I can think of few subjects less interesting than Facebook’s forthcoming IPO. There, I said it.

I honestly don’t get what the big deal is. So a few thousand people will finally liquidize their locked-up wealth, and the hoi polloi will at last be able to buy Facebook shares. Stop the presses! (It won’t meaningfully affect their ability to buy other companies; they already have $4 billion in cash on hand, and I seriously doubt they have any multibillion dollar acquisitions in mind.)

I guess if you measure innovation by keeping financial score, this seems exciting, but if you measure by, you know, actual innovation, this is a total nonevent.

However. All the IPO furore has introduced one interesting data point: Mark Zuckerberg’s S-1 letter, which includes the unexpectedly striking–daring, even–paragraphs

We hope to change how people relate to their governments and social institutions.

We believe building tools to help people share can bring a more honest and transparent dialogue around government that could lead to more direct empowerment of people, more accountability for officials and better solutions to some of the biggest problems of our time.

By giving people the power to share, we are starting to see people make their voices heard on a different scale from what has historically been possible. These voices will increase in number and volume. They cannot be ignored. Over time, we expect governments will become more responsive to issues and concerns raised directly by all their people rather than through intermediaries controlled by a select few.

Whoa.

Now, I’m on record as a pretty harsh critic of Facebook. Not because I think they’re evil, but because everything they do has always seemed mediocre, homogenizing, and painfully, painfully dull. (With the sole exception of Timeline, which is interesting in that it introduces long-term context to a previously transient medium, but not exactly world-changing.) To quote, er, myself:

Facebook has become to the social web what Microsoft is to the desktop: mindbogglingly gargantuan, relentlessly mediocre, and almost inescapable.

There’s nothing mediocre about what Zuckerberg wrote above. It’s downright inspirational. He’s talking about his intent to actually change the way the whole world works, using Facebook as a lever.

But how, exactly? I mean, full marks for bold words, but there’s still a vast uncrossed chasm between idea and execution, and the road to hell remains paved with good intentions.

His letter also includes a bunch of boilerplate crap about creating a “more open culture” through the magic of “people sharing more”, but come on. First, there’s a massive wall of diminishing returns there: as people share more, the value and importance of what we share decreases. First we get used to sharing online at all; then we start sharing what’s important to us; then we wind up dumping our entire Spotify playlist on our friends.

Second, that sits more than a little uncomfortably with the fact that the only people to date who actually have changed the world in an important way using Facebook as a lever, the revolutionaries of the Arab Spring, were people who had to keep their identities and locations secret; had they followed Facebook’s “share more!” ethos, they would have failed and been tortured to death. So that’s awkward.

No, if Zuckerberg really wants to change the way the world works, he’s going to have to introduce something entirely new. Like what? you inquire. Funny you should ask: I happen to have a couple of ideas. They’re wild speculation, of course — but I think they at least give an idea of the order of magnitude of innovation that’s required here.

1. Online Parliaments

This is the most obvious, and the best fit. Right now Facebook is mostly about social groups, ie people you know. But what if they expanded their remit to organizations? And I mean any scale of organization, ranging from your local arts centre to, say, the Republican Party. Sure, they can and do already have Facebook Pages, but what if their members could use Facebook to hold binding votes for their representatives? Conversely, what if those organizations could raise money from their members directly via Facebook (in exchange for a 5% fee, of course) — and then the Facebook-voted representatives could decide what to do with those funds?

That would introduce a Facebook aspect like a mega-Kickstarter, which would be significant in and of itself…

Seems to me that Kickstarter is the most important tech company since Facebook. Maybe more important in the long run.—
Tim O'Reilly (@timoreilly) February 09, 2012

…but more importantly, it would introduce Facebook into the political sphere. Aside from the money machine it would become for every political party, an elected representative of, say, twenty million verified Facebook users — “Ladies and gentlemen, the junior senator from Reddit!” — would be a major political figure, regardless of their pedigree or location, if only for the size of their pulpit.

It could even be a step towards direct online democracy, a la John Brunner’s prophetic The Shockwave Rider. There would obviously be technical challenges: verifying the electoral registers, a reliable and secure voting system, some protections against fraud, etc. But they seem surmountable.

2. Eyes On The Sky

This one’s a little crazier: what if Facebook built a mechanism for protest?

I don’t mean the Occupy movement. I mean a means for people to indicate that authority is being abused or corrupted. That petty thugs prevent people from taking pictures from a public walkway, even though they have every right to do so. When innocent people are victimized by police brutality. When bureaucrats in developing nations have to be bribed to do their jobs.

Right now there’s usually no recourse for abuse of authority, except for

• taking your complaint to the authority in question, which promises it will investigate itself and then stacks the deck against you
• going to the media, which is a lottery at the best of times.

What if Facebook provided such a recourse? A universal complaints department, if you will, one that uses their extraordinary reach as both searchlight and spotlight. That’s not as awkward a fit as it first sounds. After all, the fight against fraud and corruption is one of transparency — indeed, the world’s primary anti-corruption organization is called Transparency International — and I think we can all agree Facebook is all about transparency. If you go back and read Zuckerberg’s words, you’ll find they actually fit this notion pretty well.

What else might Facebook do to truly change the way the world works? Heck, I don’t have even half of the answers. Chime in with your own suggestions in the comments. But what’s clear to me, at least, is that if Mark Zuckerberg actually wants to put his money where his mouth his, he needs to do something new. “More of the same” won’t even come close to cutting it.

Only about 5% Facebook gamers pay to play freemium games. If Facebook could up this percentage, it and its third-party app developers could make a lot more money. That’s the idea behind a new promotion Facebook announced today where those who’ve never bought Facebook Credits virtual currency before will be offered $4 in free Credits when they buy $1. This gets users to set up their credit card and experience the rush of paying for an enhanced gaming experience.

Years ago when Facebook first launched its Credits virtual currency, it offered free Credits to some users. While this might have got them hooked on spending virtual currency, it didn’t addict them to paying for it.

Facebook needs credit card numbers badly. Apple has amassed an enormous collection after 10 years of iTunes Mp3 sales, which is now helping it easily sell apps and in-app purchases. If Facebook wants to grow its revenue to satisfy outside investors and be a competitive mobile gaming platform, it needs to get users ready to pay.

But like the street corner pusher says, “this ain’t no charity”. Facebook is only surfacing the promotion in sidebar ads, and TrialPay in-game promotions and offer walls to those who haven’t already bought Credits. User than have to set up a credit card or connect a PayPal account and pay $1 to get the extra $4, or 40 Credits. And next time, they’ll have to pay full price. Facebook wisely does not provide any way to reach the promotion directly in order to deter users from trying to cheat their way to free currency.

If you want to claim your own free Credits, your best bet is to play games by clients of Facebook’s official offers partner TrialPay, such as those by Playfish, Playdom, Kabam, Crowdstar, and iWin. These include The Sims Social, Gardens of Time, It Girl, and Kingdoms of Camelot. Then visit the offer wall or click through Deal Spot signs within games.

With any luck, Facebook will be able to up the percentage of users who monetize, and thereby discover new whales — gamers who spend orders of magnitude more than the average payer and drive the bottom lines of both indie developers and giants like Zynga. Call him Ishmael…Zuckerberg.

[Image Credit: Screenrant]

When you listen, read, or watch through a Facebook Open Graph app, a few of your friends hear about through the news feed, Ticker, or Timeline. Starting this week, Facebook is allowing advertisers to pay for more exposure of listen, read, or watch stories that mention them by turning the stories into a new form of Sponsored Story social ads.

Open Graph action Sponsored Stories could further Facebook’s goal of turn all ads social, and boost revenue by filling the new inventory from Facebook now permitting Sponsored Stories ads in the news feed.

Facebook tells me that for now this is a small pilot program being tested with just a few advertisers, but it could blossom into the ability for advertisers to sponsor any Open Graph action. Above you’ll see a mockup of what the ads could look like in the news feed.

Previously, advertisers could only turn actions taken by users on their own Pages, apps, and local business Places into Sponsored Stories. This excluded plenty of advertisers whose content was being interacted with through apps owned by others. For example, a record label could Sponsor Likes of their artists’ Pages, but not listens of those artists through Spotify.

