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Facebook Case Study

MCC Training Institute, Yangon

COMP1646
Information Systems
Management

Date: 7.4.2014
Name : Myo Thu Htet
ID : 000844856

Introduction
I am a BIT student from MCC Training Institute, Yangon. In the first semester of this
course, I do Information System Management (ISM) assignment. I choose facebook case study
for ISM assignment. Facebook is most popular social networking sites. So I also interested to
study facebook.
Myo Thu Htet
MCC Training Institute, Yangon

Acknowledgement
First of all, I have to thank my parents who encourage me to attend this B.Sc Course.
They support me with whatever I want and without their helps I cant study these courses and
cant know anything about programming and other computer sciences.
And I should thank to MCC Training Institute for their support such as electricity, library
where I searched information about this assignment and so on.
After that, I shouldnt forget to thank University of Greenwich. Its education method
helps me to make professionally in the part that I am interested among computing environment.
Finally, I also want to give my special thanks to all my friends who give me many advices
that are useful in assignment.

Table of content
Introduction ................................................................................................................................................ 1
Strategic Evaluation- Situation Analysis ...................................................................................................... 7
Legal and ethical issues............................................................................................................................. 20
Conclusion ................................................................................................................................................ 22
References ................................................................................................................................................ 23

Introduction
Company background
Name

Facebook, Inc.

Industries served

Internet

Geographic areas
served
Headquarters

Worldwide

Current CEO

Mark Zuckerberg

Revenue

$ 5.08 billion (2012)

Profit

$ 53 million (2012)

Employees

4,619 (2012)

Main Competitors

Twitter, MySpace, Google+, LinkedIn, IGLOO, Bebo


and many others.

U.S

Facebook, Inc. is an internet corporation which runs the social networking website
facebook.com. Facebook social network helps friends, family and enterprises to connect
through the web. On February 2012, Facebook became a public company after its record initial
public offering (IPO). Facebook is the largest social network. It has more than a billion active
users. Facebook's mission is to make the world more open and connected.

History of Facebook
Facebook was founded by February 2004 by Harvard student Mark Zuckerberg and
other three students, Dustin Moskovitz , Eduardo Saverin and Chris Hughes.
Firstly it is called thefacebook . thefacebook began as a college networking website and was
quickly successful on Harvard campus. And then it is expanded beyond Harvard into other US
Ivy League schools. thefacebook became a nationwide college networking website within
months.
Zuckerberg and Moskovitz left Harvard University and start to run thefacebook full time.
In the summer of 2004, Facebook was incorporated as Facebook Inc. Entrepreneur Sean
Parker became the company's president. Sean Parker is co-founder of the music sharing
website called Napster in 1999 and had been informally advising Zuckerberg.
In June 2004, Facebook moved to Palo Alto, California. And in July 2004, the
corporation Facebook Inc. was registered in the state of Delaware .After purchasing the domain
name, the company dropped the from thefacebook and became facebook.com. At that
time, it can be used only in schools, universities and companies but since it is expended to all
over the world. The company moved to a new campus in Menlo Park, California in January
2012.
Facebook create networks and allows sharing status, information, notes, photos and
videos between facebook users and their facebook friends. Facebooks main service and
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source of income is advertisings. To achieve aim profitability, facebook made many changes to
its advertising strategy.
Facebook has distilled its principles into 5 core values :
Focus on Impact
Move Fast
Be Bold
Be Open
Build Social Value.

Mission statement
CEO Mark Zuckerberg explains, "we don't build services to make money; we make money to
build better services."
Facebook mission statement wasFacebook's mission is to give people the power to share and make the world more open
and connected.
Facebooks mission is only for its customer. They are customer oriented.
Facebook should improve their mission statements for 4 components: philosophy, self-concept,
concern for public image and employees.

http://www.strategicmanagementinsight.com/mission-statements/facebook-mission-statement.html
http://www.engadget.com/2012/02/01/zuckerberg-outlines-idealistic-facebook-mission-in-ipo-filing/

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Market Shares
Worldwide Leading social network websites market share and unique vistors according
to ComScore in November 2011.
Unique Visitors (millions)

Market Share (%)

Facebook.com

793

55.1

Twitter.com

168

11.7

LinkedIn.com

95

6.6

Google+

67

4.6

MySpace

61

4.2

Others

255

17.7

Total

1439

100

According to web statistical research company Alexa and Google Trends :


Facebook with more than 845 million active users by December 2011 has established
its leadership position of social networking sites in 126 out of 137 countries
analysed. By June 2012 its number of active users had grown to 955 miilion.

