Observations from the Facebook S1

1. A new standard for user engagement. DAU to MAU ratio of 57% in December 2011, which amazingly is actually higher than the already high 54% in December 2010.  This makes Zynga’s engagement look weak!

  • 845 million MAUs as of December 31, 2011, an increase of 39% as compared to 608 million MAUs as of December 31, 2010.
  • 483 million daily active users (DAUs) on average in December 2011, an increase of 48% as compared to 327 million DAUs in December 2010.

2. Incredible user activity levels. Almost 6 likes or comments per Daily Active Unique. 117 connections on average per registered user.  Interestingly, this indicates that there is still room to grow connections by another 28% before the site hits the “more than 150 connections” or Dunbar’s Number, problem.

  • More than 100 billion friend connections on Facebook as of December 31, 2011.
  • Users generated an average of 2.7 billion Likes and Comments per day during the three months ended December 31, 2011.

3. Payments are the new revenue driver.  Last summer, Facebook started charging companies like Zynga 30 percent of each transaction — like purchasing a virtual good like a cow. (That’s a big reason why Zynga accounts for 12 percent of Facebook’s revenue, alhough that figure includes advertising as well).  So although payments started as a tiny sliver of Facebook’s overall revenue, now it’s up to about 17 percent of the total.  As companies sell other stuff on Facebook – virtual or not – this number is likely to grow.

  • According to market research reports, the worldwide revenue generated from the sale of virtual goods increased from $2 billion in 2007 to $7 billion in 2010, and is forecasted to increase to $15 billion by 2014.
  • Facebook currently requires Payments integration in games on Facebook, and we may seek to extend the use of Payments to other types of apps in the future.

4. User profile data in addition to the Like button makes Facebook’s advertising value proposition hum. Relevance and Social Context make Facebook ads a strong contender against Google’s intent-targeted ads.  Every major brand now has a Facebook page to stimulate ongoing dialogue with its customers.  A huge industry has been spawned creating social presence for advertisers and helping these advertisers manage their social presence – including companies such as Buddy Media, Wildfire, Vitrue, Involver, SpredFast, CrowdFactory, ThisMoment, and about 35 other venture-backed entities. At the end of the day, the thesis behind Facebook ads is Social Context and Relevance.

  • Facebook offers advertisers the ability to include “social context” with their marketing messages. Social context is information that highlights a user’s friends’ connections with a particular brand or business, for example, that a friend Liked a product or checked in at a restaurant. Users (hopefully) find marketing messages more engaging when they include social context.
  • Advertisers can specify that Facebook show their ads to a subset of its users based on demographic factors and specific interests that they have chosen to share on Facebook or by using the Like button around the web. Facebook thus allows advertisers to select relevant and appropriate audiences for their ads, ranging from millions of users in the case of global brands to hundreds of users in the case of smaller, local businesses.


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