Facebook’s initial public offering will begin a new chapter in one of the great business narratives of our time. If all goes well on May 17 or May 18, 2012, the social networking giant will go public in an eagerly awaited I.P.O. that could value it as high as $104 billion.  Including roughly 63 million shares earmarked for overallotment, which allows underwriters to buy additional shares to meet excess demand, the offering would raise more than $18 billion. Facebook itself is offering 180 million shares, while existing stockholders will offer 241 million shares.  Facebook is the world’s largest social network, with 901 million monthly users worldwide, and roughly 200 million in the United States, or two-thirds of the population.  Created in 2004 by Mark Zuckerberg in his dorm room at Harvard, Facebook grew from being a quirky site for college students into a popular platform that is used to sell cars and movies, win over voters in presidential elections and organize protest movements. It offers advertisers a global platform, with the exception of China, where Facebook does not operate.  Facebook’s biggest stumbling block has been its privacy practices. The company has been under intense scrutiny from consumers, courts and regulators worldwide over how it handles the data it collects from its 901 million users. As the company prepares to go public, it is under pressure to find new ways to turn that data into profit.  With its I.P.O. imminent, the other question on many minds is this: Is Mr. Zuckerberg ready? Is he — there’s no sugarcoating it — grown up enough to lead a public corporation that is more valuable than McDonald’s or Goldman Sachs? The answer to those questions will determine the future of Facebook, as well as the fortunes of its new, public shareholders. For the first time, Mr. Zuckerberg will be judged, in real time, by a relentless stock market. And that market, as chief executives everywhere know, is merciless  Using Its Data Trove to Enrich Hungry Shareholders  As Facebook turns to Wall Street in the biggest public offering by an Internet company, it faces a new, unenviable test: how to keep growing and enriching its hungry new shareholders.  The answer lies in what Facebook will be able to do — and how quickly — with its crown jewel: its status as an online directory for a good chunk of the human race, with the names, photos, tastes and desires of nearly a billion people.  In the eight years since it sprang out of a Harvard dorm room, Facebook has signed up users at breakneck speed, kept them glued to the site for longer stretches of time and turned a profit by using their personal information to customize the ads they see.  Whether it can spin that data into enough gold to justify a valuation of as much as $104 billion remains unclear.  Analysts, investors and company executives can rattle off any number of challenges facing the company. As it works to better match ads to people, it has to avoid violating its users’ perceived sense of privacy or inviting regulatory scrutiny. It needs to find other ways to generate revenue, like allowing people to buy more goods and services with Facebook Credits, a kind of virtual currency. Most urgently it has to make money on mobile devices, the window to Facebook for more and more people.  All the while, its ability to innovate with new features and approaches — to “break things,” in the words of Mr. Zuckerberg — may be markedly constrained once it has investors to answer to.  The most pressing issue for Facebook executives may be the mobile challenge. Google and Apple, two of Facebook’s biggest rivals, control the basic software on most smartphones, which could make it harder for the company to make inroads there. Facebook’s response to this challenge so far has been to aggressively acquire companies focused on mobile, including Instagram, for which it paid $1 billion in April.  What Facebook already has — more than any other digital company — is a spectacularly rich vault of information about its users, who cannot seem to stay away from the site. Americans, on average, now spend 20 percent of their online time on Facebook alone. Some 300 million photos are uploaded to the site daily.  How Facebook exploits its users’ information — and how those users react — is the next reckoning.  Facebook’s Purchases May Hint at Its Future  Because Facebook tends to be tight-lipped about its plans, the company’s string of recent acquisitions reveals a lot about how Mr. Zuckerberg is charting a course for its future — and potentially sheds some light on what, and who, may be next on the company’s shopping list.  The company’s billion-dollar purchase of Instagram in April 2012 made a lot of noise, so much noise that few people noticed when a few days later it snapped up two more start-ups Tagtile and Glancee.  Facebook buys small companies on a regular basis — almost two dozen over the last two years — to beef up its team of talented engineers, add to the site’s offerings and sharpen competition with rivals.  