Financial Status of Facebook


Facebooks IPO document indicates that in 2011 :
In 2010, its revenues were over $1.9 billion. And then its total revenues were over $3.7
billion in 2011.
In 2010, operation profit was $ 1 billion. And then it was over $1.9 billion up to 70% in
2011.
In 2010, facebooks net income (after taxes and interest) was $606 million. And then it
was $1 billion up to 65% in 2011.

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Source : Facebook Second Quarter 2012 earnings release on 26 July 2012

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Source : Facebooks Second Quartet 2012 earnings release 26 July 2012

Facebooks Free Cash Flows from 2007 to 2011

Source : Facebooks IPO document

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Facebooks Consolidated Balance Sheet for 30 June 2012 and 31 December


2011 ( Millions of $)

Source:Facebook Second Quarter 2012 earnings release 26 July 2012

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Strategic Evaluation- Situation Analysis


PEST analysis of facebook
Political Factor
There are so many difficulties in companys strategy to use user data for providing
effective advertising because governments and users are so concerned in privacy issues. The
class action law suit against the company might lead to more than $15 billion damages. There
are similar cases of other countries law. For example, German data protection law warned the
investors of facebook in its IPO because social network operation is very depend on practices
that breach privacy rules and regulations of Europe.
As the legal point of view, facebook users think it is private space for them but more than
50% of users felt not safe to purchases on facebook. Huge numbers of advertisements and
privacy issues make the users uncomfortable and it can be threat of companys growth.

Economic Factor
Compared to facebook peers, over the years it has been strong growth rates. The
growth of company revenue is 88% up in final year 2011 than in final year 2010. During the year
of 2009 to 2011, its revenue is up 199% at a CAGR. In final year 2011, Googles revenue grew
30% and its revenue up 27% at a CAGR during 2009 to 2011. The growth rate of company
revenue highlight its ability to boost growth and facebook is now a market leader, strong position
and has much market share of social network and online advertising.
Facebooks base expense is very low so it can get higher profit margins. The operation
margins of facebook were 47.4% and its net profit margins were 18% in final year 2011. To be
compared, operation margins of Google were 30.9% and net profit margins were 25.6%.
Comparison of high margins and peers show good alignment of facebooks cost structure. The
companys competitive advantage is that it is in a good strong position with low advertising rates
because of its low expenses. It transformed 12.6% of sales into free cash flow.
Facebooks cash flow is also very strong. In final year 2011, its operation cash flow was
41.7%. At the same year, Googles cash flow was 38.4% so facebooks cash flow is higher and
stronger than googles. High operation cash flow indicates that facebook can transform sales
into cash effectively.
Ratio of that cash flow to its sales indicates how much of its revenue is converted into
cash. Its ability of high cash flow generation is a measurement of its high financial flexibility. It
has many challenges to monetize and boost its revenues. It can reinvest in expansion of
business easily because of its free cash flow. It can fund in its expansion plans.

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Social Factor
Facebook launched mobile application that lead to take into monetizing the mobile user
base. People find social mobile application in App Center that is a new place for users.
Developers can develop their mobile applications and then grow those applications on the App
Center. Facebook facilitate those applications to be spread and successful. Developers can
access the App Center on web and it provides for iOS and Android apps. App Center doesnt
sell mobile applications and directs users to applications on iOS stores and Android. Facebook
doesnt get its income as operating system owner. But it promotes social applications which are
listed on App Center and use facebook login feature.
If it is login feature, facebook provides its users to utilize its network. So facebook can
collect more users data easily and to plan its main targeted marketing strategy. Facebook is
also trying to sell non-platform-specific applications. It will take approximately 30% fee for
application sales.
It is also trying to foray into domain and dominated by OS owners through App Center. It
helps developers to build applications for HTML5 platform-agnostic standard. It can also earn
advertising revenues by accessing user data through mobile platform proprietors.
Facebook is able to direct user data itself on HTML5 applications. Facebook want to be
a froe runner of mobile social experience creation with the App Center and it is a large potential
market untapped.

