History of Facebook

Discover the history of Facebook, including its rise to becoming the internet behemoth it is today – when over 2 billion people use the site each month to chat, like and share posts.

Today, Facebook (FB) is undoubtedly a massive success, but many analysts have raised questions about whether the company can continue to grow at its current rate. 

We take a look back at Facebook’s major milestones, and find out where the future of the company could lie. 

 

The launch of Facebook

Facebook, originally called ‘the facebook’, was created by Mark Zuckerberg in his Harvard dorm room in February 2004 along with fellow classmates Eduardo Saverin, Dustin Moskovitz, Andrew McCollum and Chris Hughes. The initial funding for the site came from co-founder Saverin, who put up $15,000 to pay for servers.

The launch was an immediate success, and quickly gained the attention of Peter Theil, co-founder of PayPal, who made a $500,000 investment in September 2004. The money enabled Zuckerberg and Moskovitz to drop out of Harvard to run the company full time.

Early investors and attempted buyouts

Facebook’s first year was marked by rapid growth, and the company needed funding. So like most start-ups, it reached out to venture capitalists through a series of investment rounds: raising $12.7 million in 2005 and $27.5 in 2006.  

But not everyone was content with offering investment. At least ten companies made offers to buy Facebook as it was starting out – though all were eventually turned down. Two that came closest to succeeding were:

  • Yahoo. In March 2006, Yahoo offered Zuckerberg $1 billion for Facebook. Many of the board – including Theil and Accel’s Jim Breyer – were ready to jump at the deal but Zuckerberg had no intention of selling
  • Microsoft. In October 2007, Microsoft made an offer to Zuckerberg, valuing Facebook at $15 billion. But after the bid was rejected, they settled for buying 1.6% of the social networking site for $240 million 

Facebook’s stock market debut

Facebook held its initial public offering (IPO) on 12 May 2012, releasing stock at $38 per share. The IPO raised over $16 billion and put Facebook’s valuation at $104.2 billion, at the time making it the largest technology IPO in US history (until Snapchat took the title in 2017).

Ahead of the IPO, it was estimated Zuckerberg owned about 24% of Facebook stock. Afterwards, his stake had an estimated value of $19.1 billion – making him the 29th richest person on earth. Other Facebook employees also benefitted from the listing, with around one third of the company becoming millionaires.

Graph showing FB IPO, the following stock dip and revival, May 2012 to August 2013.

Facebook’s IPO may have been a success, but its first few months on the markets were not. In September 2012, stock bottomed out at $17.55 per share as investors raised concerns over the valuation of the company and its ability to accommodate the shift toward mobile devices.

Over a year later, Facebook’s stock returned to its IPO price – and went on rising. 

Expanding the social network

It was at this point that the company made two of its most significant acquisitions: Instagram and WhatsApp.

Instagram

Shortly before its IPO in 2012, Facebook announced it had made a deal to buy the popular photo-sharing app Instagram for $1 billion.

At the time of the deal, Instagram had only been around for two years but had already amassed more than 30 million users. Facebook realised that Instagram was where younger consumers were heading and snapped up the company before others had the chance.

This acquisition has been cited as one of the main reasons Facebook grew from a $58 billion company in 2012 to a $500 billion one in 2017.

WhatsApp

In February 2014, Facebook announced it would be acquiring WhatsApp Messenger for $19 billion. 

Though WhatsApp hadn’t been widely used in America, it was the most popular messaging app in more than half the world – and is actually a larger success than Facebook in emerging markets, such as Brazil and Mexico. 

Many analysts felt that Facebook paid over the odds for WhatsApp. This change in tactic was a result of photo-messaging app Snapchat rejecting Facebook’s bid of $3 billion in 2013. Snapchat went on to be valued at more than six times that price in its 2017 IPO. 

Becoming a tech giant

 In July 2017, Facebook hit a market capitalisation of half a trillion dollars after their shares surged 5.7% to $175. The rise in shares was caused by two announcements made after markets closed the previous evening – that Facebook’s quarterly profits were up 71%, and that they had reached 2 billion users (27% of the world’s population). 

Graph showing FB from its IPO, May 2012 to December 2017.

Zuckerberg’s college start-up had become the quickest tech company to reach the $500 billion mark, just five years after its IPO. 

Facebook, along with the other four companies who reached ‘tech giant’ status – Apple, Google, Microsoft and Amazon – had a combined market capitalisation that is higher than India’s GDP (2.2 trillion USD in 2016).

Introducing virtual reality

In 2014, Facebook acquired the virtual reality (VR) company Occulus, as a sign of its determination to bring virtual reality and social media together. It launched a new experience ‘Facebook Spaces’ in 2017, enabling visitors to interact with friends inside a virtual chatroom using VR goggles.

Though Zuckerberg sees the future of Facebook in VR, the company has been pressured – mostly by the increasing popularity of Snapchat – to pursue augmented reality (AR). In April 2017, Facebook released an AR camera platform, a function that allows users to snap a photo and add more details, such as a drawing, filter or the time. 

Facebook today

Who owns Facebook?

Zuckerberg is still the largest Facebook shareholder, with an estimated stake of $24 billion. In 2016 and 2017, Zuckerberg sold more than $1 billion worth of Facebook shares to fund his philanthropic ventures. Even with the sales, it was estimated he owned 17% of Facebook stock and controlled 59.7% of voting power. 

Most of the other major individual investors are current or former Facebook employees, such as chief operating office Sheryl Sandberg who owns 4.6 million shares.

Facebook’s stock is also held by large institutional investors, mutual funds and ETFs. The largest of these is FMR LLC with a reported 152.4 million shares.

How does Facebook make its money?

Facebook makes the bulk of its revenue from digital advertising. In 2015, for example, advertising made up 95% of Facebook’s global revenue. Selling advertising ensures that Facebook can continue to offer users access to the site free of charge.

The social network is one of the world’s largest digital advertisers, rivalled only by Google. Unlike its competitors, Facebooks advertising is consumer led – using personal information from Facebook profiles to tailor adverts to each user.

Facebook has shown its determination to grow and adapt - it has expanded well beyond its initial function of connecting students at Harvard, and now operates as a global social network, news site and photo storage facility. Although so far Facebook has successfully stayed ahead of the curve, the challenge will be keeping up with competitors and sustaining their rapid growth. 

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