Now, a band could sponsor listens of their songs, and TV studios could sponsor watches of their episodes on Hulu or Netflix. Catering to a wider range of advertisers, anyone featured in a news article could pay to expose a link to it to the friends of those who’ve already read it. These action Sponsored Story ads complement Open Graph activity ad targeting that lets advertisers reach users who’ve taken a selected action with traditional ads.

Facebook sees Open Graph applications as the soul of its future ads business. Rather than letting advertisers bombard users with irrelevant pitches based on general biographical data, ads show the actions of friends and are targeted by a user’s own behavior. This creates a win trifecta — more relevant ads for users, better - and conversion rates for advertisers, and more money for Facebook and its future investors.

How do you meet new people in today’s digital age, without over-exposing yourself the creeps, trolls and spammers? The answer, perhaps, is build a social service on top of Facebook, leveraging your network, your friends of friends and shared interests to form connections with people you don’t know. That’s what the new startup Speeksy is doing. The service is virtualizing the experience of going out to a bar or nightclub by offering an online venue where users can interact, message each other and video chat, while bonding over their shared music playlists.

The startup is similar in spirt to TechCrunch Disrupt winner Shaker, the Facebook app that turns your Facebook profile into a walking avatar, similar to what you would find in a game like The Sims or Second Life. However, unlike Shaker, there are no avatars or virtual worlds involved here.

Instead, when you sign in to Speeksy (a play on the word “Speakeasy,” a nod to the startup’s virtual bar experience), you’re presented with a list of “venues” and people with similar interests to you. The venues can best be thought of as something like Turntable.fm rooms – there’s live music, a playlist, and fellow music lovers. The music, however, comes from SoundCloud and the point of the room is not necessarily to enjoy or discover new music (you can even turn it off), but to meet other people. The music just serves as a tool to facilitate those interactions. Any user can add to the playlist and people can give “props” to tracks they like. It’s like an ice-breaker for the modern age.

Speeksy offers a number of features that allow users to get to know each other, but the main one involves leveraging Facebook profile data. Users are listed as 1st, 2nd or 3rd degree connections based on whether you’re friends, have mutual friends, or have no friends in common, respectively. Speeksy also matches you up with those who share your interests, again, based on Facebook profile data. And you can search and filter this list by a number of things, like location, gender, and various personal traits, like whether someone smokes or not.

Ah, yes. That’s right – at its heart, Speeksy is a new-fangled dating service, built on top of Facebook profiles. But just don’t call it online dating, pleads co-founder Barry Cassidy, a former Adobe engineer who previously worked on Adobe Connect.

“We’re going for the people who are alienated by the social stigma of online dating,” he says. “Even today, something that gets identified as online dating turns off 85% of singles – it’s essentially a dating agency. It’s analogous to going to an office and saying, ‘I’ve really failed in the social environments that I go to, so I’d like to get put into a database to try and get matched with somebody.’”

(Burn! For what it’s worth, I know many happy marriages among friends that arose from online dating, but I agree – it’s not for everyone.)

The other problems with meeting people online, explains Cassidy, involve unwanted attention from undesirables and the static nature of online dating courtship, involving emails that lead to phone calls that lead to real-world meetings. “90% of the time, there’s absolutely no chemistry,” he says. “We wanted to create an environment where people could talk to each other in real-time and see those things that people get attracted to.”

The service offers tons of tools for virtualized flirting, without being overly creepy about it. When you view another’s profile on the service, you can click buttons like “make eye contact,” “send over a drink,” etc. Alternatives to the Facebook “poke,” essentially. You can also click on another user’s interests to add it to your own, e.g., “oh, you like “The Office,” so do I!”  It’s a conversation starter. Plus, you can start a text-based chat, or, if you’re feeling more adventurous, move into a one-on-one video chat.

The virtual venues can hold up to 50 people, all with webcams a-blazing. However, due to technological constraints, you don’t see the webcam view until you hover your cursor over a user’s profile card in the venue’s lists of participants. You can also view a user’s full profile in order to see their live cam feed.

As for keeping out the creepers, the site “gamifies” social interactions, offering rewards for good behavior (engagement, participation) while doling out warning labels to naughty users who get blocked by others on the site. In other words, if you misbehave, act rude or crude, you’ll strike out and be ignored, just like in real life.

The startup, founded in early 2011, has raised $60,000 in seed funding from its founders and angel investors, Gerad Cassidy and Michael Dwyer, CTO Exigen Insurance Solutions. Speeksy’s other co-founder is Tom Tsatsos, who formerly ran his own web agency that build apps and sites for clients.

The site is launching into private beta today, so you’ll need an invite to get in. There are a couple of thousand of invites for TechCrunch readers tucked away behind this link. In testing, the “beta” label definitely applied –  there were bugs, odd design choices, and frankly, the overall experience could use a bit of polish.

Speeksy, it should be noted, will also soon to face a fierce competitor, the well-funded Shawn Fanning and Sean Parker creation known as Airtime, which is even more of a direct threat than Shaker.

Aren’t you worried about Airtime?, we asked Cassidy.

“I definitely had nervous moments when I heard more about what they’re doing, especially the fact that they’re bringing in social graph information,” he says. “But the more I think about it, I think it’s actually be good for us. There may not be just one winner in this space.”

Want to win some extra visibility for your brand on Facebook? Post about current events. Brands grabbed 99.7% higher engagement on their Page posts by talking about the Super Bowl yesterday, and 60% higher engagement over the past 6 weeks compared to the average post. The data from a Buddy Media study of 1,400 of the world’s largest brands indicates they should make sure to post about holidays, sporting events, breaking news, and other trending topics.

Why does this work? Because Facebook’s news feed sorting algorithm EdgeRank shows posts to a wider audience if they get high levels of engagement (Likes, comments, and shares) from those who have already seen them. In this case, posts about the Super Bowl were inherently more eye-catching to users and got more engagement, and were therefore shown to more users, netting them more engagement…

EdgeRank also gives more prominence to posts that contain the same keywords as other posts from a user’s network, generating “Brand X and 8 others posted about Super Bowl XLIV”. The feature can help brands posting about current events to reach the news feed, even if  users do have to click to expand these aggregated mention stories.

Tons of brands are missing out on this engagement bonanza, though. Just 30% of the brands Buddy Media analyzed posted about the Super Bowl. So tell anyone who handles social media marketing about this strategy so they can cash in on the upcoming Valentine’s Day, Presidents Day, and Canadian Junior Curling Championships. Well, maybe skip that last one.

I dare you to Facebook Like or even comment on this post. You can’t, because the Facebook Javascript API, the backend system which allows developer applications and Facebook’s own apps like Likes and Comments to communicate with the data available on the social network, is down, and has been down for at least an hour as far as I can tell, begging the question, “If article falls on a blog and no one Likes it, does it make a sound?”

Okay, that was lame, I’m sorry.

The JavaScript API status on the Facebook developer blog reads:

“Currently, the JS SDK is returning /* Not a valid locale. */. We are working on a fix now. We will update the live status as we have more information. You can following along in https://developers.facebook.com/bugs/20327564310313″

Presumably thousands in the developer community are somehow affected (I’ve emailed Facebook for more concrete details and will update this when I have them), for example apps like Turntable.fm, Quora and TinyChat have lost their Facebook Login capabilities.

“I think this is the longest downtime ive seen of their API,” said one concerned developer.

Maybe we should all get off the Internet and just, like, go outside while it’s fixed? Got Diet Coke? Sounds like a plan!

Update: Comments and Likes seem to be working again. Comment and Like away!

Facebook is testing a new photo viewer layout that mounts engagement buttons and comments to the right rather than beneath images. See, Facebook doesn’t want you to just view comments, it wants you to start a conversation. Apparently the company doesn’t care about being accused of copying Google+, since the viewer’s layout is very similar to that of its competitor.

The fact is that this is good design, though, so it makes sense for Facebook to integrate whether or not it has appeared elsewhere. Currently when Facebook users view photos, they see a big blank space on the right but can’t see the comments below with scrolling past the fold and away from the image. That makes users more likely to leave the photo viewer before engaging. The blank space is better filled with comments that lend context to a photo, as a small percentage of Facebook users are now seeing.

Facebook hasn’t been shy about taking inspiration from other products. In the months since Google+ launched, Facebook has added features found in Google+, including an asymmetrical Subscribe option, video chat, enhanced friend lists, and near-infinite post length. Facebook’s goal is the best user experience, and Google got a lot of that right. Google+ certainly wasn’t shy about using Facebook’s design as a starting point.

