The Facebook Phenomenon

It all started when Mark Zuckerberg founded Facebook on February 4, 2004 with two of his roommates and another computer science comrade from Harvard College. Their vision was to create a networking site where they could remain in touch with friends. For this reason, at first this socialization network was restricted to Harvard College students but since September 2006 the network is open to users worldwide. This article takes a look at where Facebook has been, and where it is going.



As of 2007, Facebook CEO Mark Zuckerberg has become an instant billionaire; according to some sources he owns approximately 30% of the company and this equals more than $4 billion of total net worth. Forbes ranked him the youngest billionaire at 23 years old, and he is certainly one of the wealthiest 20-something of the world.

Moving the company headquarters to Silicon Valley and becoming a billionaire on paper, Mark is often compared with other Harvard college dropout entrepreneurs and innovators such as Bill Gates and Steve Jobs. The spirits of Silicon Valley have taken notice, and lately Mr. Zuckerberg has been offered a variety of deals.

In this article we’ll do our best to demystify the Facebook phenomenon. You can expect to read a detailed analysis on its growth which will be backed up with numbers and statistics. Ultimately we’re going to predict the future of Facebook based on the CEO’s latest actions and discuss offers, rejected deals, and ad campaigns. Moreover, I’ve devoted an entire section specifically to website promotion via Facebook.

Before we move on, please don’t skip the following disclaimer: I am not affiliated with Facebook or any company that appears in my article. Everything that I talk about is open to the public and therefore this article is a collection of facts, reports, news, and statistics to debunk the said phenomenon. I’ve also presented some rumors, noting them as such. 


Let’s Talk Business

Based on research done by comScore on February 2007, Facebook ranked as the sixth most trafficked website in the USA with more than 30 billion page views per month. It’s a no-brainer that this has increased over time, hence the popularity surge of the past few months. Another interesting fact is that over half of the users log in each day.

At the time of writing Facebook’s primary competitor still remains MySpace, which is the most popular social network with more than 200 million of users. Two years ago in 2005 News Corp. bought MySpace outright for $580 million. The race of social network acquisitions continued with Yahoo in 2006 offering $1 billion for Facebook. Would you believe that Zuckerberg rejected this deal?

Yeah, that’s right! He explained that he plans to hold off for another two years at least. It’s really amazing that Yahoo offered one billion dollars to purchase an online company that generated only $100 million revenue (estimated in 2006). And yet the young CEO rejected the offer. Now looking back it seems like his decision was an excellent one.

Facebook’s growth is still increasing exponentially. As of October 2007, Facebook can count 42 million active members, and is expected by the end of the year to pass the 60 million milestone. Through the years numerous negotiations and deals were rejected due to Zuckerberg’s plans to run the company independently.

The blossoming period for Facebook’s valuation started in September 2007. It was rumored that Microsoft might buy a stake. These rumors were proven right on October 24, 2007 when Microsoft bought a 1.6% share of the company for $246 million. Now if you do simple second grade mathematics, you realize that the total “worth” of the company equals nothing less than $15 billion! This is where I’ve derived the data at the beginning of this article stating that Mark’s net worth is more than $4 billion.


(Mark Zuckerberg, founder and CEO of Facebook.)


Why did Microsoft invest $246M in a three-year-old decent company that brings in a total of only $150 million annual revenue (estimated in 2007)? Why is Facebook worth $15 billion? Answering these questions is challenging but mostly it’s because the online social network promises more than profit. It’s an aggressive bet that assumes two things: the continued exponential growth of online advertising, and that Facebook will remain among the most popular social networking sites. It will require a high level of maintenance for Facebook not to lose their position.

Notwithstanding this challenge, let’s take a moment to analyze the growth of Facebook, according to the latest comScore statistics. Within the category of unique visitors the increase is 89% from May 2006 to May 2007. The statistics also shown an explosion in Europe; the number of total unique visitors rose 422% up to 10.2M over a year.

