Business models on Facebook

Stanford Facebook Class Nov 15th, 2007

Jeremy Liew Partner, Lightspeed Venture Partners jeremy@lightspeedvp.com www.Lightspeedvp.com Lsvp.wordpress.com

Its cheaper than ever to start an internet or app company…
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

COST TO BUILD WEBSITE
$ ‘000s

200

70

60

48 20

Wesabe

Maya's Mom

Mobissimo

DropSend

Freshbooks
2

Source: Carsonified.com/SXSW Presentation

… and cheaper than ever to run an internet company
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

SAMPLE EXPENSE BUDGET
Annual Fixed Costs Staff Costs Infrastructure Costs Other Costs TOTAL $0.84m $0.18m $0.20m $1.22m Assumptions 7 employees $120k fully loaded $15k/month Rent, Legal, etc

3

As a result, getting to breakeven isn’t too hard…
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Media $ '000s Revenue Cost of Goods Marketing Staff Costs Infrastructure Costs Other Costs
* Assumes ad sales by an ad network or ad rep firm

%
100% 50%* 0% 36% 7% 7% 0%
4

2,440 1,220 840 180 200 -

EBITDA

Advertising RPMs* depend on your ability to deliver a targeted audience
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Advertisng RPMs
Example

2007 Revenue

March US PVs

Annual US PVs RPM

Broad Reach

$0.50 - 2

Myspace

$271M

44B

524B

$0.52

Demographic

$1-5

Facebook

$150M**

12B

126B

$1.03

Endemic Advertising

$10-40

Fandango

$25M**

50M

600M

$41.67

Source: Myspace, Merrill Lynch; Facebook, MSNBC; Fandango, Techcrunch; Traffic, Comscore; Lightspeed Analysis * RPM = Revenue per thousand pageviews, taking into account multiple ad units and all forms of advertising: CPM, CPC and lead gen ** Facebook revenue estimate “well over $100m”, Fandango revenue estimated to be “around $50m with half from 5 advertising and half from ticketing”

Pageview targets get progressively harder as revenue aspirations increase…
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Monthly Pageviews needed to hit Revenue Goal
Annual Revenue Goal

$250k $0.50
RPM

$2.5m 417m 83m 21m

$25m 4,167m 833m 208m
6

42m 8m 2m

$2.50 $10

…requiring stretch targets for installs
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Total app installs needed to hit revenue goal*
Annual Revenue Goal

$250k $0.50
RPM

$2.5m 93m 19m 5m

$25m 926m

9m 2m 0.5m

VS.
$2.50 $10 185m
21m installs

46m
7

* Assumes 5% active per day, 3 pageviews per visit

Implication for ad models – get big or get expensive
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 Get big
 Multiple apps  Multuple platforms

 Get expensive (High CPMs)
 Endemic categories (Movies, Travel, Health, Shopping etc)  Standard ad units  Targeting

8

What about digital goods?
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Total installs needed to hit Revenue Goal
Annual Revenue Goal

$250k 0.1%
Purchase rate

$2.5m 139m 14m 3m

$25m 1,389m 139m 28m
9

14m 1m 0.3m

1% 5%

* Assumes 5% active per day, $1 per item