Facebook employees have repeatedly assured me that product teams aren’t thinking about ad revenue when they design products. Still, convenient repercussion of the tested photo viewer design may be an increase in ad clicks. Rather than displaying ads beneath photos, the tested design shows them more prominently in the comments sidebar. Finding these types of synergies between business and user experience will be key to Facebook honoring the interests of its future investors.

So why does this small change matter? First, encouraging conversation aligns with Facebook’s goal of driving connections between people, such as friends of a photo’s owner who might interact in its comment reel for the first time. Second, these comments drive notifications for all other commenters, which inspire more return visits and time on site. I bet the test will show increased engagement, and Facebook will implement some version of side-mounted comments.

[Thanks to our anonymous tipster for the screenshots]

In case you happened to be the victim of a day-long coma yesterday, it was a very exciting day for Mark Zuckerberg, Silicon Valley, and that quaint little social network we’ve all come to know, love, and be terrified of. Facebook filed its S-1 on Thursday with the crystal clear intent to go public on a market near you very soon, and will be raising $5 billion ahead of its IPO at an expected valuation of between $75 and $100 billion.

The company’s filing revealed some significant (or perhaps mind-melting) stats, including the fact that Facebook is seeing 845 million users every month, half of whom are daily users, and half of whom are mobile users. Zuck still owns 28 percent of the company, among other things; really that was just the beginning.

In fact, there was so much excitement and noise around Facebook’s IPO yesterday that the volume of visitors looking to check out Facebook’s filing for themselves succeeded in crashing the SEC’s website. Hitwise tells us that SEC.gov apparently saw a 15 percent increase in total visits, compared to the day before and a 42 percent compared to previous Thursday. And guess who was the number two source of traffic for the site? That’s right, TechCrunch.com — coming in less than 3 percent behind the top source, Google.com. Thanks to you, readers, we gave the SEC all the traffic they could handle. And apparently more.

Today, Heather Dougherty, Director of Research at Hitwise shared some further stats, which provide a great follow-up to yesterday’s IPO madness. Yes, a $75 to $100 billion valuation is enough to marinate on, but just how much traffic — and what kind is — Facebook.com generating? While this data is from January, many readers may already be familiar with a lot of this, but it’s just further evidence of how colossal Facebook’s share of the market has become — both at home and abroad.

For starters, Hitwise found that Facebook.com is now seeing one out of every eleven visits in the U.S., and one out of five pageviews online in the U.S. takes place on Facebook.com. Yep, 20 percent of pageviews in the U.S. happen on the Facebooks. [Insert Myspace dig here.]

Furthermore, in terms of engagement, the average visit time on Facebook.com is 20 minutes, and breakdown of male to female in Facebook’s visitors, shows that the social network is more popular among women, as 57 percent of its traffic for the last 3 months, ending January 28th, came from the ladies.

Meanwhile, the ages of Facebook.com visitors shows that the breakdown of its its visit share by age compares favorably to the online population, as you can see in the graph to the right.

As Erick said yesterday, Facebook managed to report $1 billion in profits for 2011, which is a fairly exact number, considering all of the variables at play. It could be that Zuckerberg managed accounting to come out at this round, even number, a sign to investors that the company has everything completely under control. Investors love predictability.

And on that note, beyond the average of 20 minutes users are spending on the site, 96 percent of of visitors to Facebook.com were returning visitors in January 2012. Hitwise’s numbers also show that, in terms of reaching affluent users, Facebook’s size allowed the site to win 499,949,430 visits from the most affluent income group, ahead of YouTube at 223,732,591 visits and Twitter at 15,166,795 visits. Facebook makes billionaires and caters to them.

Further adding to its accolades, when it comes to search, “Facebook” happens be the most searched term in the U.S., with Facebook-related terms accounting for 14 percent of the top search clicks. is the most searched term in the US and Facebook-related terms account for 14% of the top search clicks.

Internationally, Facebook.com remains in the top market in every country aside from China, due to the influence of China’s Facebook and Twitter competitors, Sina Weibo, Baidu, and Renren, which are the largest generators of traffic. The social network’s largest web footprint is in Canada, where it captures 12 percent of all visits in the market.

With all the excitement around Facebook yesterday, it really comes as no surprise that Facebook.com is, according to Hitwise, “the largest website in the U.S. and a top performer in numerous international markets.” The loyalty, engagement, and sheer number of monthly users proves that this company is, simply put, a freak of Internet nature. The social network has spread across the Web with its sharing functionalities, Facebook Connect, and is bringing social to just about every industry imaginable. Zuck’s proposed goal of making its social graph portable and fundamental to the fabric of the Web has certainly been realized, as it played an integral role in the rise of Zynga, social gaming, is making eCommerce social, music, and on and on.

For more on the Hitwise data, check out the post here.

And here’s more of TechCrunch’s coverage of Facebook IPO Day:

• Facebook Files For $5 Billion IPO
• Yes, We Actually Changed Our Logo To Zuck (A Facebook IPO Round Up)
• Facebook’s S-1 Letter From Zuckerberg Urges Understanding Before Investment
• Facebook’s S-1 Reveals: 845 Million Users Every Month, More Than Half Daily, Half Mobile
• Facebook’s S-1 And The Largest Shareholders: Zuck Owns 28 Percent
• Facebook IPO Crashes SEC Website

Just a little tidbit from everyone’s favorite reading material this week, the Facebook IPO filing: the company noted that it now stores over 100 petabytes of media (photos and videos) uploaded by its 845 million users. In case “100 petabytes” didn’t blow you over, the filing further explains that’s equal to “100 quadrillion bytes.”

OK, now you’re just showing off, Facebook.

The number was thrown out there in the section where Facebook details its data management and personalization technologies. It’s the technical part of the S-1 which focused on the company’s in-house technology like Haystack, which allows Facebook to efficiently serve and store data, Apache Hive, a data warehouse infrastructure built on top of Hadoop, and HipHop, a tool that transforms PHP source code into highly optimized C++ code.

But 100 petabytes is such a larger number, that’s it’s hard to really wrap your mind around it. However, with a little brainstorming, and the clever infographic created by TechCrunch’s Bryce Durbin, we came up with a way to visualize the size of Facebook’s media store. Using common 320 GB hard drives stacked on top of each other, Facebook’s collection of users’ photos and videos would taller than the world’s largest buildings, many times over.

Mind, blown.

Within Facebook’s S-1, the social network revealed that its Payments business is bringing in $557 million in revenue per year. As the company explains, it currently requires Payments integration in games on Facebook. But according to the filing, Facebook is considering what could be very big moves in the payments space.

From the filing, Facebook writes that “we may seek to extend the use of Payments to other types of apps in the future.” It’s not specific about what these other apps are, but they could include anything that somehow uses Facebook. Dating apps, social shopping apps, news-reading apps — who knows? The filing is meant to paint a broad picture of where Facebook is headed, and the line could just be a simple aside for potential investors. But still, any developer running payments in a way that connects to Facebook should keep it in mind.

Currently, via its payments product, Facebook is taking a 30 percent cut of all payments of virtual goods transacted within games on the network. Zynga accounted for approximately 12% of Facebook’s revenue, much of which was comprised of revenue derived from these payments processing fees. Payments are a huge revenue generator for Facebook.

Facebook says that in the future, it will be invested in ‘enhancing’ payments offerings and “in making the Payments experience on Facebook as convenient as possible for users and Platform developers.” the company also states that financial results each quarter will be based on the Facebook’s “ability to increase payments and other fees revenue.” Facebook is also anticipating a rise in payment processing costs as the company “increases Payments volumes and add new payment methods.”

Some of the challenges to a more expansive payments products, says Facebook, are regulatory issues on the U.S., Europe and in other countries. From the filing: To increase flexibility in how our use of Payments may evolve and to mitigate regulatory uncertainty, we have applied for certain money transmitter licenses and expect to apply for additional money transmitter licenses in the United States, which will generally require us to demonstrate compliance with many domestic laws in these areas. this refers to the fact that Facebook has been creating separate entities for its Payments product.

There is certainly no guarantee that Facebook is going to become the next PayPal, but considering the amount of times the payments business was mentioned in the filing, as well as statement of the potential plans for expansion, it could be a significant business in Facebook’s future as a public company.