Technological Factor
Due to Facebooks adopted inherent business model, its advertisements are effective. Google
is in a good position on online advertising market that facebook lacks. Facebook advertising
strategy is mainly based on displaying advertisements so it is not good for user experience.
Facebook only makes 10% of Googles revenues according to the estimates. Some further
estimates point out that the revenues of Googles search per page views are 100 to 200 times
larger than facebooks. CTR (click-through-rate) is one of the ways to measure online
advertising is success or not for a specific website. An advertisement on Google is 10 times
higher than a normal facebook advertisement. That means Google advertising service is more
value than facebook.
Google attract users with purchase intent. Google gets its income through displaying
advertisement when users search services or things to buy so it is no need to boost the
demand. It needs only to focus more on channelizing current existing demand.
Facebook is a social platform and focus on socializing and communication with friends and
family so that leads to decrease effectiveness of advertising on it. Recently General Motors
announced that they are reducing their paid advertisements on facebook because they think the
ads were not effective. Earlier, many other retailers were also dropping their paid
advertisements on facebook.

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SWOT analysis of facebook


Facebook (NASDAQ: FB) is rapidly innovated company and constantly trying to launch newer
products. This is SWOT Analysis of facebook to help us for knowing big picture of company and
its future.

Strengths
Facebook has huge amount of global users more than 1.06 billion and still increasing
new members. Highest number of its users makes it the only a place where everyone can
connect with many people around the world. Its large size also creates huge network effects.
Many users spend on facebook and setting on it so it represents a strong and growing moat.
Facebook has more than billion active users monthly.
It is also a market leader in social networking sites. It become a strong global brand
name and has been used as a reference in many movies, series, websites, blogs, journals,
magazines, news and business nowadays. Facebook users can communicate with each other,
share notes, status, photos and videos etc. So time spent on facebook is much longer than
Google and other sites.
By using facebook, businesses can easily communicate and advertise various product to
their customers from all over the world. Facebook is the easiest channel of communication for
users, their friends, their family and colleagues from all over the world. Facebook has solid
backbone for its advertising. It has huge amount of billion users data. Facebook also adopt
Instagram photo sharing apps which has more than 100 million users.
It gives more than 70 languages for users to be comfortable. Most people are very stick
to use facebook because its privacy settings have made sure for them. Facebook has launched
many features to enhance user experience not only in website design but also on mobile apps
and tried to engage other users to use it. So it has much more competitive advantage than any
other social network sites competitors.
Facebook has so many data what users like and dislike. So Facebook understand users
behavior and needs. Facebook mobile users are continually grow 57% year after year. Its
revenue was growing 50% every 6 months and $1.97 billion is up to $3.71 billion in 2010.
Facebook has very strong management team. It is also in strong financial position and has
much market share.

Weaknesses
The company is in risk of privacy issues because of huge amounts of user data it holds,
so many users upload their personal data to facebook and now facebook is a target for hackers
to steal users password and personal information. There are so many of spam and viruses to
attack users on it.
There are so many facebook fake accounts. Facebook is not still able to handle those
fake accounts and bad guys misuse with those fake accounts for some bad purposes.
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Facebook is weak in click-through-rate (CTR) advertisements. So it charges mainly from


displayed advertisements. May be users dont want to look too many advertisements but
facebooks main income are only from displayed advertising.
Facebooks users cant customize their own template and design on facebook. Users are
forced to use uniform template and design. Facebook users cannot earn income like Google
AdSense to Websites. It is not good channel of generating income for users. Facebook is $75100 billion value but its profit was $606 million in 2010 and $1 billion in 2011. Its P/E ratio is
around 75% - 100%. Most successful investors dont want to invest if growth profit is lower than
P/E ratio. So facebook valuation is high.

