FACEBOOK VALUATION Harvard Case Solution & Analysis

Facebook Valuation Case Study Solution


Mark Zuckerberg along with his roommates in 2004 develop a social networking site for the students of Harvard University, since then the website was opened for the students of all the universities around the globe. The social networking site of students was so famous that almost two third of the students of universities joined the Facebook in order to maintain social relationship with the students. After the success of Facebook among the universities the Facebook is opened for public and anyone can join the Facebook.

In the year 2005, photo sharing feature was added which allows members to share their photos on their profile, furthermore, many other options were also included such as messaging, voice calls, video calls, groups etc. which plays a vital role in increasing the number of members of Facebook. This increasing use of Facebook also result in the discomfort of many members who were reluctant to post about their social activities with public. In order to cope with this situation Facebook introduces many measures aims to resolve the privacy issues and to better fulfill the claims of all legitimate stakeholders.

To finance the day to day expenditure requirements and capital expenditure needs, Facebook obtain the loan finance from many of the Angel investors and companies. Not only this, Facebook also filed for an IPO in February 2012, at a valuation of $104 billion which is considered as the third largest IPO in the history of U.S. business. Majority of the revenue of Facebook comes from the advertisements displayed in the side corner of the timelines or newsfeeds of the users while the remaining 15% comes from the trade of virtual goods by third party developers through Facebook.

Apart from the strategy of organic growth, the management of Facebook in the leadership of Mark Zuckerberg aggressively pursue inorganic growth as well. Facebook acquire many other large social networking sites such as Whatsapp and Instagram, it can be said that acquisition of Whatsapp by Facebook was so big that many industry analyst considers the acquisition of Whatsapp as the waste of precious financial resource because of the continuous losses of Whatsapp. This acquisition was also one of the biggest acquisition in the history of U.S. amounting to approximately $19.2 billion.

Success of Advertising on Facebook:

As the growing network of Facebook along with the rapid increase in the number of users, it can be said that Facebook is one of the most effective tool for marketing. The number of users are increasing day by day due to many facts such as the free of cost usage of Facebook by the domestic members. In the year 2014, the number of users of Facebook has reached to one billion which is the most number of users in the history of social networking sites, according to the CEO of Facebook Mark Zuckerberg, the number of users of Facebook will reach up to over five billion by the year 2030.(Cava, 2016).

Facebook has made it possible to develop the earth in to the global village because of the face that users from all parts of the world are joining Facebook. The members of Facebook represents almost all the cultures of the world. The feature of live games which the users can play online on Facebook makes it more appealing to the young members. Apart from the young community Facebook is equally popular in the aged citizens as well.

FACEBOOK VALUATION Harvard Case Solution & Analysis


Facebook advertisement is critical for the business in maximizing the reach of customers, by the traditional marketing the reach to number of customers is limited. However, by the mean of Facebook marketing, businesses can advertise their products or services to maximum number of potential customers. Furthermore, due to the images and graphics it appeals more to potential customers to purchase the goods or services which is also an important factor which maximize the sales of businesses.
Advertisement on Facebook also allows the businesses to better analyze their marketing campaign and effectiveness of advertisement. Traditional media fails to provide these benefits to the organization, Facebook can help companies to analyze their marketing effectiveness with the help of many analytical tools such as hoover effect which makes it possible for the company to evaluate which advertisement is effective and on which advertisement the number of visits of users is minimum. The fact that modern Facebook advertisement is based on “Artificial Intelligence” will also help organization to present their advertisement in front of the relevant customers which ultimately increase the effectiveness of Facebook advertisement and is the main factor which makes the Facebook advertisement so successful.(Dawson, 2017)

The success of Facebook advertisement is also primarily due to the two way communications, in the traditional media only the message of advertiser is conveyed to the target customers. As opposed to this in the Facebook advertisement not only the messages of advertisers are forwarded to the potential customers their advice was also taken by the advertisers which allows to better undertake the needs and wants of the customers. This two way communication is very critical in the modern economic environment because of the increasing competition, if the organization doesn’t properly knows what their customer wants from them it is highly likely that they cannot satisfy their valuable customers. Furthermore, Facebook advertisement also increases the loyalty of customers as they feel more comfortable in doing business with companies who are keen to take their views in developing the strategies, thus increasing the success of the Facebook advertisement..................

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