Blog

posted: 22 December 2010

There is little doubt the story of Facebook will be told and retold in marketing and business texts across all parts of the world in schools, colleges and universities for many, many years to come. Putting aside the fuss about the person that is Mark Zuckerberg (Facebook’s co- founder and CEO); it is worth examining what has made Facebook the astonishing success it is.

Facebook’s dominance as a social network site might be attributed to the fact it never deviated from its original objective – transmitting human interaction. Its business model has hardly evolved. The status quo would have been to capitalise on Facebook’s masses and crowd members’ profile pages and ‘walls’ with pop-ups and banner ads, drawing hundreds of millions in advertising revenue. Zuckerberg simply refused to sell banner ads and instead focused on giving users a personal feel. Ads have been limited to the right side of users’ profiles, drawing them to personalised ‘news feeds’ in contrast to potentially intrusive advertising.

In doing this, Facebook puts a much more compelling proposition to advertisers. Banner ads can be likened to casting a net far and wide, fetching whatever you could get, even what you didn’t want! Facebook’s advertising model is most sophisticated in that it directs ads, not only to the target age or gender but according to users’ ‘likes’ and interests. In effect, Facebook took the guessing game out of advertising and turned it into a science unlike anyone, or anything ever has. If you were Coca Cola, you could target people aged 17 to 35, living in Sydney, who like house music, Tsubi jeans and Stewie from Family Guy. All of a sudden, the phrase ‘marketing power’ takes on a whole new meaning.

In addition to its pure business model, competitive advantage in advertising (over Google), Facebook ultimately got back to business basics simply by giving people what they wanted. This largely derived from Zuckerberg’s understanding of people’s psychology, as is evident in Facebook’s predecessor, Facemash (where users compared photos and voted on the “hotter” person). You only need to read about the Facemash ‘experiment’ to appreciate Zuckerberg’s true grasp on people’s wants. Interestingly enough, Zuckerberg was studying psychology at the same time as doing a computer science major at Harvard (Time Inc, 2010). Could it be that Zuckerberg isn’t so much the alienated, aloof character portrayed in The Social Network?

Facebook’s phenomenal growth in membership is noteworthy. From its origins in 2004 to this year, Facebook has reached in excess of 550 million users – astonishing by anyone’s standards. So much so, if Facebook were a country, it would be the third biggest by population after China and India (Time Inc, 2010). Most businesses that experience rapid growth naturally turn to investor funding via a public listing on a stock exchange or the like, to fund further growth. Facebook once again did away with the status quo by funding its growth without the use of shareholder funding, and avoiding the scrutiny that comes with being a publicly listed entity. As such, it is difficult to obtain reliable figures on Facebook’s financial performance, but it is estimated it had a turnover in excess of $800 million in 2009. Facebook Inc is still a privately held business, with Zuckerberg having the controlling interest.

Facebook has capitalised on our need to be social. Quite simply, it provided a mechanism for people to interact in a different space, and made Zuckerberg a billionaire five times over in the process. It will be interesting to watch whether Facebook can continue its Facebookisation of the Web, or if it will be challenged by a new social network that will rise out of a dorm room somewhere in the world.