Zuckerberg: Facebook rakes in cash... to make world a better place

Web2.0 investors masticate wildly on Zuck's gummy bubble

Analysis Mark Zuckerberg: a shrewd businessman or simply the world's greatest ever opportunist. Now we can finally find out.

His company, Facebook, filed for its initial public offering yesterday, which immediately set off a gentle Web2.0gasm across the interwebulator.

The CEO of the world's biggest social network site, whose infamous dormroom-to-the-boardroom story has been chronicled many times over, fell deep into Silicon Valleyese in a missive to investors yesterday.

Like so many Californian tech CEOs before him, Zuck wanted to sound as non-conformist and unbusinesslike as possible while unblinkingly grinning at all that lovely ad revenue.

He kicked off by stating that "Facebook was not originally created to be a company". We already know this. Back in the early days, Zuck considered his then fledgling userbase of college kids to be a bunch of "dumb fucks" for sharing so much data via his website.

It's not all about Zuckerberg, though. All those talented developers he hired have built Facebook into the giant silo it is today.

"By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date. We also believe that giving people control over what they share is a fundamental principle of this rewiring," Zuck said.

It's an interesting but not exactly new gambit to take, by claiming that Facebook - a company which needs ad revenues to thrive - is humbly doffing its hoodie to the common people.

Google, similarly, likes to be seen as an altruistic company that puts its users rather than its shareholders first. But that stock, as Larry Page will happily tell Zuckerberg, isn't going to skyrocket if Facebook fails to satisfy its true userbase - advertisers.

But then, Zuck already knows that.

Take a look at Facebook's 2011 ad revenue to understand exactly how integral that relationship is. It pulled in advertising sales of $3.1bn last year. Zuckerberg's crew isn't sated by those billions of dollars, however. They want more in order to be able to expand their data-churning company across the globe.

People accessing the network via mobile phones, for example, are doing so without creating big bucks back at Facebook HQ.

"We believe that mobile usage of Facebook is critical to maintaining user growth and engagement over the long term, and we are actively seeking to grow mobile usage, although such usage does not currently directly generate any meaningful revenue," reads the S-1 filing to the US Securities and Exchange Commission.

What does this desire ultimately mean for the all-important user? The likely result is a network that becomes ever more slavish to the needs of advertisers. In fact this is already largely in play at the company. It has spent much of the last year rejigging the site to make it a better place for ad eye-candy.

Those same users, though, are also now themselves invested in the site. Facebook knows this and so too does its investors. It's probably not going to find it terribly difficult to convince them to stay.

That said, Facebook does list Google's social network as a potential risk factor:

We face significant competition in almost every aspect of our business, including from companies such as Google, Microsoft, and Twitter, which offer a variety of internet products, services, content, and online advertising offerings, as well as from mobile companies and smaller Internet companies that offer products and services that may compete with specific Facebook features.

We also face competition from traditional and online media businesses for a share of advertisers’ budgets and in the development of the tools and systems for managing and optimising advertising campaigns. We compete broadly with Google’s social networking offerings, including Google+, which it has integrated with certain of its products, including search and Android.

In addition, we compete with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. As we introduce new products, as our existing products evolve, or as other companies introduce new products and services, we may become subject to additional competition.

Other risks listed by the company include inevitable patent spats:

As of December 31, 2011, we had 56 issued patents and 503 filed patent applications in the United States and 33 corresponding patents and 149 filed patent applications in foreign countries relating to social networking, web technologies and infrastructure, and related technologies.

Our issued patents expire between May 2016 and June 2031. We cannot assure you that any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims. In addition, any patents may be contested, circumvented, found unenforceable or invalid, and we may not be able to prevent third parties from infringing them.

Failure to retain Facebook talent, plus any major infrastructure mishaps, could prove perilous for the company. Better still, Zuckerberg himself is listed as a risk factor given the majority stock he owns.

Corralling identity is a crucial tenet of Zuck's biz:

As our users maintain and expand their authentic identity on Facebook, they are increasingly choosing to share their interests and preferences regarding products and services. We use this information to improve our ability to deliver relevant ads that we believe are more interesting and compelling for each user.

However, the company admits that such ID authentication doesn't always work because some of you out there have multiple accounts in violation of Facebook's terms:

There are inherent challenges in measuring usage across large online and mobile populations around the world.

In other words, the company's userbase that now stands at 845 million people worldwide can only be considered as a "reasonable estimate" of exactly how many Facebookers there are signed up to the site. No wonder then that he previously described this as a boring metric.

Revisions to privacy laws, too, could hamper Facebook's biz. The proposed rewrite of Europe's 1995 Data Protection Law is cited by the firm, which could, it added, make information-processing more difficult:

Similarly, there have been a number of recent legislative proposals in the United States, at both the federal and state level, that would impose new obligations in areas such as privacy and liability for copyright infringement by third parties.

These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.

And let's not even get started on the goddamn spam.

Clearly, for 27-year-old boydroid Zuck and his right-hand woman Google graduate Sheryl Sandberg, the stakes are incredibly high. Facebook wants to have it all and the ad business remains the single most important factor to that success.

But what about that poker face? Zuckerberg, after all, now has a personal Facebook haul that stands at $28.4bn.

The question is, who is he trying to fool? ®

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