Facebook’s interest in a particular area can hint at a shift in strategy or a new feature of the service. For example, the company’s recent purchase of Tagtile, a customer loyalty service, suggests that it is gearing up for a move into coupon deals, an area in which Google, Amazon, eBay and Foursquare have begun to dabble.  The theory has proved correct in the past. For example, in early 2011, Facebook went on a design binge, collecting Snaptu, Sofa, Push Pop Press and Strobe, all companies that produce information graphics and layouts.  One of Facebook’s big challenges will be to add users, especially in the United States, where growth has slowed. A clue as to how the company could expand a Facebook user’s social network might be found in Glancee, a social discovery app for smartphones that the company bought in early May.  Ray Valdes, an analyst at Gartner, said that it would not be unusual for Facebook to be looking at Pinterest, probably the most talked-about company in Silicon Valley. It is a site where people “pin” pictures that interest them and share them with friends. Pinterest’s shining feature — getting people to cluster in groups around mutual interests, like tattoo art or Danish design — has always been a weak spot for Facebook.  Mr. Valdes says he thinks Facebook will continue scooping up mobile services and software tools, including, potentially, companies like Urban Airship, which delivers push notifications to mobile devices, and Parse, which provides data storage for mobile devices.  Investors Eagerly Awaiting the Offering  Investors have been eagerly awaiting the Facebook offering, lured by the prospect of strong growth: in the first quarter, Facebook’s daily active users, a measure of engagement, increased by 41 percent, to 526 million.  Still, Facebook is experiencing the growing pains typical of a technology start-up. While revenue continues to rise, profit sputtered in the first three months of the year, falling 12 percent, to $205 million, as expenses jumped significantly.  For Facebook’s insiders, the I.P.O. represents an opportunity to take some money off the table and to take care of hefty tax charges. Mr. Zuckerberg is planning to sell 30.2 million shares, worth $951 million, based on the mid-point of the range. Mr. Zuckerberg, who will retain voting control of 58.8 percent of the company after the I.P.O., plans to use the proceeds from the sale to cover tax obligations.  Other big sellers include Accel, one of the earliest venture backers of the social network, which is selling about 19 percent of its stake, or 38.2 million shares. Russian billionaire Yuri Milner’s DST Global is selling about 20 percent of its holdings, or 26.3 million shares.  And Goldman Sachs, which organized a large financing round for Facebook in 2011, is also unloading 20 percent of its stake, or 13.2 million shares.  Seeking to Offer More Disclosure to Users  Facebook, unlike any other site, has come to define the social era of the Web. More than a portal, its value lies in its dynamic network of social connections and the massive amount of information shared by its users. Facebook, in many ways, is a data processor, archiving and analyzing every shred of information, from our interests, to our locations, to every article and link that we “like.” The collection of data is a potential goldmine for advertisers.  On the other hand, all that information raises questions about Facebook’s privacy practices. Over the years it has faced intense scrutiny from privacy advocates and regulators worldwide over how it handles the data it collects from its 845 million users. As it prepares to go public, it has been seeking to offer more disclosure to users. In April 2012, it announced it was expanding its downloadable archive feature, called Download Your Information, to provide greater transparency on the types of data on individuals that the company stores.  Facebook has become something like an economy onto itself, fostering businesses like the music service Spotify. The game-maker Zynga, which went public late in 2011, generates more than 90 percent of its sales from Facebook.  Urging Members to Add Organ Donor Status  On May 1, the company announced a plan to encourage everyone on Facebook to start advertising their donor status on their pages, along with their birth dates and schools — a move that it hopes will create peer pressure to nudge more people to add their names to the rolls of registered organ donors.  Nearly 7,000 people in the United States die each year while waiting for an organ transplant. It is a number that Facebook hopes to lower with its vast network of 161 million members in this country.  It is a rare foray by Facebook into social engineering from social networking, and one with a potentially profound effect, according to experts in the field of organ donation.  They say people declaring on Facebook that they are organ donors could spur others to sign up at motor vehicle departments or online registries. But these experts say Facebook could create an informal alternative to such registries that could, even though it carries less legal weight, lead to more organ donations.  