It is one thing to create a website that allows a group of college students to interact with each other. It is an entirely different thing when that network goes global. Mark Zuckerberg knew a good thing when he developed it. His networking site Facebook quickly took the world by storm.
It allowed people from across the globe to connect and be part of a growing social network. It allowed people to find friends and share stories about their daily lives. It is also about money. Investing news stories are continuously being published about this networking giant.
Investing news stories are always making the headlines. The Facebook empire made its first headlines when Peter Thiel, co-founder of PayPal, invested $500,000 into the fledgling enterprise. Would this be the starting point for a top 10 business? Many business experts conjectured that Facebook would join forces with a larger company to help back its financial needs. They were a bit mistaken.
Facebook makes its money, which allows it to remain a free website, through the use of advertising services. Each time a person clicks on one of the banner ads and makes a purchase, the company receives a portion of the profits. But there is a problem with that. With revenue dependent upon you clicking a banner ad, it can begin to suffer if people do not buy through their advertising services. This is most likely why Facebook had a $3.63 million dollar net loss in 2005. It was spending more to host the website and provide services than it was bringing in.
Enter in the merger and acquisition talks with giants Yahoo, Google and other companies. These huge companies tried to enter into negotiations with Facebook and a bidding war was even started at one time. Zuckerberg issued a statement in 2007 that essentially said that Facebook would not be sold to someone else.
Was this the right thing to do? If you compare Facebook’s membership to MySpace’s membership, then you are left with the impression that it is no where near as successful. MySpace has more than double the members and is still a growing entity.
So what will happen with Facebook when its daily advertising is eclipsed by its spending? No one is certain of anything yet but with the huge net loss it suffered in 2005 it still remains to be seen if Facebook will be able to continue to compete with MySpace. There might actually be a day in the future when it must charge membership fees. However, for now that is only a hypothesis set out by business experts. Facebook today is still free of charge and open to people everywhere.
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