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SEC Filing Reveals Facebook Network Equipment Valued Over $1B at Close of 2011

“Facebook reported in its SEC filing that it owns ‘network equipment’ valued at $1.016 billion at the close of 2011,” reports Rich Miller of Data Center Knowledge. “The number reflects the expense of rapidly building a massive Internet infrastructure, including Facebook’s shift from buying vendor gear and leasing data centers to building its own servers, racks and custom data centers.”

Facebook Constructing New Data Center - Located 62 miles south of the Arctic Cicle, Lulea. Facility consists of three 300,000 square feet server buildings; scheduled for completion by 2014.

Photo above shows Facebook’s first outside the U.S. data center currently being built on the edge of the Arctic Circle. The northern Swedish city of Lulea chosen for the data center is partly because of the cold climate—crucial for keeping the servers cool—and access to renewable energy from nearby hydropower facilities, according to the company.

Image below is a visualization of Facebook’s social graph of 500 million back in 2010 created by intern Paul Butler.

Facebook ‘Friendship Visualisation’ shows pairs of friends between the world’s cities based on company’s 500 million user base in 2010. Facebook’s current user base at the time of its SEC filing is reported to be over 800 million.(Click to Enlarge)

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No Mention Of New gTLD Initiative In Facebook's S-1 Ray Marshall  –  Feb 6, 2012 4:19 AM

Performed a cursory review of Facebook’s S-1 to see how the new gTLD initiative might impact Facebook’s business model from the perspectives of Facebook, its investment bankers, and its external auditor. Interestingly enough, there appears to be no explicit mention of the new gTLD initiative.  I find this to be somewhat disconcerting for potential investors of Facebook since the new gTLD initiative may be a major game changer for the Internet that, in turn, may have a major impact on Facebook’s business model.  I wonder if Morgan Stanley, J.P. Morgan, Goldman Sachs, or E&Y;pushed for this type of disclosure in Facebook’s S-1.  Or, did this paradigm shift in the Internet simply get overlooked in the rush to develop and file Facebook’s S-1?

you're overrating the new gtlds Suresh Ramasubramanian  –  Feb 6, 2012 1:17 PM

facebook has a distinct brand for itself and that's going to remain regardless of vanity new tlds

It's All About Transparency Ray Marshall  –  Feb 6, 2012 2:53 PM

Suresh, do you believe potential investors of Facebook have a right to know about the new gTLD initiative via the company’s S-1?

Ray, gTLD is not a web site, Gideon Sheps  –  Feb 7, 2012 9:21 PM

Ray, gTLD is not a web site, it is not a potential competitor to FB, nor will gTLD change anything about FBs market (i.e. people who use or may use FB and the advertisers who pay to be seen) it is as relevant to the FB IPO as talking about CISCO's next generation of routers in the filing. Sure, someone could go and create a new social web site using a new TLD - but that could just as easily happen without a new TLD, and the new TLD option don't materially change the odds of someone creating a compelling competitor. If Google+, with all its resources, is having trouble breaking into the FB marketspace, what is the likely impact of just the ability to create a new TLD, absent any specific site or plan from anyone (let alone ICANN).

Not A Web Site Ray Marshall  –  Feb 7, 2012 10:12 PM


Just so I’m clear on your position, are you saying the new gTLD initiative will have no impact on Facebook’s business model? Therefore, potential investors of Facebook should not be informed about the new gTLD initiative in the company’s S-1? Is that your position?

Yes Gideon Sheps  –  Feb 8, 2012 4:13 AM

Yes, that is my position. Unless something has a definable potential impact (good or bad) it doesn't need to be included in an S-1. You need to be able to say "this is going to (or might) happen, and it could impact the business in this way". Just saying "it's going to be huge" isn't sufficient. So you clearly think gTLD will change the game for FB in a way that is clear enough to predict some possible consequences at this time that investors should know about. OK, how? What? I don't see it. Let's say FB registers .fbk and moves to wall.fbk, pics.fbk, apps.fbk, games.fbk, yourname.wall.fbk - so... what exactly is the business impact? People will use FB if the content and usefulness attracts them regardless of the URL. I don't see MySpace or G+ suddenly getting a huge boost because of a vanity TLD, or a new competitor being able to attract users just because they have their own TLD. Most people stop noticing the URL completely once the site is in their history/type-ahead or bookmarks. (If people paid that much attention to domains phishers wouldn't get away with URLs like paypal.com.6598jsdsjk.com) Changing the delivery URL isn't a change to a business model. Yes, they may find some interesting and innovative way to use it, but they will continue to innovate and change with or without it - that's expected (if they said they were done developing, that would be worth reporting). Facebook (and all other web services) are about the content & service - not the domain name. How valuable are all those domains people rushed to register in the late 90's? Nowhere near the silly prices people were paying back when everyone was staking their claim in the Wild Wild West. If you still think the actual domain really matters look up computer.com, bookstore.com, searchengine.com or bank.com - killer domains, right?