Opportunities
Facebook's graph search utility can also increase its revenue to million dollars. Most
business nowadays shift their advertising budgets to online rather than traditional channel like
journals, radio, TV and so on. Facebook is now also high position on online advertising services
and social networking sites.
Facebooks Mobile can be also a good potential for growth. Adopting Instragram is also
a good opportunity for the company. It can expand to China which has little use to social
networking site and huge population so China is potential market for facebook. Nowadays most
people watch movies online so it can also make income from movie subscriptions.
There are so many users in facebook and increasingly new members steadily. So it can
make any online business. It can also make ecommerce and create market place. Peoples can
buy and sell products through facebook. If facebook make marketpalce and success in it, it can
make more profit than advertising. So it will boost companys growth.

Threats
Online advertising is very competitive market nowadays. If customers dont satisfied,
they will switch other services quickly and easily. Twitter, Google+ and LinkedIn are also strong
competitors of facebook in social networking sites and they can be a threat for it.
Many spam and viruses are created to attack facebook and steal user information.
Company valuation might prove to be unworkable. People may be bored with the same
applications unless they make modification. Marketing manager of mobile platform, platform
partnerships director and marketing director are left the company. Most facebook users are
accessing it through phones instead of desktop computer so users view fewer advertisements.
Some internet users use extensions which block advertisements from websites.
Increasing that kind of users is a threat of facebooks business model. Facebook business
model is weak. Its purpose is only to attract social network users and communicate each other,
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show the advertisements to users and charge from business for displaying those
advertisements. If growth of online advertising is slow down, it may be a threat for facebook.

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eMarketing Strategy
Web advertising and banner ads
Banner ads advertising can be a highly effective way to grow business nowadays.
Businesses can use banner ads for branding, to adware customer new products and services.
By using online banner ads, company can get much traffic for its website. Some messages and
image are added in banner to drive users clicks. New websites or company can easily and
widely known by using it. Business can also track and meause how effect web advertising and
banner adds.
Facebook also advertise its banners Ads on other sites. By using banners ads, other
internet users and non facebook users are transferred to facebook social network site directly. It
can lead new user registration and facebook members increase. The following pictures are
some examples of facebook banner ads:

Fig. 3.1 Facebook Banner Ads

Fig. 3.2 Facebook Banner Ads

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Fig. 3.3 Facebook Banner Ads

Fig. 3.4 Facebook Banner Ads

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Fig. 3.5 Facebook Banner Ads

Fig. 3.6 Facebook Banner Ads

Choosing Domain Name


Choosing domain name is also an important emarketing strategy. That domain name
should be simple and remember easily for global users.
Earlier social network sites for Harvard social network site is call facemash developed
by zuckerberg. And Mark Zuckerberg and other three students founded Facebook in February
2004 and their domain name is thefacebook. In 23 August 2005, facebook purchased
facebook.com domain name with $200,000 from AboutFace to change its old domain name
thefacebook.com.

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Email marketing
Early year of facebook founded, it makes email marketing a lot. Facebook allows its
users able to invite their friends with email. By making email marketing like this, facebook gets
new users. Facebook also email to existing users when user upload profile picture, someone
comments on his or her photos, add friends to users, confirmation friend requests and send
messages to users. Here are some email marketing samples of facebook.

Fig. 3.7 Facebook Email Marketing

Fig. 3.8 Facebook Email Marketing

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Fig. 3.9 Facebook Email Marketing

Fig. 3.10 Facebook Email Marketing

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Fig. 3.11 Facebook Email Marketing

Facebook Web design, structures and features


News Feed
On September 6,2006, facebook users can user new service called news feed. In old
version of facebook, if users log in, they will reach their profile. New feeds feature is like home
page. In new feed, users can see their friends activities such as profile picture changes,
birthday and so on.

