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It all began in a Harvard dorm room in 2004. Mark Zuckerberg and fellow students Dustin Moskovitz, Chris Hughes and Eduardo Saverin start what then was known as Thefacebook. The social-networking site spreads to other Ivy League universities the next month.

Zuckerberg and his partners move Facebook’s base of operations to Palo Alto, California, where they meet former Napster co-founder Sean Parker. The savvy, hard-partying Parker becomes an early partner (and later president) of Facebook and helps attract investors to the fledgling network.

The company drops the “the” from its name after Parker pays $200,000 for Internet address Facebook.com. Facebook has grown to include students from more than 1,000 colleges and universities and is opening to high schools.

Facebook opens to anyone older than 13 with a valid e-mail address. That same month, the site introduces its News Feed, which highlights updates, photos, etc., from friends within your network. Users revolt, starting petitions to change Facebook back, although — as with most Facebook changes — they eventually grow to embrace the feature.

Microsoft purchases a 1.6% share of Facebook for $240 million, valuing the company at about $15 billion. The deal comes after other Internet giants, including Google and Yahoo, failed to buy all or part of Facebook. By now, more than half the site’s users live outside the United States.

Facebook hits 100 million users. The same year, it surpasses MySpace to become the world’s most popular social network.

One month after acquiring rival network FriendFeed, Zuckerberg announces Facebook has begun turning a profit for the first time.

Facebook introduces the Like button, which is quickly adopted by the thousands of news and retail sites that integrate with the social network. Some users complain there should be a “Dislike” button, too. Despite growing user concerns over privacy, Facebook hits half a billion users three months later.

“The Social Network,” David Fincher’s movie about the founding of Facebook, hits theaters, making Mark Zuckerberg a household name. The film is a critical and commercial hit, earning $225 million worldwide and winning three Oscars. Zuckerberg calls the movie a largely inaccurate dramatization but says it gets his casual wardrobe right.

Facebook rolls out Timeline, a redesign to the site’s user profile pages, amid ever-present complaints about the changes. But Zuckerberg’s not worried — by this time the site has 800 million active users, half of whom log in every day.

Facebook buys the photo-sharing app Instagram for $1 billion.

Facebook prepares to become a publicly traded company, raising billions of dollars from investors. The company says it expects to price its shares at $34 to $38 each, potentially valuing Facebook at more than $100 billion. Based on his stake, Zuckerberg himself will likely be worth more than $15 billion.

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As Facebook hits Wall Street this week with a public stock offering that could value the company at more than $100 billion, investors appear dazzled by the company’s uncanny ability to put the right advertisements in front of its roughly 900 million users.

CNNMoney: You’re only worth $1.21 (per quarter) to Facebook

How targeted ads work

For example, say a woman who has listed her hometown as New Orleans changes her relationship status from “single” to “engaged.” Facebook suddenly has a hot prospect to offer up to a bridal retailer or caterer in the Big Easy. To dig deeper, if she lists her MBA from Loyola and has “liked” pages for, say, Saks Fifth Avenue and Mercedes Benz, you get a fuller picture of how much she might be willing to spend.

“With a reported 901 million members, Facebook is a great test bed for understanding consumers and their purchasing interests,” said Jan Rezab, CEO of Socialbakers, a social-media analytics firm. “Before Facebook, marketers relied on online surveys or focus groups to determine customer interest. Now, they can reach the customer directly on their Facebook page.”

Facebook doesn’t publicly give away the details of how its system works. But as it has begun wooing potential investors, the company has been more willing to talk about its advertising approach.

Dan Rose, Facebook vice president of partnerships and platform marketing, discussed the appeal of its social ads at an event recently in Austin, Texas.

The average Facebook user has 245 friends. When that user likes a product or company’s ad, it serves as an endorsement to those friends from someone they know and, presumably, trust.

“When I raise my hand and say, I like Einstein (Bros.) bagels, and then one of my friends sees that ad, they’re going to see my name in that ad,” Rose said. Through Facebook’s partnership with the media-research firm Nielsen, “We found that when my friend’s name is in an ad, I’m over 60% more likely to remember the ad, and I’m over four times more likely to purchase the product,” he said.

“This is word of mouth. This is word of mouth at scale. This is what, as marketers, we’ve always been trying to bottle up and find a way to take advantage of. And the social Web is finally allowing us to do that.”

Are you living without Facebook?

User data and privacy

Not that the model hasn’t made some folks antsy. Time and again, tweaks to Facebook’s privacy settings have prompted user backlash, occasionally to the point that the site has reversed or modified those changes.

According to a recent Associated Press/CNBC poll, three out of five users say they have little or no faith that the company will protect their personal information. Half of those who use the site daily say they wouldn’t make a purchase through it and 57% of all users claimed they never click on ads or other sponsored content.

On a page about its advertising approach, Facebook makes it clear that it never sells user data, saying that “if you don’t feel like you’re in control of who sees what you share, you probably won’t use Facebook as much, and you’ll share less with your friends.”

Facebook officials also emphasize that while advertisers can market to specific users, they don’t receive the data that was used to make the selection and never know the actual names of the people they’ve reached. Facebook’s policy is to not actually look at user data except to check whether someone is violating the site’s terms of service.

Doubling down on user satisfaction is the most important thing Facebook can do, Bhatia said, even if it occasionally means passing up chances to max out the amount it could earn on the data users provide.

“For them, the user experience does come first and I think that’s the right strategy for the long term,” he said. “Along the way, putting the user experience first makes a lot of longer-term business sense.”

As an analyst, Bhatia is bullish on Facebook, leading the pack with an early “buy” rating at the beginning of this month. With Facebook reportedly looking at expanding into China and at monetizing its mobile app (an untapped resource even though the majority of time on the site is now spent on mobile devices) he expects its data-driven model to keep making money well into the future.

“Facebook is going to become just like search, [which] disrupted online advertising,” he said. “What Google did eight years ago — that is what Facebook is doing now. The reach is unparalleled and they’re just scratching the surface.”