Buying Instagram for $1 Billion  In early April 2012, Facebook said it had agreed to buy Instagram, the popular mobile-centric photo-sharing service, for $1 billion in cash and stock, giving it a stronger foothold in the market for mobile apps. It would be Facebook’s largest acquisition to date by far.  Instagram is a social network built around cellphone photos. It lets people add quirky filters and effects to their snapshots and share them with friends, who can “like” and comment on them. The service has been something of a rising star in the start-up world. Barely two years old, it has attracted close to 30 million users, even though it worked only on iPhones until early April, when it released an Android version of its app.  During its talks with Instagram, Facebook was forced to show its hand regarding its valuation. As part of the negotiations, the two companies discussed a potential value of about $104 billion for Facebook, according to people briefed on the discussions. The value is roughly in line with where Facebook has at times traded on the secondary market: shares of the privately held company have been selling for as high as $40.  Despite Instagram’s tremendous traction — more than 5 million photos are uploaded each day — the company, which is based in San Francisco, is still tiny. For much of its existence it has had fewer than seven employees, and it only recently topped 10. By way of comparison, Foursquare, another cellphone-focused social network, has nearly 100 employees serving 15 million users.  Some Instagram fans quickly expressed concern about the fate of the service, since it is not uncommon for Facebook to buy a small start-up and then shut down its service, as was the case with FriendFeed, Hot Potato and most recently Gowalla, a location-based app.  But Mr. Zuckerberg said that Facebook planned to keep Instagram up and running as a separate service for the time being.  For an in-depth look at Instagram and its business model, click here.  Facebook’s Biggest Stumbling Block: Privacy Practices  The company has repeatedly alienated users over privacy — as in the case of the 2007 controversy over Beacon, a tool that automatically posted on Facebook what its users did or bought on other sites. It has also faced lawsuits over the use of its members’ “like” endorsements in ads and drawn scrutiny for a facial recognition feature.  The scrutiny is at its most intense in Europe, where Facebook’s data collection practices have tested the boundaries of stringent privacy laws.  In December 2011, the Irish Data Protection Commission reached an agreement with Facebook, which runs its international businesses from offices in Dublin, to provide more information to its users and amend its data protection practices. A proposed Europe-wide law goes much further by requiring Facebook, along with every other online business, to expunge every bit of personal data at a consumer’s request.  In April 2012, seeking to address criticism of its privacy practices as it prepared to go public in May, the company announced it was expanding its downloadable archive feature, called Download Your Information, to provide greater transparency on the types of data on individuals that the company stores. The new version, Facebook said, includes previous user names, friend requests and the Internet protocol addresses of the computers that users have logged in from. More categories of information will be made available in the future, Facebook said.  In the United States, Facebook faces government audits for the next 20 years about how it collects and shares data, along with an assortment of lawsuits that accuse the company of tracking users across the Web. In November 2011, the company announced a settlement agreement with the Federal Trade Commission, which accused Facebook of having deceived its customers about privacy settings. After the F.T.C. order, Mark Zuckerberg conceded in a blog post that the company had made “a bunch of mistakes,” but he said it had already fixed several of the issues cited by the commission.  The company’s flubs in this area reveal a fundamental tension in the way sophisticated ad-supported sites work. Consumers’ time and information are effectively the price they pay for free Web services. Facebook allows its users to keep up with far-flung friends and family, for instance, in exchange for that information. Google allows anyone to search for anything, so long as the company can serve up ads based on those searches.  In August 2011, Facebook made changes that it said were aimed at helping users get a grip on what they shared. When users added pictures, comments or other content to their profile pages, they could specify who could see it: all of their Facebook friends, a specific group of friends or everyone who has access to the Internet. Icons indicating this replaced the former, more complicated padlock menu. Similar controls were applied to information on users’ profile pages.  