You know what’s awesome about today? Facebook just revealed its financials in preparation for public offering.

Bear with me: This means no more “leaks” of Facebook’s revenue numbers to spike its valuation in secondary markets. No more banal and vague conversations about how Facebook is “killing it” at San Francisco bars. It means that I’ll never have to write another one of these “Report: Blah Blah Blah” posts about Facebook revenue using this Zuckerberg dollar graphic I made for Mike.

(Maybe I’ll repurpose the graphic for use in one of the inevitable posts we’ll write trying to pinpoint the company’s valuation and strike price. Get ready for the deluge of these until the thing actually goes public in April.)

So now all this “how much money Facebook makes?” cat is out of the bag! According to the S-1, Facebook made a modest $382,000 in revenue 2004, $9 million in revenue in 2005, $48 million in revenue in 2006 and $153 million in revenue in 2007, with no reporting of net loss.

Facebook does reports loss for revenue numbers post 2006: It made $153 million in revenue in 2007, with a $138 million loss, $272 million in 2008 with a $56 million loss and was finally profitable in 2009 with a net income of $290 million on $777 million in revenue.

For those of you that are fact checking enthusiasts: The $777 million and $290 million number falls in line with press reports, and analysts were also right about Facebook’s $2 billion in revenue and $606 million in net income for 2010.

However sundry reports were all over the map for 2011 revenue (it was actually $3.7 billion), but hit the $1 billion in net income right on the head.

Man, a billion dollars in profit for what is basically pushing pixels. Anyone have an in at Facebook?

This Facebook S-1 is like an animal carcass and us bloggers are like a pack of rabid wolves.—
Alexia Tsotsis (@alexia) February 01, 2012

Earlier analyst estimates from December had pegged the monthly active users of Facebook’s mobile apps at around 300 million per month. This number includes smartphone apps, like those for the Android and iPhone, but also apps that run on BlackBerry, Nokia, and feature phones. At the time, that number equated to roughly 40% of the company’s overall user base.

Facebook hadn’t revealed an official number for monthly active users on mobile since September, however, which was then at 350 million users for both mobile apps and mobile web combined. Today, thanks the Facebook IPO filing, we have an update to the official numbers: there are now 425 mobile monthly active users as of December 2011, out of Facebook’s total 825 million users.

Facebook defines a monthly active user (MAU) as a user who accessed Facebook via a mobile app or via mobile-optimized versions of the Facebook website (e.g., m.facebook.com), whether on a mobile phone or tablet device like the iPad, during the period of measurement.

The company said that mobile usage of Facebook increased in 2011, including in major developed markets like the United States where smartphone penetration has been rapidly growing. But the mobile MAU has also been driven by other product enhancements, including Facebook’s acquisition of Snaptu in April 2011 and the launch of the long-awaited Facebook iPad app in October.

However, despite the large numbers of mobile users for the social network, Facebook doesn’t currently display ads through either its mobile apps or websites. That’s a large, untapped market for Facebook’s advertising efforts, since, in many cases, users only engage with Facebook via mobile – not on the desktop-sized web. Not surprisingly, Facebook didn’t assign a number to its “mobile only” demographic. When it comes to how many Facebook users only interact with the social network via apps or the mobile website, it’s still going to be anybody’s guess.

Facebook also notes that its revenue may be negatively affected by the fact that it doesn’t currently monetize its mobile user base via ads. This will continue “unless and until” it rolls out either ads or sponsored stories (promoted stories from advertisers) to mobile devices. The global mobile advertising market was $1.5 billion in 2010 and is expected to grow at a 64% compound annual rate to $17.6 billion in 2015, Facebook notes in the filing. With that number in mind, Facebook says it believes in its potential future monetization opportunities. (No kidding).

Facebook’s $5 billion S-1 IPO filing includes a detailed assessment of business risks. These include: its lack of mobile monetization and the fact that it doesn’t own a mobile platform, government censorship and privacy scrutiny, inability to maintain its growth rate, and competition from Google+ as well as Twitter and Microsoft.

Here’s a closer look at these risks, followed by the full text of the risk summary, and you can see the whole Risk Factors section starting on page 10 of the S-1 filing to the SEC.

Growth and Engagement

Facebook explains its biggest challenge may be that:

“Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users. We anticipate that our active user growth rate will decline over time as the size of our active user base increases, and as we achieve higher market penetration rates.”

As we’ve written about, Facebook has saturated some of its key first-world markets in terms of user count.Some specific threats to its growth and engagement include competing products, failure to introduce well-received new products, inability to balance the user experience with the presence of ads, content relevancy, reduced perception of the service’s usefulness, and concerns about sharing, safety, and security.

Mobile

Facebook admits:

“We do not currently directly generate any meaningful revenue from the use of Facebook mobile products. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers…our revenue and financial results may be negatively affected”.

Simply put, Facebook’s mobile site and apps do not show ad sidebars, or ads of any kind. Many suspect Facebook will soon start serving Sponsored Story ads in the mobile news feed, but it will have to limit their presence to not offend users.

In regards to its lack of a mobile device or OS, Facebook states:

“We are dependent on the interoperability of Facebook with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our products’ functionality or give preferential treatment to competitive products could adversely affect Facebook usage on mobile devices.”

Google’s Android could give preference to Google+ and iOS already uses Twitter as its identity provider and native sharing option. Google and Apple could effectively box Facebook out of mobile if it doesn’t secure stronger relationships with them.

Additionally, Google and Apple control the native in-app payments systems on their mobile operating systems, preventing Facebook from earning its 30% tax on in-app purchases. Facebook has launched an HTML5 mobile app platform but it has failed to gain significant traction. Facebook may need to develop its own mobile OS or wait until HTML5 becomes more powerful, and by then it could be too late to catch up to Apple and Google’s mobile app platforms.

Competition

Facebook says competitors are attacking from all directions, stating:

“We face significant competition in almost every aspect of our business, including from companies such as Google, Microsoft, and Twitter, which offer a variety of Internet products, services, content, and online advertising offerings, as well as from mobile companies and smaller Internet companies that offer products and services that may compete with specific Facebook features. We also face competition from traditional and online media businesses for advertising budgets.”

This is one area where Facebook’s risk may not be as bad as it sounds. As I’ve detailed, the network effect of its interconnected user base protects it from disruption by similar services. Facebook has also been acquiring disruptive startups and talent. Through recent product launches like its asymmetrical Subcribe feature, Facebook has reduced Twitter’s threat.

Still, Google has enormous cash reserves and web presence to throw into the war with Facebook. Google knows identity as a layer that ties together activity on its various products is crucial to the future of its ad targeting business. Google+ may never have the world’s most popular news feed, but its ability to serve highly-targeted ads based on personal data and Google product usage could fracture social advertising demand.

Government Censorship and Privacy Regulation

Regarding the possibility of government censorship, Facebook notes:

“It is possible that governments of one or more countries may seek to censor content available on Facebook in their country, restrict access to Facebook from their country entirely, or impose other restrictions that may affect the accessibility of Facebook in their country for an extended period of time or indefinitely. For example, access to Facebook has been or is currently restricted in whole or in part in China, Iran, North Korea, and Syria.”

Facebook’s censorship in China is possibly the biggest barrier to its sustained growth. If it could gain entry there, it would quickly surge past 1 billion users. If more countries shut it out, it will have to squeeze a higher average revenue per user from its existing base. Facebook’s needs to build a crack team of international policy specialists and lobbyists to make sure there’s still a supply of fresh users to sign up.

Beyond censorship, Facebook is also subject to regulation:

“Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.”

Facebook recently settled with US Federal Trade Commission and survived an audit from the European Union’s Office of the Irish Data Protection Commissioner. Through smart compromises and negotiations, it managed to avoid and dire consequences for its business, but it might not be so lucky next time. Strong domestic and foreign lobbying presences will be necessary to avoid heavy scrutiny. Most importantly, Facebook needs to carefully consider any change or product launch that influences privacy to avoid stumbles like Beacon, the transition of interests into public Likes, and the opt out launch of facial recognition.

–

Additional risk factors include that Zynga makes up 12% of Facebook’s revenue, the company’s dedication to user engagement over short-term financial results, privacy and security leaks, patent lawsuits, and hacker attacks.

