DAU as a percentage of MAU is an important metric to judge “stickiness.” If the company were gaining millions of new users but not maintaining a steady DAU over MAU, it would suggest those users were not finding reasons to return as frequently. In Facebook’s case, the ratio of monthly users returning daily has increased from 44 percent to 57 percent since June 2009. This supports the idea that the social network not only grew in volume but became more engaging. In its IPO prospectus, the company attributes much of this growth to mobile usage.

DAU over MAU grew at its fastest rate between June 30 and Dec. 31, 2009, as smartphone growth took off in the U.S. and Europe. Apple released the iPhone 3GS and Palm released the Pre in June 2009. Motorola introduced the first Droid in October of that year. As millions of consumers purchased smartphones and added Facebook apps, daily engagement accelerated. That period saw faster DAU growth in the U.S. and Europe than it did in Asia and the rest of the world.

The DAU/MAU ratio is not increasing as drastically as it had been, but it continues to grow. DAU as a percentage of MAU increased from 54 percent in December 2010 to 57 percent in December 2011. We can expect this number to keep improving as more users connect to Facebook through mobile apps. Another factor that could encourage more users to engage daily is Open Graph. As more apps and websites integrate Facebook, the social network can increase daily active users without those users visiting the site directly.

It’s unclear how high the percentage will go, but at some point, DAU over MAU will hit a threshold. Investors should keep an eye on this metric to gauge how well Facebook is growing and maintaining interest among its new and existing users.

February 8 – 9, 2012 | San Francisco

 

Inside Social Apps 2012 is coming next Wednesday and Thursday!

Register Here

Join us as we host the industry’s leading developers for two days of panels, discussions, and networking around the social and mobile app ecosystem.

How do developers in the industry view today’s top challenges in social and mobile apps and games? Which platforms will see the most growth in 2012, and what are the key opportunities ahead? We’ve recently finalized our event agenda that looks at this industry’s biggest questions from the perspectives of those who are shaping it every day. View the full agenda here.

Better yet, save your spot and register now.

Who’s Speaking?

We’re excited to present the following 44 confirmed speakers at Inside Social Apps 2012:

	Carl Sjogreen Director of Product Management, Facebook		Cory Ondrejka Director of Engineering, Facebook
	Russ Heddleston Product Manager, Facebook		David Glazer Engineering Director, Google+
	Carla Bourque SVP, Buddy Media		Simon Mansell CEO, TBG Digital
	Clara Shih Founder and CEO, Hearsay Labs		Mike Ouye Founder and CEO, Red Robot Labs
	John Spinale Senior Vice President, Social Games, Disney Interactive Media Group		Barry Cottle Executive Vice President, EA Interactive
	Daniel Terry Co-founder & CEO, Pocket Gems		Perry Tam CEO, Storm8
	Jens Begemann Founder and CEO, wooga		Lee Linden Founder, Karma Science
	Charles Hudson Co-founder and CEO, Bionic Panda Games		John Earner GM European Studios, EA / Playfish
	Paul Bettner GM, Zynga With Friends		Kevin Chou Co-founder and CEO, Kabam
	Suleman Ali Co-founder and CEO, TinyCo		Will Harbin Chairman and CEO, Kixeye
	Mario Schlosser Chief Scientist, Vostu		Jeff Tseng CEO and Co-Founder, Kontagent
	Dennis Ryan EVP Worldwide Publishing, PopCap		Eric Goldberg Managing Director, Crossover Technologies
	Haining Wang CEO, Happy Elements		Sho Masuda VP Marketing, Social Games, GREE
	Clay Kellogg Head of App Dev. Sales, AdMob		Terry Angelos Co-Founder and CPO, TrialPay
	David Katz VP of Digital Media, Starz		Suchit Dash Co-founder and VP of Product, Ifeelgoods
	Atul Bagga Senior Analyst – Video Games & China Internet, Lazard Capital Markets		Peter Farago VP Marketing, Flurry
	Anil Dharni Co-founder, Funzio; Founder, Storm8		Mike Sego CEO, Gaia Interactive
	Tim Chang Managing Director, Mayfield Fund		Micah Adler Founder & CEO, Fiksu
	Arjun Sethi CEO, 6waves Lolapps		Brenda Garno COO & Game Designer, Loot Drop
	Bill Jackson Creative Director, CastleVille, Zynga		Hussein Fazal CEO & Co-founder, AdParlor
	Mihir Shah President & CEO, TapJoy		Lisa Marino CEO, RockYou
	Rick Thompson Co-Founder, Playdom, and Investor		Riz Virk Co-founder and CEO, Gameview Studios

Registration

Previous Inside Social Apps conferences have sold out in advance of event day, so we strongly encourage you to register now.

