Sustainable Business

According to Mark Zuckerberg, one of the founding members of Facebook.com, “Facebook was not originally created to be company. It was built to accomplish a social mission – to make the world more open and connected.” As their website grew, they realized that they would need to not only raise capital, but also generate profits in order to keep up with the expansion. Facebook’s primary source of income is from advertisers who are interested in reaching their target segment through the website’s connections. By seeing the users’ demographic information, expressed interests and social connections, the advertisers could target customized services and products. This “social context” accounted for 98% of Facebook’s revenue, decreasing to a still modest 85% in 2011. The balance of their profits are generated by the sale of virtual goods used in social games sold through the online gaming company, Zynga.

In order to have a sustainable business, a company must identify its value drivers, or important factors that determines the value of a business. Many variables are important, and play a key role in the success of Facebook including: its design, localization and broad target market. First, the design of a website is important. If the user interface, or how to edit the contents and looks of the profile are difficult for the average user to understand, it will be harder to keep users active. Next, Facebook is available in over 40 languages, which opens the use to many more users that could not use the social media before. Finally, Facebook prides itself on having a broad target market. It is accessible to the majority of users, unlike LinkedIn who target professionals and Myspace who targets musicians. In addition to value drivers, a comparative advantage is key to being successful over other social networking companies. The innovation and determination of developers to keep expanding and improving the website keeps the users interested, excited what to see what comes next. Also, Facebook was one of the first websites to launch a mobile app, which can be accessed on smartphones, increasing their user base by adding 425 million mobile users. Without these factors, Facebook would not have gained as much attention as it did.

With the rise in popularity of social media companies, it was seen as inevitable by financial market participants that Facebook would go public. The main idea behind the selling of Class A common stock was to create a public market for existing shareholders and enable them to access the public equity markets in the future. Using these proceeds, they would increase working capital and apply it towards other general corporate purposes.

Facebook’s IPO cannot avoid the influence of big environment. Because the global capital market was slowly recovering from the subprime mortgage crisis, it had morphed into a European sovereign debt crisis.The U.S. GDP was slowly recovering. The