Full Text of the “Summary Risk Factors”:

• Our business is subject to numerous risks described in the section entitled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these risks include:
• If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed;
• We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business;
• Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;
• Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control;
• We may not be successful in our efforts to grow and further monetize the Facebook Platform;
• Our business is highly competitive, and competition presents an ongoing threat to the success of our business;
• Improper access to or disclosure of our users’ information could harm our reputation and adversely affect our business;
• Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could harm our business;
• Our CEO has control over key decision making as a result of his control of a majority of our voting stock;
• The loss of Mark Zuckerberg, Sheryl K. Sandberg, or other key personnel could harm our business;
• We anticipate that we will expend substantial funds in connection with tax withholding and remittance obligations related to the initial settlement of our restricted stock units (RSUs) approximately six months following our initial public offering;
• The market price of our Class A common stock may be volatile or may decline, and you may not be able to resell your shares at or above the initial public offering price; and
• Substantial blocks of our total outstanding shares may be sold into the market as “lock-up” periods end, as further described in “Shares Eligible for Future Sale.” If there are substantial sales of shares of our common stock, the price of our Class A common stock could decline.

It appears that the excitement over the Facebook IPO has crashed the SEC’s website. The link to the Facebook SEC filing, previously available here, is no longer loading. Instead, we’re seeing a “this webpage is not available message” when attempting to load the site using Google’s Chrome web browser, and similar errors in other browsers. This has gone on for several minutes now, as everyone is clicking through to read the filing. That’s too bad for anyone coming late to the news – you’ll have to wait for those who already had it loaded up on their screens to tell you what it said.

For what it’s worth, the entire SEC.gov website is not down – the main page still loads. But when you click into the EDGAR section, things start to slow down quite a bit. For example, try doing a search for company filings. Click, then wait and wait.

Update: The page is loading again now, but slowly. In fact, it’s been loading for many minutes now and has not finished downloading content. We wouldn’t be surprised to see it up and down throughout the day and more news hits.

This is all clearly a coordinated DDoS on the SEC’s website by Facebook wrapped in the guise of an S-1 filing. Very smart.

— MG Siegler (@parislemon) February 1, 2012

Facebook has just filed its S-1 to IPO. Below is the letter from founder and CEO Mark Zuckerberg about Facebook’s purpose, in which he explains “Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected. We think it’s important that everyone who invests in Facebook understands what this mission means to us.”

Regarding business, Zuckerberg says “We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services…As people share more, they have access to more opinions from the people they trust about the products and services they use. This makes it easier to discover the best products and improve the quality and efficiency of their lives.”

Zuckerberg compares Facebook to transformative technologies like the printing press and the television, stating “Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries.”

Zuckerberg also describes Facebook’s internal mantra, known as “The Hacker Way”. The word “hacker” has an unfairly negative connotation…hacking just means building something quickly or testing the boundaries of what can be done. The Hacker Way is an approach to building that involves continuous improvement and iteration…We have the words “Done is better than perfect” painted on our walls.

The letter concludes with Facebook’s 5 core principles: Focus on Impact, Move Fast, Be Bold, Be Open, Build Social Value.

The overall message Zuckerberg wants investors to understand is that Facebook’s primary goal is to do good for the world — bringing humans closer to each other and the businesses that affect their lives. Investors should believe in this mission if they want to own a piece of the company.

The full text of the letter can be found below:

LETTER FROM MARK ZUCKERBERG

Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected.

We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do. I will try to outline our approach in this letter.

At Facebook, we’re inspired by technologies that have revolutionized how people spread and consume information. We often talk about inventions like the printing press and the television — by simply making communication more efficient, they led to a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. They changed the way society was organized. They brought us closer together.

Today, our society has reached another tipping point. We live at a moment when the majority of people in the world have access to the internet or mobile phones — the raw tools necessary to start sharing what they’re thinking, feeling and doing with whomever they want. Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries.

There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on.

We hope to strengthen how people relate to each other.

Even if our mission sounds big, it starts small — with the relationship between two people.

Personal relationships are the fundamental unit of our society. Relationships are how we discover new ideas, understand our world and ultimately derive long-term happiness.

At Facebook, we build tools to help people connect with the people they want and share what they want, and by doing this we are extending people’s capacity to build and maintain relationships.

People sharing more — even if just with their close friends or families — creates a more open culture and leads to a better understanding of the lives and perspectives of others. We believe that this creates a greater number of stronger relationships between people, and that it helps people get exposed to a greater number of diverse perspectives.

By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date. We also believe that giving people control over what they share is a fundamental principle of this rewiring.

We have already helped more than 800 million people map out more than 100 billion connections so far, and our goal is to help this rewiring accelerate.

We hope to improve how people connect to businesses and the economy.

We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.

As people share more, they have access to more opinions from the people they trust about the products and services they use. This makes it easier to discover the best products and improve the quality and efficiency of their lives.

One result of making it easier to find better products is that businesses will be rewarded for building better products — ones that are personalized and designed around people. We have found that products that are “social by design” tend to be more engaging than their traditional counterparts, and we look forward to seeing more of the world’s products move in this direction.

Our developer platform has already enabled hundreds of thousands of businesses to build higher-quality and more social products. We have seen disruptive new approaches in industries like games, music and news, and we expect to see similar disruption in more industries by new approaches that are social by design.

In addition to building better products, a more open world will also encourage businesses to engage with their customers directly and authentically. More than four million businesses have Pages on Facebook that they use to have a dialogue with their customers. We expect this trend to grow as well.

We hope to change how people relate to their governments and social institutions.

We believe building tools to help people share can bring a more honest and transparent dialogue around government that could lead to more direct empowerment of people, more accountability for officials and better solutions to some of the biggest problems of our time.

By giving people the power to share, we are starting to see people make their voices heard on a different scale from what has historically been possible. These voices will increase in number and volume. They cannot be ignored. Over time, we expect governments will become more responsive to issues and concerns raised directly by all their people rather than through intermediaries controlled by a select few.

Through this process, we believe that leaders will emerge across all countries who are pro-internet and fight for the rights of their people, including the right to share what they want and the right to access all information that people want to share with them.

Finally, as more of the economy moves towards higher-quality products that are personalized, we also expect to see the emergence of new services that are social by design to address the large worldwide problems we face in job creation, education and health care. We look forward to doing what we can to help this progress.

Our Mission and Our Business

As I said above, Facebook was not originally founded to be a company. We’ve always cared primarily about our social mission, the services we’re building and the people who use them. This is a different approach for a public company to take, so I want to explain why I think it works.

I started off by writing the first version of Facebook myself because it was something I wanted to exist. Since then, most of the ideas and code that have gone into Facebook have come from the great people we’ve attracted to our team.

Most great people care primarily about building and being a part of great things, but they also want to make money. Through the process of building a team — and also building a developer community, advertising market and investor base — I’ve developed a deep appreciation for how building a strong company with a strong economic engine and strong growth can be the best way to align many people to solve important problems.

Simply put: we don’t build services to make money; we make money to build better services.

And we think this is a good way to build something. These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits.

By focusing on our mission and building great services, we believe we will create the most value for our shareholders and partners over the long term — and this in turn will enable us to keep attracting the best people and building more great services. We don’t wake up in the morning with the primary goal of making money, but we understand that the best way to achieve our mission is to build a strong and valuable company.

This is how we think about our IPO as well. We’re going public for our employees and our investors. We made a commitment to them when we gave them equity that we’d work hard to make it worth a lot and make it liquid, and this IPO is fulfilling our commitment. As we become a public company, we’re making a similar commitment to our new investors and we will work just as hard to fulfill it.

The Hacker Way

As part of building a strong company, we work hard at making Facebook the best place for great people to have a big impact on the world and learn from other great people. We have cultivated a unique culture and management approach that we call the Hacker Way.

The word “hacker” has an unfairly negative connotation from being portrayed in the media as people who break into computers. In reality, hacking just means building something quickly or testing the boundaries of what can be done. Like most things, it can be used for good or bad, but the vast majority of hackers I’ve met tend to be idealistic people who want to have a positive impact on the world.

The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it — often in the face of people who say it’s impossible or are content with the status quo.

Hackers try to build the best services over the long term by quickly releasing and learning from smaller iterations rather than trying to get everything right all at once. To support this, we have built a testing framework that at any given time can try out thousands of versions of Facebook. We have the words “Done is better than perfect” painted on our walls to remind ourselves to always keep shipping.

