
accounts, and he was successful in accessing
two of them. In the end, three Crimson members
filed a lawsit against Zuckerberg which was later settled.
Membership was initially restricted to studens
of Harvard University. Within the first month,
more than half the undergraduate popultion
at Harvard was registered on the service.
Zuckerberg was soon joined in the promotio
of the site by Eduardo Saverin, Dustin Moskovitz,
Andrew McCollum, and Chris Hughes. In March
2004, Facebook expanded to Stanford, Columbia,
and Yale. This expansion continued when it
opened to all Ivy League and Boston-area schools.
It gradually reached most universities in
Canada and the United States. Facebook was
incorporated in the summer of 2004, and the
entrepreneur Sean Parker, who had been informally
advising Zuckerberg, became the company's
president. In June 2004, Facebook moved its
base of operations to Palo Alto, California.
The company dropped ‘The’ from its name
after purchasing the domain name facebook.com
in 2005 for $200,000.
Facebook
On October 1, 2005, Facebook expanded to twenty-one
universities in the United Kingdom, the Instituto
Tecnologico y de Estudios Superiores de Monterrey
system in Mexico, the University of Puerto
Rico and Interamerican University of Puerto
Rico network in Puerto Rico, and the University
of the Virgin Islands network in the U.S.
Virgin Islands. Facebook launched a high school
version in September 2005, which Zuckerberg
called the next logical step. At that time,
high school networks required an invitation
to join. Facebook later expanded membership
eligibility to employees of several companies,
including Apple Inc. and Microsoft. On December
11, 2005, universities in Australia and New
Zealand were added to the Facebook network,
bringing its size to 2,000+ colleges and 25,000
+ high schools throughout the United States,
Canada, Mexico, the United Kingdom, Australia,
New Zealand, and Ireland. Facebook was then
opened on September 26, 2006 to everyone aged
13 and older with a valid e-mail address.
Late in 2007, Facebook had 100,000 business
pages, allowing companies to attract potential
customers and tell about themselves. These
started as group pages, but a new concept
called company pages was planned.
In October 2008, Facebook announced that it
would set up its international headquarters
in Dublin, Ireland.
In 2010, Facebook began to invite users to
become beta testers after passing a question-and-answer-based
selection process, and a set of Facebook Engineering
Puzzles where users would solve computational
problems which gave them an opportunity to
be hired by Facebook.
As of February 2011, Facebook had become the
largest online photo host, being cited by
Facebook application and online photo aggregator
Pixable as expecting to have 100 billion photos
by summer 2011. As of October 2011, over 350
million users accessed Facebook through their
mobile phones, accounting for 33% of all Facebook
traffic.
On March 12, 2012, Yahoo! filed suit in a
U.S. federal court against Facebook weeks
before the scheduled Facebook initial public
offering. In its court filing, Yahoo said
that Facebook had infringed on ten of its
patents covering advertising, privacy controls
and social networking. Yahoo had threatened
to sue Facebook a month before the filing,
insisting that the social network license
its patents. A spokesperson for Facebook issued
a statement saying "We're disappointed that
Yahoo, a longtime business partner of Facebook
and a company that has substantially benefited
from its association with Facebook, has decided
to resort to litigation". The lawsuit claims
that Yahoo's patents cover basic social networking
ideas such as customizing website users' experiences
to their needs, adding that the patents cover
ways of targeting ads to individual users.
On April 24, 2014, Facebook and Storyful announced
a new feature called FB Newswire.
Financials
Initial funding
Facebook was initially incorporated as a Florida
LLC. For the first few months after its launch
in February 2004, the costs for the website
operations for thefacebook.com were paid for
by Mark Zuckerberg and Eduardo Saverin, who
had taken equity stakes in the company. The
website also ran a few advertisements to meet
its operating costs.
First angel investment
In the summer of 2004, Peter Thiel made a
$500,000 angel investment in the social network
Facebook for 10.2% of the company and joined
Facebook's board. This was the first outside
investment in Facebook.