Pre-registration passes are $599 until February 7, and will be $799 at the door. Register Now

About Inside Social Apps

Inside Social Apps 2012 will explore new opportunities, as well as emerging risks, in the development, distribution and monetization of social and mobile applications. Inside Social Apps 2012 will span February 8 – 9, and will bring together the world’s leading social and mobile developers and investors for critical discussion and analysis.

Social applications first made their splash in the US in 2007, and have now evolved into a global media ecosystem. Today’s social and mobile apps comprise a profitable multi-billion dollar industry, characterized by vibrant investment activity and newly emerging opportunities on mobile platforms.

Inside Social Apps is Inside Network’s content-focused conference series that investigates the latest trends and challenges for social and mobile applications and the companies that bring them to market.

Past Inside Social Apps events have seen sold out before conference day, so we strongly encourage you to register early.

Registration

Pre-registration passes are $599 until February 7, and will be $799 at the door. If you’re doing business in social and mobile apps, we strongly encourage you to register now.

From all of us at Inside Network, we look forward to seeing you on February 8 and 9 in San Francisco!

The Discover New Games module highlights games a user’s friend is playing or that are otherwise popular. This time around it includes a larger game thumbnail instead of their friends’ profile pictures as we saw in March 2011. The module still includes the prominent “Play Now” call to action.

This is an additional way the social network is trying to please game developers and help them gain users after a period in 2010 when they cut off several viral channels. In a developer blog post on Monday, Facebook announced a few new ways it is promoting games on the platform, including a games-only activity feed and aggregate News Feed stories.

Although we’ve seen the company recently identifying games by genre to encourage users to click over to them, it has not done so in the latest version of the Discover New Games module.

More than 425 million users accessed Facebook from mobile devices in December 2011 — up 21 percent since September 2011, and 70 percent since March 2011. In its filing for an initial public offering, the company acknowledged business will suffer if it cannot monetize this space. The global mobile advertising market was $1.5 billion in 2010 and is expected to grow to $17.6 billion in 2015, according to the filing.

Here we break down the social network’s options for mobile advertising.

Sponsored Stories – Most Likely
Sponsored Stories promote users’ interactions with pages, whether it’s liking a page, liking a particular post, checking into a place or using an app. This is the most probable way Facebook will bring advertising to the mobile experience, and the company even mentioned it in its filing for an initial public offering. Because Sponsored Stories require a person’s friend to validate a piece of content by interacting with it in some way before it is shown as an ad, Facebook is not giving companies a direct ticket into the News Feed. The social network has already added Sponsored Stories to Ticker and is in the early stages of testing them in News Feed. The lack of negative feedback from users could lead Facebook to bring Sponsored Stories to mobile without backlash sometime this year. We detailed what mobile Sponsored Stories might mean for advertisers here.

Mobile Ad Network – Likely
Facebook could eventually develop something similar to Google AdSense and AdMob, which allows websites and mobile apps to display ads that are targeted based on information Google has collected. This would be the most ambitious approach both technically and in terms of how it could expand Facebook’s business. This could be years away, but seems like an obvious direction for the company to achieve its full revenue potential.

Page Post Ads - Less Likely
Currently page owners can use Marketplace to promote their posts as an ad unit on the right hand side of the site. Facebook could introduce sponsored page posts into the mobile News Feed, but it might not want to allow companies to pay their way directly into people’s streams. Twitter does this, however, and it does not seem to have a significant negative effect.

Check-in Deals – Possible But Not Likely
Since being released in November 2010, check-in deals have been a free, self-serve option for businesses to offer deals to customers who indicate to their friends that they visited a place. While it is possible for Facebook to charge to feature deals, it is unlikely the company would implement a fee for something that was formerly free. Check-in deals have not been a runaway success, so it would be difficult to convince businesses to pay for something they didn’t take advantage of at no cost.

Location-Based Push Advertising – Unlikely 
Advertisers would be more interested in a location-based solution that pushed messages out to users, particularly since Facebook’s demographic and interest data would provide a new layer of targeting beyond location. Location-based push advertising is typically opt-in, and it would be very controversial for Facebook not to do the same. Perhaps by liking a page and opting in to location-based push notifications, users could receive messages and deals on their phones based on where they were. Users, however, might be wary of letting Facebook track their location at all times.

Mobile Banner Ads – Very Unlikely
Facebook has never given ads much real estate on the site. Even now with up to seven ads on the right hand side of the page, sponsored content gets a small percentage of screen space. We do not envision Facebook giving up room to banner-style ads in its mobile experience. If the company did, these ads would likely have a strict format with text and perhaps a small thumbnail, as Facebook requires for its online display ads.