Facebook’s hundreds of millions of users could soon be faced with a lot more advertising — in their newsfeed, on their mobile devices and even when they log off.  In early March 2012, the company announced a new suite of advertising products intended to insert more ads into Facebook’s traditionally clean interface and to take more advantage of mobile ads, where the company has struggled. The announcement was made at the company’s first marketing conference, held at the American Museum of Natural History in Manhattan.  For users, the announcement could mean many more ads on Facebook. For advertisers, the effort offers a chance to reach more users in more places.  Despite aggressively courting Madison Avenue for the last few years, Facebook has been an anomaly in the world of digital advertising. The ad units offered less creative options for advertisers who want to, say, take over the site’s home page or add moving text to an ad. Rather, the value in Facebook’s ads was in their data and personalization.  The potential for more ad dollars was reflected in the company’s first filing for a public offering in February. At the time, analysts said the company was expected to be valued at $75 billion to $100 billion. But according to the filing, Facebook made only $3.7 billion in revenue last year, the bulk of that from advertising.  Until now, advertisers were largely limited to a variety of ad spaces that were positioned on the right side of the Facebook home page, in addition to creating their own Facebook pages. The company said a new set of “premium ads” will run at different points in the site, with a special emphasis on ads running throughout a user’s mobile feed.  In December 2011, Facebook rolled out a revamped profile design called Timeline, which makes a user’s entire history of photos, links and other things shared on the site much more accessible with a single click. That could be when many of Facebook’s 800 million members realized just how many digital breadcrumbs they had been leaving on the site — and on the Web in general.  The old Facebook profile page showed the most recent items a user posted, along with things like photos of them posted by others. But Timeline creates a scrapbook-like montage, assembling photos, links and updates for each month and year since they signed up for Facebook.  For better or worse, the new format is likely to bring back old memories. Going forward, it could also make it harder to shed past identities — something that people growing up with Facebook might struggle with as they transition from high school to college, and from there to the working world.  Analysts said Timeline was a significant evolutionary shift for Facebook. For starters, linking Facebook more closely to memories could make it harder for people to abandon the service for rivals.  Facebook has increasingly been seen as the only company to pose a threat to Google, which has used its dominant position in search and online ad placement to expand into most corners of the Web.  But as a closed network, Facebook with its oceans of content is out of the reach of Google’s search engines, and some analysts think the personal recommendations made through Facebook networks could become a rival to the algorithm-based results pioneered by Google.  In one sign of how much Facebook regards Google as a competitor, The Daily Beast reported that in May 2011 Facebook had hired a public relations firm to persuade reporters and privacy advocates to write stories critical of a new Google service, Social Circles.  With the potential for legal and regulatory clashes growing along with its influence, Facebook has layered its executive, legal, policy and communications ranks with high-powered politicos from both parties, beefing up its firepower for future battles in Washington and beyond.  The company’s rise has been marked by controversy. Three other Harvard students maintain that they came up with the original idea and that Mr. Zuckerberg, whom they had hired to write code for the site, stole the idea to create Facebook.  The company has denied the allegations. Another Harvard classmate, Aaron Greenspan, claims that he created the underlying architecture for both companies, but has declined to enter in a legal battle.  “The Social Network,” a movie released in 2010 about Facebook’s tumultuous origins, offered what A. O. Scott of The New York Times called “a creation story for the digital age and something of a morality tale, one driven by desire, marked by triumph, tainted by betrayal and inspired by the new gospel: the geek shall inherit the earth.”  Facebook has strenuously, and Mr. Zuckerberg more quietly, asserted that such portrayals of the company’s founding are fiction. And Mr. Zuckerberg disputed the characterization of him in the film, though in a New Yorker magazine profile, he acknowledged having indulged in a bit of sophomoric arrogance.
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