Hacking is also an inherently hands-on and active discipline. Instead of debating for days whether a new idea is possible or what the best way to build something is, hackers would rather just prototype something and see what works. There’s a hacker mantra that you’ll hear a lot around Facebook offices: “Code wins arguments.”

Hacker culture is also extremely open and meritocratic. Hackers believe that the best idea and implementation should always win — not the person who is best at lobbying for an idea or the person who manages the most people.

To encourage this approach, every few months we have a hackathon, where everyone builds prototypes for new ideas they have. At the end, the whole team gets together and looks at everything that has been built. Many of our most successful products came out of hackathons, including Timeline, chat, video, our mobile development framework and some of our most important infrastructure like the HipHop compiler.

To make sure all our engineers share this approach, we require all new engineers — even managers whose primary job will not be to write code — to go through a program called Bootcamp where they learn our codebase, our tools and our approach. There are a lot of folks in the industry who manage engineers and don’t want to code themselves, but the type of hands-on people we’re looking for are willing and able to go through Bootcamp.

The examples above all relate to engineering, but we have distilled these principles into five core values for how we run Facebook:

Focus on Impact

If we want to have the biggest impact, the best way to do this is to make sure we always focus on solving the most important problems. It sounds simple, but we think most companies do this poorly and waste a lot of time. We expect everyone at Facebook to be good at finding the biggest problems to work on.

Move Fast

Moving fast enables us to build more things and learn faster. However, as most companies grow, they slow down too much because they’re more afraid of making mistakes than they are of losing opportunities by moving too slowly. We have a saying: “Move fast and break things.” The idea is that if you never break anything, you’re probably not moving fast enough.

Be Bold

Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should. However, in a world that’s changing so quickly, you’re guaranteed to fail if you don’t take any risks. We have another saying: “The riskiest thing is to take no risks.” We encourage everyone to make bold decisions, even if that means being wrong some of the time.

Be Open

We believe that a more open world is a better world because people with more information can make better decisions and have a greater impact. That goes for running our company as well. We work hard to make sure everyone at Facebook has access to as much information as possible about every part of the company so they can make the best decisions and have the greatest impact.

Build Social Value

Once again, Facebook exists to make the world more open and connected, and not just to build a company. We expect everyone at Facebook to focus every day on how to build real value for the world in everything they do.

Thanks for taking the time to read this letter. We believe that we have an opportunity to have an important impact on the world and build a lasting company in the process. I look forward to building something great together.

[signed Mark Zuckerberg]

The wait is over: Facebook has just filed for its IPO.

Facebook is looking to raise $5 billion— and will mint hundreds (perhaps even thousands) of employees as millionaires in the process. You can find its S-1 embedded below, or right here.

Rumors of Facebook’s public offering have been swirling for years, and have long been routinely sidestepped by CEO Mark Zuckerberg and COO Sheryl Sandberg. The company has openly acknowledged that an IPO was indeed inevitable, but has avoided giving any sense of timing — “When we’re ready” has become a familiar mantra from Facebook executives.

The wait has been made possible, in part, by the rise of secondary markets and special stock sale programs, which have allowed early employees to sell off some of their valuable stock for liquidity. Such sales have helped reduce the amount of internal pressure to go public, which has given Facebook more time to build up its reach and products prior to the IPO.

Facebook also received an exemption in 2008 that allowed it to surpass the SEC’s ’500 shareholders’ rule, which would have mandated that the company begin releasing some of its financial figures publicly (Facebook argued at the time that most of its shareholders were employees — and their request was approved).

Here is some of our additional coverage on the filing:

• Facebook’s S-1 Letter From Zuckerberg Urges Understanding Before Investment
• Facebook’s S-1 Reveals: 845 Million Users Every Month, More Than Half Daily, Half Mobile
• Facebook’s S-1 And The Largest Shareholders: Who Owns What?

Facebook has an answer to those wondering how it will justify its IPO price and keep revenues growing as it saturates key markets: a new behavioral ad targeting system. Facebook has been quietly rolling out the beta of “Open Graph action spec targeting” which allows advertisers to target users by what they listen to, where they travel, what they buy, and other in-app activity.

These behaviors can more accurately denote conversion potential than a user’s biography or interests, That means Open Graph action spec ad targeting could turn finding a needle in a haystack into shooting fish in a barrel. The targeting options could improve the ROI of Facebook ads, and thereby attract a new class of advertisers, get existing ones to spend more, and pull in dollars from search, display, and offline channels.

Since Facebook has already exhausted much of the supply of highly monetizable first world users, it will need to make more money per user to grow revenue. Higher click through and conversion rates of action spec targeted ads will allow Facebook to charge advertisers more per click and waste fewer impressions to get those clicks. It’s also expanding ad inventory by complementing its ad sidebars with Sponsored Story ads in the web news feed, and it will likely monetize its mobile user base in the same way. By serving more ads at a higher cost per click, ad revenue will grow with time.

Until the launch of action spec targeting, advertisers looking to target those with purchase intent often went to search or ad networks employing cookie retargeting that scraped a user’s browsing history. Facebook only offered biographic, social, and interest targeting. These are effective for institutional brand advertising and demand generation, but aren’t as useful for reaching users in the purchase funnel. Direct response performance advertisers sometimes had to buy large volumes of clicks to drive one conversion.

Open Graph action spec targeting will help these Facebook advertisers reach users who’ve stated they’ve already made a related purchase, or plan to. This could help it break out of the demand generation stage of the purchase funnel and into the more lucrative demand fulfillment stage where Google search ads currently reign. Some Facebook advertising experts tell me action spec targeting could double ad conversion rates.

At f8, Facebook announced that advertisers using the Facebook Ads API for buying large campaigns could layer existing targeting parameters targeting users who’ve taken any of the 3 official launch actions: ‘listened’, ‘read’, and ‘watched’ through apps like Spotify, The Washington Post Social Reader, and Hulu. For example, ads could be targeted to anyone who ‘listened’ to ‘Lady Gaga’ or ‘The Rolling Stones’ on Spotify. This was useful for advertisers from these verticals, such a record labels, concert promoters, book publishers, and television networks.

Now that 60 new partnered apps have launched and Facebook has begun approving non-partnered apps and their actions, a much wider range of advertisers will be able to make use of behavioral targeting. Airlines could target those who said they “wishlisted” Barcelona via Gogobot, a fashion retailer could target those who “bought” a specific purse via Payvment, and restaurants could target anyone who “wanted” a burger at a competitor’s restaurant via Foodspotting.

Advertisers with their own Open Graph apps have the most to gain. For example, Groupon already runs huge Facebook ad campaigns, but now has an app through which users can take the action of “buying” deals. Groupon could now retarget ads at any user who has already bought a deal through its app. That audience of previous buyers likely has a much higher conversion rate than its Facebook Page fans or any biographical demographic.

Open Graph action targeting is still in beta so the technical side is bit tricky. There’s no browsable database of Open Graph apps, actions, and objects to target, so advertisers need to find their Open Graph ID numbers by clicking on them in an existing activity story. Third-party developers of Facebook Ads API platforms and services like Nanigans, TBG Digital, and AdParlor are trying to make it easier by creating pre-defined audience segments that advertisers can target.

It will take a few years for behavioral targeting to start boosting revenues. More Open Graph apps need to launch and gain traction so there’s something to target, Ads API platforms need to adapt, and the benefits of behavioral targeting will need to be proven before ad spend starts to shift towards the system. Some users might not be thrilled about being targeted by their app activity. However, they opt into using these apps, and might as well see relevant ads if they’re going to see them anyway.

In the end Facebook, advertisers, and users will all win. Facebook will boost revenues, advertisers will be able to better reach their customers, and users will see more relevant ads based on activity in apps they voluntarily installed, rather than cookies dropped on them without permission.

[Image Credit: Cognitive Behavioral Therapy, Acquisio]

How did Facebook become worth so much money that it could file for the biggest IPO in tech history? By building a highly defensible product, platform, and advertising business on top of brilliant talent and valuable data. It now has several competitive advantages that protect it from disruption and could give it a long life as the primary online identity provider. Here are the 5 components that make Facebook a smart long-term bet for investors, regardless of its exact IPO pricing.