If I Were An Investor ... Ray Marshall  –  Feb 8, 2012 7:42 AM

... I would want to arm myself with as much relevant information as possible.  Put all the relevant risk factors on the table for my review and approval before I invest my hard earned money.  So you ask, “What makes the new gTLD initiative a relevant risk factor from your perspective?”  Let me explain.

As we all know, how we want to engage others on the Internet and how we want others to engage us on the Internet is rapidly changing.  First it was Friendster.  Then it was Myspace.  Now it’s Facebook.  Some might argue that one site offered a better set of features than the other, hence, the switch.  In my humble opinion, people simply grew tired of one social networking site and quickly moved on to another that was newer, shinier, and cooler.  I’m not alone in this opinion.

In commercial banking, we referred to these types of businesses as “fad or fashion”.  We avoided these companies because they operated in industries that were considered too volatile.  Perception plays a role in “fad or fashion”.  One day your company is perceived as cool and you’re soaring high.  Another day your company is perceived as boring and you land back on solid ground.  Sure, you need to have a solid product.  But, all things being equal, perception will tip the balance.  Look at users that switched from Myspace to Facebook.  Were these sites really that much different?

I believe our perceptions play an important role in how we want to engage others on the Internet and how we want others to engage us on the Internet.  Perception is not an easy thing to get your head around.  Why is it that so many embrace the concept of new gTLDs and yet others have extreme disdain?  Yet, here we are at the doorstep of seeing new gTLDs being introduced into the Internet.  According to many, new gTLDs won’t offer anything different than the existing gTLDs.  Instead, they will cause widespread confusion and wreck havoc with our use of the Internet.  In the face of all this rhetoric, we still see many individuals, communities, cities, associations, and companies clamoring for their introduction and willing to back them with significant resources.  Why?

Right, or wrong, perception can determine the outcome.  If enough new gTLDs are introduced into the market with sufficient funding and marketing, there is a real possibility that our perceptions on how we want to engage others on the Internet and how we want others to engage us on the Internet will be influenced.  Social networking sites powered by newer, shinier, and cooler gTLDs with future state services might tip the balance and cause users to make the switch from Facebook.  From this perspective, I believe this risk is real and should be included in Facebook’s S-1.

While that could be true... Gideon Sheps  –  Feb 8, 2012 10:22 PM

While it is entirely possible that things will play out as you envision it, the S-1 filing isn't expected or required to go down highly speculative what-if scenarios. What you say is, anyhow, potetially true even without gTLD. G+ is exactly that scenario. New entrants are always a risk to any business, and I still don't see how gTLD in and of itself makes it any more or less likely someone will try or succeed beyond what is possible today. To go into gTLD you'd have to see way gTLD in and of iself changes the game beyond the risk out there today without it. Yes Frienster is toast (without gTLD), MySpace took a hit when FB launched soon after, but G+ has had no impact at all, so one could also argue that the barrier to entry for a new social networking site of that nature is now very high. Twitter is the only major entrant since, and it happily co-exists with FB & MySpace and doesn't compete for users - who are often on both ad cross post. Even without gTLD FB could be a fad. If anything Privacy concerns could be the tipping point if someone built a social site like FB and promised to actually delete things when you clicked 'delete'. Even on a boring old .com

Gideon, all the best ... Ray Marshall  –  Feb 9, 2012 3:12 PM

... with your investment in Facebook. :)

No plans to buy FB Gideon Sheps  –  Feb 10, 2012 4:48 PM

I have no interest in their IPO at all. As a rule I am not a fan of jumping on IPOs - even if I had the money to do so (which I don’t).

Overall, I do agree with you that arming oneself with all available knowledge is what the smart investor does, and tech savvy ones will know about or discover the gTLD initiative and come to their own conclusions.

The main point we disagree on is whether FB should have covered it in their filing. My point remains that the possible impact is too vague & speculative and not sufficiently differentiated from the general risk of someone else entering the business… Google+‘s tepid reception being the best indicator that new competitors are not a significant threat due to the high barriers to entry created by the head start they have. Not that it’s impossible - new stuff happens all the time, and predictions about the WWW are about as accurate as picking lottery numbers - but SEC filings need to focus on the more likely scenarios.

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