In his book The Facebook Effect, David Kirkpatrick
outlines the story of how Thiel came to make
his investment: Former Napster and Plaxo employee
Sean Parker, who at the time had assumed the
title of "President" of Facebook, was seeking
investors for Facebook. Parker approached
Reid Hoffman, the CEO of work-based social
network LinkedIn. Hoffman liked Facebook but
declined to be the lead investor because of
the potential for conflict of interest with
his duties as LinkedIn CEO. He redirected
Parker to Peter Thiel, whom he knew from their
PayPal days. Thiel met Parker and Mark Zuckerberg,
the Harvard college student who had founded
Facebook and controlled it. Thiel and Zuckerberg
got along well and Thiel agreed to lead Facebook's
seed round with $500,000 for 10.2% of the
company. Hoffman and Mark Pincus also participated
in the round, along with Maurice Werdegar
who led the investment on behalf of Western
Technology Investment. The investment was
originally in the form of a convertible note,
to be converted to equity if Facebook reached
1.5 million users by the end of 2004. Although
Facebook narrowly missed the target, Thiel
allowed the loan to be converted to equity
anyway. Thiel said of his investment:
"I was comfortable with them pursuing their
original vision. And it was a very reasonable
valuation. I thought it was going to be a
pretty safe investment."
Accel investment
In April 2005, Accel Partners agreed to make
a $12.7 million venture capital investment
in a deal that valued Facebook at $98 million.
Accel joined Facebook's board, and the board
was expanded to five seats, with Zuckerberg,
Thiel, and Breyer in three of the seats, and
the other two seats currently being empty
but with Zuckerberg free to nominate anybody
to those seats.
Series C
In April 2006, Facebook closed its Series
C funding round. This included $27.5 million
from a number of venture capitalists, including
Greylock Partners and Meritech Capital, plus
additional investments from Peter Thiel and
Accel Partners. The valuation for this round
was about $500 million.
A leaked cash flow statement showed that during
the 2005 fiscal year, Facebook had a net loss
of $3.63 million.
Sales negotiations
With the sale of social networking website
MySpace to News Corp on July 19, 2005, rumours
surfaced about the possible sale of Facebook
to a larger media company. Zuckerberg had
already stated that he did not want to sell
the company, and denied rumors to the contrary.
On March 28, 2006, BusinessWeek reported that
a potential acquisition of Facebook was under
negotiation. Facebook reportedly declined
an offer of $750 million from an unknown
bidder, and it was rumored the asking price
rose as high as $2 billion.
In September 2006, serious talks between Facebook
and Yahoo! took place concerning acquisition
of Facebook, with prices reaching as high
as $1 billion. Thiel, by then a board member
of Facebook, indicated that Facebook's internal
valuation was around $8 billion based on
their projected revenues of $1 billion by
2015, comparable to Viacom's MTV brand, a
company with a shared target demographic audience.
On July 17, 2007, Zuckerberg said that selling
Facebook was unlikely because he wanted to
keep it independent, saying "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." In September 2007,
Microsoft approached Facebook, proposing an
investment in return for a 5% stake in the
company, offering an estimated $300–500 million.
That month, other companies, including Google,
expressed interest in buying a portion of
Facebook.
Microsoft investment
On October 24, 2007, Microsoft announced that
it had purchased a 1.6% share of Facebook
for $240 million, giving Facebook a total
implied value of around $15 billion. However,
Microsoft bought preferred stock that carried
special rights, such as "liquidation preferences"
that meant Microsoft would get paid before
common stockholders if the company were sold.
Microsoft's purchase also included the right
to place international ads on Facebook. In
November 2007, Hong Kong billionaire Li Ka-shing
invested $60 million in Facebook.
Switch to profitability
In August 2008, BusinessWeek reported that
private sales by employees, as well as purchases
by venture capital firms, were being done
at share prices that put the company's total
valuation at between $3.75 billion and $5 billion.
In October 2008, Zuckerberg said "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."
Facebook hired Sheryl Sandberg as its Chief
Operating Officer in March 2008. Sandberg
is reported to have held a number of brainstorming
sessions with Facebook employees on their
long-term monetization strategy, which led
to the conclusion that advertising would be
the main source of monetization. Under Sandberg's
leadership, Facebook made a number of changes
to its advertising model with the aim of achieving
profitability. In September 2009, Facebook
stated that it had turned cash flow positive
for the first time.