Friend
Add friend feature is action of adding friend request another facebook users. If other
people receive friend request and confirmed, these two people become facebook friends. There
are also other decline or not now feature. Unfriend function is also included.

Wall
Users profile is called Wall. Users can write and post notes and messages with date
and time. A users wall can see by anyone who can see users full profile. And also Wall event
will appear News feed.

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Timeline
In December 15, 2011, Timeline feature is introduced. Users upload photo, notes, posts
are arranged with the time period that they created or uploaded. In August 2012, Timeline
feature and layout are launched to all profiles.

Like
Like feature means to give positive feedback. User can like photos, comments and so
on. like button can also available on other websites and blogs.

Messages and inbox


Since the website was created, sending message feature is available. Users are able to
send messages to other users. In November 15, 2010, it is combined with instant messaging.

Notifications
Notifications feature is to alert users the events such as comment, like or share users
pictures, notes or post.

Networks
Facebook network is to encompass a company and a regional area.

Groups
Facebook Groups is for discussion, activities and events created by group members.
Group is to connect together and share information and discuss specific topics. Group have 3
kind of privacy level. Open (everyone can visible group members and comments), Closed
(everyone can only visible group member but cant see their comments) and Secret (onone
can view without invitation of joined group member).

Pages
Facebook users can create pages. Pages are to get fans of company, product, services,
celebrities and so on. Pages are very similar personal profile but they have an integration with
facebooks advertising system.
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Some other general features are facebook credits ( a virtual currency to purchase gifts,
games), Graph Search( to search within friends network to answers normal natural English
language question), Mood faces (facebook chat provide numbers of emoticons), listen with
friends (listen music with friends at the same song at the same time) and Facebook Live ( a live
streaming video channel on facebook). There are also so many games on facebook.

Facebook makes its marketing on online but there are little on offline marketing.
Impact of emarketing are very large. It became popuplar among people. People social
life and way of communicaiton are also changed. Fabook have billion active users. Facebook is
now on largest market share on social networking sites. Having large number of facbook users
create network effect for it. Zuckerberg explained I think that network effects shouldnt be
underestimated with what we do as well, Zuckerberg understood that people began using
Microsoft Office because they didnt want to risk being unable to open documents,
spreadsheets, and presentations passed along by colleagues. There were other word
processing or spreadsheet programs that were often better, but Office was good enough to
keep people from taking a risk on them.

Acquisition
Facebooks emarketing paln is covered its acquisition strategy. By making acquisition,
facebook became more innovated and strong company. And also attract so many users.
Facebook make acquisition of other companies that they like. If they have a plan to change or
update their services, they acquired it. For example, they expanded facebook places by buying
Hot Potato check-in service. Facebook CEO Mark Zuckerberg has stated that "We have not
once bought a company for the company. We buy companies to get excellent people... In order
to have a really entrepreneurial culture one of the key things is to make sure we're recruiting the
best people. One of the ways to do this is to focus on acquiring great companies with great
founders."
In January 2014, there are over 1.3 billion facebook users and $ 177.78 billion market
capitalization.

http://www.abrs.net/financial_web/Facebook%20case%20study%20-%20report%202012-13.pdf

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Legal and ethical issues


Intellectual Property
Facebook keep its intellectual properties including license agreements, copyrights, trade
secrets and confidential agreements with other many companies. Facebook is successful
because it strongly keeps those intellectual properties. Facebook is like many other high
technology companies, it very concerned those Intellectual Properties as the legal issues.
In March 12, 2012, such kind of dispute occurs before facebook IPO schedule and
Yahoo filed in law in federal court of U.S to facebook. Yahoo announced that facebook infringed
on its patents cover advertisements, social networking sites and privacy, rules and regulations
controls in its court. One month before court, Yahoo had said to facebook about social network
license its patents.
The lawsuit announced that social networking idea of Yahoo such as users experience
of website customization to users needs and wants and to add targeting advertisements cover
to individual users. Yahoo and facebook announced they had solved the patents dispute by
making a joint statement and being strategic alliance.

