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

Source: Carsonified.com/SXSW Presentation 2
… 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 Assumptions

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

3
As a result, getting to breakeven isn’t too hard…
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Media
$ '000s %

Revenue 2,440 100%

Cost of Goods 1,220 50%*

Marketing - 0%

Staff Costs
Infrastructure 840 36%

Costs 180 7%

Other Costs 200 7%

EBITDA - 0%
* Assumes ad sales by an ad network or ad rep firm 4
 Advertising RPMs* depend on your ability to deliver a
targeted audience
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Advertisng RPMs 2007 March Annual

Example Revenue US PVs 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…
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Monthly Pageviews needed to hit Revenue Goal

Annual Revenue Goal
$250k $2.5m $25m

$0.50 42m 417m 4,167m

RPM $2.50 8m 83m 833m

$10 2m 21m 208m

6
 …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 $2.5m $25m

$0.50 9m 93m 926m

VS.
RPM $2.50 2m 19m 185m

21m installs
$10 0.5m 5m 46m

* Assumes 5% active per day, 3 pageviews per visit 7

Implication for ad models – get big or get expensive
Lightspeed Confidential - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

 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 $2.5m $25m

0.1% 14m 139m 1,389m

Purchase
rate
1% 1m 14m 139m

5% 0.3m 3m 28m
* Assumes 5% active per day, $1 per item 9