In early 2012, Facebook disclosed that its
profits had jumped 65% to $1 billion in the
previous year when its revenue, which is mainly
from advertising, had jumped almost 90% to
$3.71 billion. Facebook also reported that
56% of its advertising revenue comes from
the U.S. alone, and that 12% of its revenue
comes from Zynga, the social network game
development company. Payments and other fees
were $557 million up from $106 million the
previous year.
Acquisitions
In August 2009, Facebook acquired social media
real-time news aggregator FriendFeed, a startup
created by Gmail's first engineer Paul Buchheit.
In February 2010, Facebook acquired Malaysian
contact-importing startup Octazen Solutions.
On April 2, 2010, Facebook announced acquisition
of photo-sharing service called Divvyshot
for an undisclosed amount. In June 2010, an
online marketplace for trading private Facebook
stock reflected a valuation of $11.5 billion.
On April 12, 2012, Facebook acquired photo
sharing service Instagram for approximately
$1 billion in cash and stock. On March 8,
2013, Facebook announced that they acquired
the team from Storylane, but not the product
itself. On February 19, 2014 Facebook announced
it is acquiring WhatsApps Inc, a smartphone
instant messaging application for $19 billion
in a mix of stock and cash. The acquisition
is the most ever paid for a venture-capital
backed startup.
Design
The Facebook design has seen numerous design
iterations throughout its existence. Each
of these design changes has come to be synonymous
with angry users who dislike adjusting to
a new layout. As of Facebook's 10th birthday
in January 2014, it had seen several major design revamps, each one ushering in new functional
capabilities and user interaction features. IPO
Facebook filed for an initial public offering
on February 1, 2012. The preliminary prospectus
stated that the company was seeking to raise
$5 billion. The document announced that the
company had 845 million active monthly users
and its website featured 2.7 billion daily
likes and comments. After the IPO, Zuckerberg
will retain a 22% ownership share in Facebook
and will own 57% of the voting shares.
Underwriters valued the shares at $38 each,
pricing the company at $104 billion, the largest
valuation to date for a newly public company.
On May 16, one day before the IPO, Facebook
announced that it would sell 25% more shares
than originally planned due to high demand.
The IPO raised $16 billion, making it the
third largest in U.S. history. The stock price
left the company with a higher market capitalization
than all but a few U.S. corporations – surpassing
heavyweights such as Amazon.com, McDonald's,
Disney, and Kraft Foods – and made Zuckerberg's
stock worth $19 billion. The New York Times
stated that the offering overcame questions
about Facebook's difficulties in attracting
advertisers to transform the company into
a "must-own stock". Jimmy Lee of JPMorgan
Chase described it as "the next great blue-chip".
Writers at TechCrunch, on the other hand,
expressed skepticism, stating, "That's a big
multiple to live up to, and [Facebook] will
likely need to add bold new revenue streams
to justify the mammoth valuation".
Trading in the stock, which began on May 18,
was delayed that day due to technical problems
with the NASDAQ exchange. The stock struggled
to stay above the IPO price for most of the
day, forcing underwriters to buy back shares
to support the price. At closing bell, shares
were valued at $38.23, only $0.23 above the
IPO price and down $3.82 from the opening
bell value. The opening was widely described
by the financial press as a disappointment.
The stock nonetheless set a new record for
trading volume of an IPO. On 25 May 2012,
the stock ended its first full week of trading
at $31.91, a 16.5% decline.
On 22 May, regulators from Wall Street's Financial
Industry Regulatory Authority announced that
they had begun to investigate whether banks
underwriting Facebook had improperly shared
information only with select clients, rather
than the general public. Massachusetts Secretary
of State William Galvin subpeonaed Morgan
Stanley over the same issue. The allegations
sparked "fury" among some investors and led
to the immediate filing of several lawsuits,
one of them a class action suit claiming more
than $2.5 billion in losses due to the IPO.
Bloomberg estimated that retail investors
may have lost approximately $630 million on
Facebook stock since its debut.
Notes
References
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