Current Issues of Social Network Websites


Many users and government concerned of issues on social networking sites are

Privacy:
In social networking business, privacy is very large issue. Individual users and businesses are
so concerned on their data security and privacy issues. Nowadays social networking sites are
so popular among users and hackers can attack vulnerable users and steal user information.
Many spam and viruses are also created for social network. So social network users very
concerned in usage of data mining software on social network. That software makes analysis
users information such as demographics, profiles, actions on it and click to external websites
through social network.

Potential for misuse :


Social networking gives so much freedom for users so it can lead misuses. Today social
network sites are potential of misuses such as online bully and online stalking. In many social
networking sites, it gives users to choice who can see their profiles. So it is a problem because
parents cant view their teenage sons or daughters profiles and actions on it.

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US Legal Process Requirements


The federal Stored Communications Act (SCA), 18 U.S.C. Sections 2701-2712. Under US
law:

A valid subpoena issued in connection with an official criminal investigation is required to


compel the disclosure of basic subscriber records (defined in 18 U.S.C. Section
2703(c)(2)), which may include: name, length of service, credit card information, email
address(es), and a recent login/logout IP address(es), if available.
A court order issued under 18 U.S.C. Section 2703(d) is required to compel the
disclosure of certain records or other information pertaining to the account, not including
contents of communications, which may include message headers and IP addresses, in
addition to the basic subscriber records identified above.
A search warrant issued under the procedures described in the Federal Rules of
Criminal Procedure or equivalent state warrant procedures upon a showing of probable
cause is required to compel the disclosure of the stored contents of any account, which
may include messages, photos, videos, wall posts, and location information.
We interpret the national security letter provision as applied to Facebook to require the
production of only 2 categories of information: name and length of service.

https://www.facebook.com/safety/groups/law/guidelines/

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Conclusion
Nowadays social networking sites are so popular among people. They give services to
connect each other and ways of communication are also change. Among these social
networking sites, facebook is most successful and popular one. Facebook has much more
market share on social networking sites. They are trying to achieve its mission To give people
the power to share and make the world more open and connected. Facebook became popular
may also depend on its emarketing such as choosing domain name, branding, web advertising
and banner ads to other sites, its excellent web design and user experiences, its features and
email marketing. Facebook know users needs and want. As a social networking site, facebook
think a lot about privacy concerned and issues because most users share their information over
the internet and anyone can freely access it. So users data security and privacy are very
important in nowadays.

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References
http://www.abrs.net/financial_web/Facebook%20case%20study%20-%20report%202012-13.pdf
http://www.wikiwealth.com/research:fb
http://www.abrs.net/financial_web/Facebook%20case%20study%20-%20report%202012-13.pdf
http://www.strategicmanagementinsight.com/swot-analyses/facebook-swot-analysis.html
http://marketingmix.org/pest-analysis-of-facebook/
http://www.studymarketing.org/articles/Strategic_Management/Sample_of_SWOT_Analysis_:_F
ACEBOOK_Case.html
http://beta.fool.com/ishfaque/2013/03/06/facebook-swot-analysis/25395/
http://www.kenyayote.com/swot-and-pest-analysis-of-facebook/
http://blog.trejdify.com/2012/02/swot-analysis-is-facebook-good.html
http://www.studymode.com/essays/Swot-Analysis-Of-Facebook%27s-Current-Situation1225204.html
http://www.strategicmanagementinsight.com/swot-analyses/facebook-swot-analysis.html
http://pages.stolaf.edu/cis-mwolter/files/2013/04/Case-Study-Facebook.pdf
http://en.wikipedia.org/wiki/Facebook_features
https://www.facebook.com/safety/groups/law/guidelines/
http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Facebook
http://facebook.about.com/od/Advanced/tp/Facebook-Mergers-And-Acquisitions.htm
http://www.webpronews.com/facebook-ipo-timeline-of-acquisitions-2012-05
https://www.facebook.com/safety/groups/law/guidelines/
http://www.strategicmanagementinsight.com/mission-statements/facebook-missionstatement.html
http://www.engadget.com/2012/02/01/zuckerberg-outlines-idealistic-facebook-mission-in-ipofiling/

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