Abstract
Many observers believe that social networking sites such as Facebook are overvalued and overrated on financial markets. This overvaluation of the networking domain did not hinder Microsoft from investing $240m in a 1.6% stake in October 2007. The propelling question was ?What creates value in Facebook and how can that value be converted into revenue?' Facebook was founded in February 2004. It is regarded as a social utility that helps people communicate more efficiently with their friends, family and coworkers. The company developed and continues to develop technologies that facilitate the sharing of information through the social graph, the digital mapping of people's real-world social connections. As it is a very strong social network service, it permits people to meet other people, proceed by sharing content and staying alert and being aware of their contacts. Social network services are part of the internet upgrade of 2.0 version and evolved in its growth factor after 2002. Using the Warren Buffet definition of value 'The value of any business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset,' we will study Facebook's cost structure, its environment and eventually how it can earn money (working towards the revenue recognition factor).
