Social Media and Social Networking

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An Idea Costs Facebook $65m

Posted by Vaibhav Kalamdani on February 12, 2009

facebookA confidential information leak has spread like fire over the Internet. As per a law firm, Facebook creator Mark Zuckerberg paid a staggering $65 million to two ex-classmates from Harvard, who claimed that their idea to create a social networking site was stolen.

The two classmates, who own another online community ‘ConnectU’, alleged that Mark stole their idea of building a social network. The highly confidential deal, which was agreed upon only last year, was leaked recently including huge amount of money, both in forms of cash and stock.

The 150 million-plus-users social network wanted to keep the details hush-hush, and it took efforts to maintain the secrecy. It went to the extent of having reporters removed from the court where the talks were about to take place. However, Quinn Emanuel Urquhart Oliver & Hedges, the law firm that represented ConnectU, dispatched a newsletter to clients stating that Facebook paid $20 million and gave away more than 1.2 million shares of common stock worth $45 million. The firm later agreed that the details were revealed by mistake.

Actually, $65 million was not the amount claimed by ConnectU in its litigation. The amount was much more, $15 billion to be exact. This figure was based on Microsoft’s decision to pay $240 million to acquire 1.6% share of Facebook in 2007. However, Facebook’s lawyers argued against ConnectU’s claim saying that the amount should be worth far less than what Microsoft was ready to pay for initially. Facebook valued itself at $3.7 billion, which means ConnectU’s share settlement should be no more than $11 million.

Now the question arises that will this news hamper Facebook’s brand image? Not really, as Facebook has become a global community now. The idea has already sinked in with millions of users worldwide who want to enjoy quality service and connect with their friends. So, it doesn’t really matter much to the users.

As far as advertisers are concerned, again the impact shouldn’t be much as Facebook is renowned across the world now and users are not going to leave it just because the idea has been copied. What marketers need is a huge brand exposure, which they can get only if they get exposed to large number of people, which Facebook has.

Another factor people will look into is that Facebook managed to scale its popularity much higher than ConnectU, even when the owners of the two companies had the same idea in mind. This goes on to show that Facebook simply played the game smarter and better, the reason that has made it reach a position that ConnectU hasn’t been able to so far.

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