Network Effect

Displacing Facebook as the mainstream online social network would be next to impossible. It brought authenticated identity to the internet –a crucial utility that compelled users to join. No other service may be able to add on top of Facebook something as valuable as what Facebook added to Myspace, friendster, and other services where you didn’t have to be yourself.

Facebook’s ingenius distribution strategy, detailed in The Facebook Effect by David Kirkpatrick, allowed the service to capitalize on this value-add and spread to the farthest reaches of the globe. Eventually the network effect took hold, with Facebook’s ever-growing user base making it ever-more valuable and attractive to new users.

And now inertia has set in. Users have invested considerable time into Facebook building their profiles, walls, interest graphs, and most importantly, their social graphs. As Facebook handles a wide range of use cases and a critical mass of any person’s friends already using it, a competing social network can’t just be as good or better, it would need to be massive improvement to lead users astray. The insulation to competition provided by the network effect makes it a safe long-term bet for investors.

The News Feed’s EdgeRank Algorithm

For five years, Facebook has been collecting data and refining its EdgeRank algorithm, which determines what of all the content your friends share ends up in your news feed, and how prominently. By using Likes, comments, and shares to determine what’s most relevant, Facebook had developed arguably the best automated content curation engine in the world. The news feed also gets to draw on the web’s largest database of photos, and the friend tags they feature which helped Facebook go viral.

For new users without tons of data points, Facebook can still predict what they might be interested in seeing. For existing users, especially veterans of the site that actively use its feedback mechanisms, the news feed consistently surfaces relevant content. EdgeRank creates that the highly addicting experience that drives Facebook’s enormous time on site, return visit rate, and engagement. Even if Twitter or Google+ had all the content of Facebook, it could take them years to develop an algorithm that produces such a relevant feed.

Talent

Mark Zuckerberg sees the future. His product vision allows Facebook to release features that users grow into rather than out of. Zuckerberg has integrated progressive home brewed ideas as well as those that couldn’t reach their full potential when launched elsewhere. He has pushed the service to constantly reinvent itself, allowing it to stay cool and relevant 8 years after launch.

Zuck’s dedication to making the world a better place through interconnection and openness has also attracted other visionaries. COO Sheryl Sandberg‘s efficiency has made the company very profitable, and her willingness to experiment means Facebook will continue to revolutionize advertising through behavioral targeting and social content-infused ads. VP of Product Chris Cox has led Facebook’s social design movement, where 1st and 3rd party products are made to leverage Facebook’s data and community from the start, rather than bolting them on.

With the promise of changing the world and a lean, fun-loving company culture, Facebook has been pulling top engineering, product, and business talent away from larger companies like Google that are saddled with product bloat and bureaucracy. It’s also been aggressively acquiring disruptive startups such as Paul Bucheit and Brett Taylor’s FriendFeed, Blake Ross’ Parakey, Sam Lessin’s Drop.io, and Josh Williams’ Gowalla. The rockstar product designers and executives ensures innovation will continue to flow from within Facebook.

The IPO will provide Facebook more cash for acquisitions and give its talent the liquidity they deserve. Though there’s always the chance they could cash out and leave, the ability to sell a little stock and upgrade their lifestyle might keep employees happy enough to stick around.

The Apps and Games Platform

Facebook has created a gaming platform proven to offer viral growth. While the service has curtailed some of loudest viral channels, organic growth opportunities remain and on-site advertising for games has produced high returns on investment for companies like Zynga. Facebook has fostered an enormous community of developers that pay while populating the site with engaging apps and content, and that won’t ever disappear overnight.

Facebook games are often infinite building simulations or twitch puzzlers, have long session lengths, and let users make vanity purchases so they can show off while simultaneously hooking them deeper into a game. They readily produce “whales”, or people who spend orders of magnitude more than the average player. Mobile is emerging as a lucrative platform for Apple and Google, and Facebook is just getting started there, but it does have an enormous install base to work from.

By attracting developers early with free growth, clamping down once they had invested, and then taxing them 30% through its virtual currency Credits, Facebook has turned its games platform into a consistent money maker. Now some developers are experimenting with digital media sales and rentals, pay-per-view, as well as offering virtual currency microincentives, showing potential for platform monetization beyond games.

Ad Targeting

Age, gender, current city, hometown, employers, education, friends, interests, and now in-app activity and ecommerce habits. When users share this data with friends, they’re also sharing with Facebook. This gives Facebook possibly the most accurate and robust set of ad targeting data in the world. With both an self-serve tool and ad reps handling premium accounts, Facebook can provide effective advertising solutions to both local business and international brands.

Facebook has developed eye-catching ads by combining this targeting with social-content infused ad creative. Viewers see the names and faces of friends who Like an advertised brand. Interactions between their friends and brands, such as Likes, app usage, and checkins, can become the ads themselves through Sponsored Stories. These trump, and are increasingly pulling spend away from more cookie-cutter display and search ads targeted through cookies and keywords.

Facebook has only begun to monetize through ads. The sidebars where ads primarily appear have been kept small and unobtrusive. Facebook is now mixing ads back into the web version of the news feed, where they’re sure to be seen between organic social content. Facebook has yet to show ads to its hundreds of millions of daily mobile users, but Sponsored Stories could show up there soon too. Finally, it could one day create an ad network that allows other sites to pay to show logged-in Facebook users the same highly targeted social ads they see on Facebook.com.

Personal recommendations have always been a part of ecommerce, but there has been little innovation since Amazon introduced retail and product personalization 10 years ago. But with the increasing mountains of data at digital retailers’ fingertips, ecommerce is about to get even more personal.

The fact is that right now there is little iteration from personalized ecommerce beyond what is taking place on Amazon. So you’ll see suggestions of what other shoppers who bought a certain item also purchased, or recommendations to similar items to what you have purchased, but there is a whole world of social data, and even more-in-depth purchase data that can be mined by retailers to help increase sales.

Kleiner Perkins partner Aileen Lee agrees with me, “In the future, the best  retail sites will know you much better and show you things that are much more relevant.” Lee has helped lead investments in a number of e-commerce companies including Offermatic, One Kings Lane, Plum District, Rent the Runway, and Trendyol and held operating roles at The Gap and North Face.

“We are just at the beginning of a revolution of e-commerce, and existing retailers are going to have to get better at personalizing the experience for consumers,” Lee says.

“Personalization was really important in enabling Amazon to differentiate itself and grow in past ten years,” David Selinger, CEO and co-founder of RichRelevance. Selinger also was Amazon’s Manager, Consumer Behavior Research and helped build some of the site’s personalization features a number of years ago. “Personalization will be the differentiating factor in e-commerce and digital commerce going forward, especially for multichannel retailers and new entrants online.”

Amazon and Netflix represent the first wave of personalization. I believe that we are going to enter into the next wave of a more personalized e-commerce experience as retailers and e-commerce sites move towards mining data to improve sales and conversions.

It’s highly likely that you have helped boost Amazon and Netflix’s conversion rates on movies, books, or other products thanks to personalized suggestions of items that you may like based on your previous purchase data, other consumers’ purchase history and more. In fact, it’s so seamlessly baked into the user experience for both companies, that I tend to not even notice how impactful personalization is on what I purchase.

That’s not to say that Amazon is the only retailer experimenting with personalization. eBay has also been personalizing the marketplace experience with recommendations of similarly viewed or bought items for some time, and is looking to expand personalization efforts with PayPal. And with the recent acquisition of Hunch, we know eBay is going to ramp up data mining.

Recently, I started to receive emails from Gilt Groupe that suggested similar earring to like those those I had added to my wait-list on the e-commerce site. The company also sends personalized email notifications on sales that are tailored to each customer. Gilt, who declined to comment for this piece, seems to realize that personalization is going to be a key product driver for the site in the future. And brick and mortar retailers like Saks Fifth Avenue, and many others are also starting to jump on the personalized email bandwagon.

The Challenges

The best way begin understanding the opportunity of personalization in the future is to realize the immense challenge that retailers face when approaching personalization. As DJ Patil, Data Scientist in Residence at Greylock Partners, explains, “When you go to Nordstrom you have a shopping assistant helps direct you, basically says ‘I’m here to help, what do you need and here’s where to find this.’ No online retailer has quite nailed that,” he explains.

For most retailers, the toughest hurdle is to have enough data on an individual to actually help personalize the experience. For the majority of buyers who purchase from a specific site once every few months, or even less frequently, a retailer may have no real sense of direction on how to present similar products.

