Businesses with powerful network effects and sustaining the magic of Facebook
comScore, the US online audience measurement tracker, wrote in June 2011 that "with each passing month it seems that social networking becomes more deeply ingrained into our digital lives. If we take a look back at the past few years we can see just how pervasive it has become. Back in 2007, social networking represented about 1 out of every 12 minutes spent online, while today it accounts for 1 out of every 6 minutes spent online." Wired magazine wrote before Facebook's stock market debut in May that for the first few years after Mark Zuckerberg started Facebook in 2004, he’d end his Friday all-hands meetings by leading the company in a one-word chant. In unison the company would shout: Domination! What made entrepreneurs like Bill Gates at Microsoft, and Larry Page and Sergey Brin at Google so successful. is that they all created businesses with powerful network effects - - businesses, as Zuckerberg told Wired in 2007, reached a certain point where they attracted new users simply so they could interact with existing users. “I think that network effects shouldn’t be underestimated with what we do as well,” he said. Sustaining huge valuations for young businesses require faith in exponential growth and last Friday, Facebook's shares closed down on the Nasdaq exchange at $19.05 - - 50% below the May IPO (initial public offering) price of $38. Meanwhile, Groupon reported a second quarter profit but slow slowing growth in its main business sees its share price at $4.75% - - off 76% from its offering price, that gives it a market capitalization of just over $3bn - - over half of what Google offered for the web service in 2010. Zynga, which recently reported poor results is at $3 - - down 69% from its IPO.
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