Furthermore, it’s rumored that Facebook earned another $500M from this frenzy funding spree on the same day the deal with Microsoft was accepted for 1.6% shares. The aforementioned $500M comes apparently from two NYC-based hedge funds; they add up to a total of $750M (~500+243). These were not confirmed at the time of writing, but to us the valuation of $15 billion matters the most.


Facebook’s Online Advertising System

In the previous chapter we’ve mentioned that Microsoft’s investment seems like it’s been done just to ensure the brokering of Microsoft ads and search engine on the site. Over the past few months Microsoft has lost numerous deals with various companies to Google. These include but are not limited to: Time Warner, DoubleClick, and Time Warner’s AOL unit.

In the field of online advertising and search engines Microsoft is facing challenges thanks to their primary competitor – Google. They can’t seem to keep up with the pace of online advertising market that’s currently dominated by Google. But Microsoft focused lately on designing a powerful technology to systematize their advertising market.

It’s been rumored that Google was negotiating to win an agreement with Facebook. Either way, the end result is clear and that is Microsoft investing $246 million, thereby ensuring their ad-brokering partnership with Facebook up to 2011. Keep in mind that this includes international versions of Facebook. As we’ve seen, Facebook has developed an advertising system of their own, and its likely effect on Microsoft’s ads is unknown. 

Anyway, it is somewhat hard to believe that the Google giant could lose a deal to Microsoft unless they didn’t want the agreement badly enough. Based on their latest acquisitions, deals and agreements, profits and growth, I think we all can agree that Google wasn’t longing to fund Facebook. I won’t reject the rumor; they may have indeed been there to negotiate, then ultimately abandoned the deal. Assuming they did, it probably would not have been because of finances; either it wasn’t worth that much for them or Facebook simply rejected their offer.

Right now there are the following advertising possibilities to market a specific product, brand or service on Facebook: mass banner ads, flyers targeting members of a particular university or community (a self-service solution), ads that feature groups and promotions, custom polls to get detailed results based on age, location, sex, school (market research), and integrated solutions (embedding into news feeds).

Members have the ability to quickly buy and set up social ads either on a CPM (cost per thousands) or CPC (cost per click) basis. You can precisely target your specific audience, customize your ad(s), and ultimately keep an eye on the evolution of demographic data to optimize your ad(s), getting the most out of them.

You can also create Facebook Pages that engage fans and potential customers. Using this service you can create a deeper connection with your clients because you are in direct contact. You can send them news, special offers, or any kind of update. They can leave you feedback. The more member interaction you can get the more clients you’ll get; it’s a vicious cycle because their actions are broadcast via news feeds.

Combine all of these together and you have a really powerful marketing system to promote your brand, product or service. Also, I am curious to see how their new ad brokering system works out. Many thought that it should be something that picks up specific data from user profiles and targets dedicated ads on the preferred hobbies, music, etc. Integration into the Facebook platform is promising due to the high number of daily visitors. But their current approach, where users become somewhat unwitting spokespersons for the brands and companies they "friend," may be considered too invasive.

Is the Future Bright?

With the recently acquired funds Mark Zuckerberg is planning to heavily expand Facebook. At this moment they employ approximately 300+ people but in the near future it should reach 700. As with every giant IT company there’s always a slot for truly talented and exceptional engineers and “one-of-a-kind individuals.”


(Facebook headquarters located at Palo Alto, CA.)

 

Let’s talk about the particular developer features of the Facebook Platform – mostly about the Facebook Marked Language (FBML), Facebook Query Language (FQL), API (REST Web Service) and Facebook JavaScript (FBJS). It is important to understand that because of these features, coders are able to develop their own applications on the Facebook Platform.

FBML is an evolved subset of HTML with some elements removed. It allows application writers to develop and integrate applications deeply into the Facebook Platform. They can configure their “look & feel,” reach specifics like profiles, canvas news feeds, and such. This is the way Facebook servers “understand” your code.

FQL is a SQL-like query language. It assists the programmers because it’s much easier to code in a sort of traditional language rather than depend on complex API methodologies to do the same queries. With FQL you can query data from the database.