Interstitial Ads - Very Unlikely
Interstitial ads pop up between actions and typically require users to wait a certain amount of time before moving onto what they had been doing within an app. While popular in many free apps, it would be highly out of character for Facebook to compromise user experience in this way. This is by far the most unlikely, if not unimaginable, option for Facebook to employ.

The default image is a collage of the group members’ profile photos, which link to individual profiles. The image is slightly transparent, but colors are restored when a user hovers over it. We’ve heard that any member has the option to change the cover photo, though we haven’t been able to test this ourselves. It is surprising that non-admins would be able to change the image, but there may be a setting that allows or disallows this.

The group’s Wall has not been changed to the Timeline format. This is likely because the order of posts changes based on activity. When a member comments on an old post, for example, that post is moved to the top of the page.

This is the first instance of Timeline-like features being added to another area of Facebook. Many page owners wonder when their business or fan pages will get the Timeline treatment. We previously assumed pages would get similar two-column reverse chronological presentation, but the minor change to groups suggests that pages might not get a complete overhaul either.

Facebook has not provided details how or a date for when pages will be redesigned. “We hope to make Pages more consistent with Timeline in the future, but we have nothing further to share at this time,” a Facebook spokesperson says.

Thanks to Denis Baranov for the tip and screenshots.

Facebook had $1 billion in net income on $3.71 billion in 2011, according to its filing to raise $5 billion in an initial public offering. The company’s revenues grew 87 percent year-over-year from the 2010, which in turn more than doubled from the year before.

Payments and fees revenue made up $557 million or about 15 percent of revenues for all of 2011, showing that the company is still heavily dependent on display advertising. Ads made up $3.154 billion in revenue. Just to note, Facebook has $3.91 billion in cash and marketable securities.

If you look specifically at the fourth quarter of last year, revenue grew 55 percent over the same time a year earlier. That’s mostly because of advertising revenue, which climbed 44 percent. Last quarter, Facebook saw the number of ads it served rise 16 percent while the average price per ad also jumped 24 percent. The growth in overall ad inventory has to do with more usage, as Facebook grew to 845 million monthly active users. At the same time, the company also tweaked the prominence of ads on pages and increased the reserve price for ads.

The other key revenue stream to point out is fees or payments, which are mostly from social games that use the company’s virtual currency Credits. Facebook made Credits mandatory for canvas games in July of last year, and that helped payments and fees revenue grow to make up 17 percent of the company’s revenue in the most recent quarter. That’s up from 10 percent share a year ago. So the company is making progress in diversifying from pure display advertising revenue.

The question now is whether Facebook can duplicate its success in payments in verticals outside of gaming. At a market capitalization of $7.41 billion, Zynga is the biggest company to date that the Facebook platform has spawned. But other categories of apps still have far to go. Facebook has made a concerted effort this year to diversify its platform by supporting businesses like Spotify and media properties like The Washington Post, but media and music have been historically difficult to monetize online.

Facebook even acknowledges its dependence on the social gaming ecosystem in the risks sections saying that Zynga accounts for 12 percent of the company’s revenues. That includes both payments revenue and advertising that is displayed alongside Zynga games.

“If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected,” the filing says.

Mobile is another potential growth area. Right now, increased mobile usage actually undermines Facebook’s financial performance because the company has yet to display ads in any of its smartphone or tablet apps. On top of that, Facebook does not have its own mobile operating system like Apple or Google, which makes it difficult for the company to earn a 30 percent cut of payments revenue through mobile apps. But Facebook says that showing sponsored stories in the news feed is one way it plans to monetize its mobile presence.

Overall, Facebook says its market opportunity is in display and performance advertising, where marketers can target users either on demographics like age and gender or their likes and preferences. Facebook also says it might expand its Credits virtual currency to other app categories. But it leaves out what we think are interesting revenue opportunities: an ad network that extends well beyond Facebook.com and search advertising from a search engine that marries Facebook’s open graph data and a thorough index of the web.

Facebook also says it is geographically diversifying revenue. The U.S. made up 56 percent of revenues last year, down from 62 percent in 2010 and 67 percent in 2009. This is mostly because Facebook is now growing faster in other countries than in the U.S. plus the fact that it has added international sales offices and more payment methods. The most lucrative markets outside the U.S. are unsurprisingly from Europe and English-speaking countries like Canada and Australia. That said, Facebook is seeing some of its fastest growth from Brazil and India so we might see some even further broadening over the next few years. India actually recently took Indonesia’s crown as Facebook’s second largest market during the past month.