Getting these data points is the biggest challenge that retailers face. But retailers do have significant data for the small amount of regular, routine customers for an e-commerce site, including clicks, purchase history, shopping cart information, shares and Likes, and more. Retailers face challenges on how to store and organize this data, and then turn this into personal recommendations

And data comes in various forms. There’s implicit data (which is gained from your everyday actions on a retailer’s site) and explicit data (which you offer to sites via surveys or quizzes). While retailers are doing more with the implicit data (i.e. reminding you when you left items in your shopping cart); no one has yet mastered the art of capturing that precious explicit data.

Google’s Boutiques.com tried its hand at this, as a search engine and fashion site which allowed users to receive personalized clothes and accessory recommendations based on preferences and actions. But Google subsequently shut the portal down last September.

Asking for users to fill out surveys of what they love or like perhaps isn’t the ticket to drawing explicit data, such as brands you love, colors, styles and more. As Patil explains, retailers who ask for this information need to present this as more of a conversation as opposed to replicating the feel of a doctor’s appointment where you are filling out your life history via forms.

Getting these signals from consumers is very difficult from a UI and user experience stand point, he says. His advice to retailers is to find a way to replicate how a store owner or shop keeper would engage you in a conversation when walking into a store and looking for something open-ended, such as a birthday gift. One way to do this is to present a personalized item suggestion but ask the consumer (in a Pandora-like fashion) if the recommendation sucks and how they can make the shopper’s life better “People want to help the system and love to correct things,” Patil says.

And similar to Pandora, people become more invested in a platform that knows their preferences and will be more likely to return.

There’s also the issue of finding the balance between providing serendipity in terms of discovery and personalization. Retailers still want their sites to be this Pandora’s box of discovering items, literally, but personalization can cut down on this discovery process. So retailers need to both anticipate what consumers may want to purchase on the site but also provide items that consumers will be able to feel like they ‘discovered’ on the site.

Patil draws an interesting comparison with how grocery stores have been able to structure their layouts to provide serendipity and useful discovery. “When you go to the supermarket, the stores know you are definitely going to milk aisle, so they often put it in the back of the store, so you can find serendipitous stuff on the way. Online retailers need to replicate that on e-commerce sites.” In the end, the goal is to be able to deliver personalization without being predictable.

At a macro level, retailers also face challenges in finding talent to sort this big data. The difference between doing data personalization well are radical shifts financially for retailers, Selinger explains. The engineers who are able to parse these massive amounts of data are hard to come by, and expensive.

Social

Social data (i.e. the Facebook Likes of products, what products people are recommending on Facebook or Twitter) is going to be a big part of personalization for retailers in the future. Already plenty of retailers are using Facebook social plugins and Connect integrations to leverage Facebook data to show visitors what friends bought or shared, what products relate to their Likes, and which friends they might want to invite.

The problem with this data is that much of it is unstructured, and there is really no one who has effectively nailed social personalization in the commerce arena the way Amazon was able to do with data from purchase behavior. Blippy attempted to socialize purchases, but it failed. Amazon also allows you to connect to Facebook to access your friends’ Likes and recommendations but I find this UI to be clunky, and not very useful.

Selinger thinks that mining social data for ecommerce may lose steam before it takes off, drawing the comparison to email. “In 2007, if you were to walk into VC’s office with an idea about ecommerce and email, you would have been sent out the door,” Selinger says. But he explains that while there is an inherent enterprise value in this social data, it will take a long time to take off, similar to the way it took awhile for personalized email and commerce models to enter the market. “When someone figures out how to do it and do it well, it will grow really quickly,” he maintains.

The challenge for retailers is making sense of the Facebook news feed — i.e. streamlining recommendations, attaching brands and tags to this data and then serving this to shoppers in a useful, personalized format. Basically, your social network can become your Consumer Reports.

The challenge for the data mining community, explains Patil, is actually figuring out the intent in much of the unstructured data that is posted about retail products and brands on Facebook. And it’s important to keep in mind that some of this data from Facebook users is private.

This past week, Facebook partnered up with sixty different startups to add their “stories” to Facebook Timeline, through apps that span different verticals from Food, Fashion to Travel. Part of this involved adding new actions (in addition to ‘like’) to Timeline story options. That includes the verbs ‘bought’ and ‘want.’

There is tremendous potential in developers and retailers being able to mine this data from ‘boughts’ and wants’ as opposed to the open-ended ‘like.’ You can see details on what social shopping mall Payvment is doing with the new protocols here, but basically, the ability to add these targeted buttons could be game-changing for social discovery in e-commerce.

Privacy

Echoing Lee’s thoughts, Patil is confident that there will be a new wave of personalization and e-commerce. But without data, there is no personalization. So consumers both on Facebook as well as on retail sites will have to be more willing to give up key data like purchase history, Likes and other social actions, and even location in order to get a more personalized shopping experience on retail sites.

The key will be getting consumers to understand that more data will improve their shopping experience, and making the choice of opting-in a no brainer.

Selinger agrees that privacy is going to be an important issue in the next tranche of personalization innovation. “Now more than ever, consumers are more cognizant of what’s happening with their data,” he says. But what retailers have in the favor is a strong foundation of privacy practices, because these companies have had to protect consumer financial and credit card data for time. Selinger believes that retailers will be very thoughtful about privacy and data sharing going forward.

Perhaps sites like Blippy and Boutiques.com were ahead of their time when it came to consumers willingly handing over the keys to their shopping and payment preferences. I envision a day when there will be an app that reads all of your purchase history via your email account and then serves you recommendations based on this data. There are some companies who are already parsing through receipts in your inbox to organize purchases, so why not take this a step further.

And these personalization strategies that are being adopted by retailers are already trickling down to other kinds of sites beyond e-commerce as well. In the same way that ecommerce sites are trying to maximize sales and profits with this data, content sites are also using social and other data to add relevance to their platforms.

So shoppers, be prepared to give up your data. In the coming year, we’re going to see many more retail sites ramping up data-driven discovery. And e-commerce sites who aren’t thinking about how to mine social and other forms of data are probably going to be left in the dust by the Amazons and Netflix’s of the next wave of personalization.

The Wall Street Journal has just reported that Facebook may file for its long-awaited IPO as soon as this Wednesday, but notes that the “timing is still being discussed”, according to an anonymous source. The article says that Facebook is eyeing a valuation between $75 and $100 billion as it raises up to $10 billion, which is in line with a previous WSJ report last November.

The article also reports that Morgan Stanley is currently the frontrunner to secure the top, “lead left” position in the filing, with Goldman Sachs playing a “significant role” as well. The news comes shortly after Facebook temporarily froze secondary trades on its shares, sparking speculation that the IPO filing may be imminent.

Facebook’s IPO has been the subject of constant debate and anticipation in the tech world for years now — though CEO Mark Zuckerberg and COO Sheryl Sandberg have long avoided committing to any kind of time-table for the company to go public. The long wait for the IPO has led many employees to turn to the secondary markets to sell some of their valuable shares and secure some liquidity.

Here’s an excerpt from an interview this past November between Charlie Rose, Zuckerberg, and Sandberg, where they discuss the timing of Facebook’s public offering (you can full the full transcript here):

Charlie Rose:
What’s the valuation today of Facebook?

Sheryl Sandberg:
So we’re a private company so we don’t really have a valuation.

Charlie Rose:
So then why do you want to be a public company? Why do you even think about an IPO?

Mark Zuckerberg:
I actually think the biggest thing for us is that a big part of being a technology company is getting the best engineers and designers and talented people around the world. And one of the ways that you can do that is you compensate people with equity or options, right, so you get people who want to join the company, both for the mission, right, because they believe that Facebook is doing this awesome thing and they want to be a part of connecting everyone in the world, but also, if the company does well, then they get financially rewarded and can be set. And, you know, we’ve made this implicit promise to our investors and to our employees that by compensating them with equity and by giving them equity, that at some point we’re going to make that equity worth something publicly and liquidly, in a liquid way. Now, the promise isn’t that we’re going to do it on any kind of short-term time horizon. The promise is that we’re going to build this company so that it’s great over the long term, right. And that we’re always making these decisions for the long term, but at some point we’ll do that.

…

Charlie Rose:
You’ll go when what? When will you decide?

Sheryl Sandberg:
When we’re ready.

Mark Zuckerberg:
Yeah.