Likewise, the Facebook API uses a REST-based interface. The code you write will get read, parsed, executed, and published on the Facebook REST servers. You simply call the functions and they do their job. Its impressively thorough privacy checks and security systems are analyzing and keeping track of your actions.

You can read in-depth information about these from the official documentation that’s reachable through the Facebook Developers Wiki. Using these features you can maximize your overall Facebook experience.

The success of these features and Facebook’s markup languages was, simply put, tremendous. Right now there are more than 5,500 applications hosted on  Facebook servers. They all are coded and run on the Facebook Platform. Likewise, the MySpace Platform is currently in development and they would really like to follow in Facebook’s footsteps.

Most of the applications on the Facebook Platform are for entertainment but a significantly smaller number are business-related too. The race toward getting your application published and ranked within the best on Facebook sparks competition between programmers. Therefore, this is an amazing opportunity to stand out from the crowd. If your application gets downloaded by numerous users, you’ll certainly earn some bucks as a reward.

Apparently more than 70,000 programmers are developing applications for Facebook. Mark Zuckerberg’s vision is that the business aspect of this must be boosted. It could serve as a starting point for entrepreneurs and managers looking for talented employees, an amazing job hunting land where companies could list their currently available jobs, etc.

What we cannot know is how this “particular” Facebook Platform with all of its markup languages will face the competitor’s (Google) OpenSocial solution? OpenSocial is a set of common APIs for building various social applications with the freedom of interpolation through various networks. It was designed with maximum flexibility to ensure maximum portability over different social networks like Orkut, Hi5, Ning, etc.

Recently Facebook has launched fbFund, which aids as a simple funding campaign. The Facebook company is able to finance starting entrepreneurs to jump start their business with sums up to $250,000 as long as they have not raised any formal venture funding and agree to develop their business based on the renowned Facebook Platform.


Overall Statistics

Percent of global Internet users who visit Facebook (November, 2007):



Number of active users: 49,000,000 (forty-nine million).

Monthly new average users: 4,000,000 (four million).

Daily new user average: 200,000.

Monthly page views: over 15 billion.

Monthly count of searches: over 500 million.

Search index size: 200GB.

Total number of photos hosted: 1.7 billion (circa 44 photos / user).


(Facebook’s traffic history graph over a period of one year- Source: Alexa.)


Concluding Thoughts


Lee Lorenzen is the CEO of the first Facebook-only VC Fund, Altura Ventures.  Some of his claims are really provocative and interesting regarding the future of Facebook. Let’s check them out:


  1. Facebook’s active users count will grow to 200 million by Dec. 2008.

  2. Facebook will go public in 18 months with an IPO and a valuation of $100 billion.


According to Lorenzen the $15 billion valuation isn’t at all exaggerated. He is a true believer in the future of Facebook, and he backed up the aforementioned claims here. This would be possible due to search engine monetization and the idea of opening a shopping mall dedicated just to Facebook users. E-commerce indeed sounds promising.

He also predicts “having revenue of $2+ billion in 2008 and $4+ billion in 2009.” Anyway, one thing is pretty clear: Facebook does have a really interesting future. The expectations are sky-high, knowing that right now it barely brings in annual revenue (estimated $150 million); the experts say that their user base and platform is priceless.

But time certainly will tell. Yet again we have two decisions: we either patiently wait to see what happens or we contribute and get involved in something. I for one am curious how OpenSocial combined with decentralization solutions (OAuth + OpenID) can challenge Facebook’s dominance. And what about the impact of MySpace Platform?

All of these being said it’s time for me to end this article. My personal conclusion on the whole Facebook phenomenon: it is a truly fantastic way to reach a specific demographic target, such as Internet-savvy youngsters (18-25), but they must realize that with their popularity comes great responsibility.

Facebook right now is clean and neat, with organized content and virtually spam-free, but if you glance over at MySpace, their primary competition, you will see mostly bloated and extremely disorganized content, struggling pages thanks to poorly designed codes and a surplus of extras; it’s also a so-called heaven of spam-lovers. Facebook needs to maintain its reputation otherwise advertisers will vanish altogether, along with $$$ gazillion “valuation offers.”

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