This story is developing and we’ll report more as we go through the financials. Facebook filed to raise $5 billion in a much anticipated initial public offering today. We have a breakdown of the investor table here. We also have a breakdown of how much Facebook has paid for all of the companies it has acquired over the past few years.

Here’s more details on how much Facebook has paid for companies in stock. This excludes cash-based compensation and other retention bonuses. We don’t know which companies Facebook is actually referring to in its filing because the company doesn’t explicitly say, but we put our best guesses here based on when deal announcements were made.

The numbers seem mostly consistent with what we’ve heard — that the amount of equity Facebook offers for talent has gotten smaller over time as secondary markets have more aggressively priced the value of Facebook’s shares. Facebook now tends to offer Class A shares instead of Class B shares. (Class A shares have one-tenth the voting power of Class B shares.)

Companies that are closely connected to Facebook’s founders or early employees, like Drop.io, also seem to get far better terms than other startups do. That said, Facebook has told us that it is starting to look at bigger deals and raising $5 billion in capital might be just the kick that the company needs to go for more than talent.

In Facebook’s most recent internal valuation on December 31, the value of a Class B share was found to be $29.73. A single Class B share can be converted into a Class A share. We calculated the current value of each deal based on the number of shares multiplied by the December 31 valuation.

• “On August 14, 2009, we issued 11,052,955 shares of our Class B common stock as consideration to ten individuals and one entity in connection with our acquisition of all the outstanding shares of a company.” This might be FriendFeed, which Facebook reportedly acquired for $50 million. Co-founder Bret Taylor later went on to be chief technology officer. Current value: $328,604,352
• “On May 18, 2010, we issued 3,625,000 shares of our Class B common stock as consideration to a company in connection with our purchase of patents from the company.” This might be the deal to buy the Friendster patents. Current value: $107,771,250
• “On June 16, 2010, we issued 238,000 shares of our Class B common stock as consideration to a company in connection with our purchase of certain assets from the company.” Unclear. It could be Nextstop, whose co-founder Carl Sjogreen is now a director of product management at Facebook. Current value: $7,075,740
• “On July 7, 2010, we issued 590,900 shares of our Class B common stock as consideration to a company in connection with our purchase of certain assets from the company.” Again. Unclear. Could be Nextstop or Hot Potato. Or the higher price could be for Chai Labs, whose co-founder Gokul Rajaram is now leading the charge on advertising. He was nicknamed the Godfather of Adsense. Current value: $17,567,457
• “On August 18, 2010, we issued 289,350 shares of our Class B common stock as consideration to two individuals in connection with our acquisition of all the outstanding shares of a company.” Could be Hot Potato, which was founded by Justin Shaffer, who later worked on Groups and Places. Current value: $8,602,375
• “On October 29, 2010, we issued 1,309,284 shares of our Class B common stock as consideration to a company in connection with our purchase of certain assets from the company.” Probably Drop.io, which saw its chief executive and longtime friend of Mark Zuckerberg, Sam Lessin start at Facebook. He headed up the Timeline overhaul. Current value: $38,925,013
• “On November 12, 2010, we issued 350,000 shares of our Class B common stock as consideration to a company in connection with our purchase of certain assets from the company.” This might be for Walletin, whose co-founder Cory Ondrejka was a chief technology officer at Linden Lab. He’s now leading the charge on building a robust HTML5 platform that will lead Facebook beyond the app era largely ruled by Apple. Current value: $10,405,500
• “On December 15, 2010, we issued 1,030,000 shares of our Class B common stock as consideration to two individuals in connection with our acquisition of all the outstanding shares of a company.” This could be for Rel8tion, which was a mobile advertising startup. Current value: $30,621,900
• “On February 28, 2011, we issued 681,357 shares of our Class A common stock as consideration to a company in connection with our purchase of certain assets from the company.” This might be for Beluga, the group messaging startup founded by former Google product managers that is now powering Facebook’s standalone app Messenger. Current value: $20,256,744
• “On April 5, 2011, we issued 1,659,430 shares of our Class A common stock as consideration to 13 individuals and six entities in connection with our acquisition of all the outstanding shares of a company.” This could have also been for Snaptu, given the high individual count on this deal. Snaptu was said to be one of Facebook’s more expensive acquisitions. It gave a boost to the company’s ability to build apps for the long-tail of feature phones, which Facebook is relying on to fuel its next era of growth in emerging markets. Current value: $49,334,854
• “On August 1, 2011, we issued 75,426 shares of our Class A common stock as consideration to three individuals in connection with our acquisition of all the outstanding shares of a company.” This could be for Push Pop Press, which had some talented designers from Apple. Or it could be Friend.ly, whose team is now working on growth. Or it could have been for Daytum, the company co-founded by Nicholas Feltron, who famously turned his life into a rich infographic. He played a very prominent role at the last f8 when the company rolled out Timeline. Current value: $2,242,414
• “On October 7, 2011, we issued 360,883 shares of our Class A common stock as consideration to 21 individuals and eight entities in connection with our acquisition of all the outstanding shares of a company.” This could be the Gowalla acquisition. The number of participants here seems to be a proxy for the many investors that were in on the location-sharing mobile app. Current value: $10,729,051
• “On October 10, 2011, we issued 183,750 shares of our Class B common stock as consideration to a company for a license of certain technology from the company.” It could be Strobe, which makes a platform supporting mobile web apps that can work on multiple devices and operating systems like iOS and Android. Current value: $5,462,887
• “On January 3, 2012, we issued 90,000 shares of our Class A common stock as consideration to four individuals and 13 entities in connection with our purchase of certain assets from a company.” Unknown. Current value: $2,675,700
• “On February 1, 2012, we issued 212,250 shares of our Class A common stock as partial consideration to two entities in connection with our purchase of certain assets from a company.” Unknown. Current value: $6,310,193

