Chapter 1 Case Studies Answers CASE STUDY 1 - Facebook Questions 1. As an investor in a social network such as Facebook, which financial and customer-related metrics would you use to assess and benchmark the current business success and future growth potential of the company? From comments in the case study, the main revenue model is ad-based advertising (CPC and CPM). Facebook has said it will not sell customer data and there is no indication of affiliaterelated models. Customer-related metrics are related to engagement which indicates capability to sell ad space – not simply users, but active returning users and the number of pages viewed per day. The proportion of ad inventory sold is also important. A basic answer will provide • Understanding of financial metrics. Revenue, Costs, Growth. • Clear framework of different metrics types – efficiency vs effectiveness. • Audience Engagement and satisfaction metrics such as those mentioned in the case. A more competent answer will reference elements of profitability (e.g. ad revenue, alternative models, e.g. subscription (although clear data not sold) costs (e.g. R&D, Development) Operational costs of managing business (on a per active user basis). 2. Complete a situation analysis for Facebook focusing on an assessment of the main businessrisks which could damage the future growth potential of the social network. Typical risks are: • Ad revenue limited because of difficulty of engaging audience in ads. • Major privacy problem as with Beacon. • Intellectual Property Rights. • Technical problems with scalability leading to performance problems and increased technical costs. • New entrant or alternative company offers superior experience – what is the likelihood of this? Students could be encouraged to create a SWOT analysis. The likely probability and impact of each risk should also be reviewed.

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