Apple said it paid $700 million to iOS developers in the holiday quarter during its earnings call last week. While we can’t be exactly sure of how much it paid in all of 2011, the company did say last week that it had paid out $4 billion over the lifetime of the app store, up from the $2 billion cumulative figure it shared less than a year earlier during March’s iPad 2 launch. While the dates of these milestones are probably slightly off, it suggests that Apple paid more than $2 billion to developers last year.

The other thing to consider is that Facebook only made Credits mandatory for canvas games in July, so Facebook’s numbers for the first half of the year don’t reflect the full earnings power of the platform. Since Facebook earned $188 million in payments revenue last quarter, that implies that it paid around $438 million out to developers in the holiday quarter based on its 30 percent revenue share. That’s about 62 percent of what Apple paid developers in the fourth quarter.

What this all means is that Apple’s iOS platform outperforms Facebook on a per-user basis for developers. Consider that Facebook has 845 million monthly active users while Apple has sold 315 million iOS devices (which doesn’t account for users who have more than one iOS device or who upgraded to newer iPhone or iPads). Since the “barrier to entry” to iOS is buying an actual device while joining Facebook is free, we’d naturally expect Apple’s platform to attract a more lucrative demographic.

We know that we’re comparing apples to oranges here (literally). But for developers deciding which platforms to build upon, these trade-offs are very real. Developing an app for Facebook might mean spending fewer resources on smartphone apps. So comparing potential payouts helps developers understand where to wisely invest their time and talent.

The Securities and Exchange Commission requires a company to describe all the risk factors associated with investing in its business before it goes public. One of these issues for Facebook is “significant competition” from companies including Google, Microsoft and Twitter. The social network notes that Google or others could use dominant positions in one market to gain an advantage in one of Facebook’s areas of operation.

With 85 percent of its revenue coming from advertising, Facebook competes with both traditional and online media businesses. Advertisers tend to have fixed budgets, and the social network will have to continue to make a case for its ads and Sponsored Stories. We have seen businesses spent significant amounts to generate Likes for their pages, but it is unclear how much advertisers will devote to Facebook once they have amassed an audience. Facebook did not address this in the document today, but it is a trend to watch.

Also critical to maintaining and expanding its position as a display ad platform is user growth and engagement. If users spend less time on Facebook in favor of other social networks or offerings, the company will be negatively affected. It mentioned Google+, along with regional networks Cyworld (Korea), Mixi (Japan), Orkut (Brazil, India) and vKontakte in Russia. The company also recognizes that other Internet or mobile companies could offer products and services that compete with individual Facebook features. It didn’t name names, but these can include everything from Apple’s iMessenger to startups like Instagram.

Facebook acknowledged that Google in particular could gain a competitive advantage by integrating its social networking platform into its existing search product, web browser or mobile operating system. On these fronts, Facebook might have to spend significantly to acquire or partner with other companies. This will be difficult, though, as many companies in the position to help Facebook fight Google are threatened by other aspects of Facebook’s business.

Aside from in-game transactions conducted with Facebook Credits — of which Facebook gets up to a 30 percent cut as part of a special agreement with the social game giant — and ads bought by Zynga, the CityVille developer also generates a large chunk of pages where Facebook displays ads. While Zynga is locked into Facebook Credits until May 2015, Facebook points out that any trouble in paradise with its biggest game developer could harm its bottom line.