Facebook at Age Five

Wednesday, July 22, 2009


The social networking site now boasts 250 million users, but has yet to make a single dollar in profit. Five years after its inception, a look at whether it can last another five.

First, a confession from the sometimes-embarrassing world of Web 2.0: when I joined Facebook, it was just another site, one of the many social networks I thought would prepare me, then a high school senior, for college life. It was April 2004, just two months after geeky guys in a Harvard dorm had created the site. For me, joining up was little more than the next thing on my to do list before moving away from home: I used the same profile information I had already logged on Friendster; the picture, me with a white-boy afro, came cropped from my MySpace profile.
As we spent our first year at college, all of my classmates became Facebook guinea pigs; we were the first generation that would go through college (and the rest of our lives) with the site in our bookmarks. Social networking was as new to us as a frat party, a discussion section or a telephone call home. But we learned quickly. By the end of freshman year, I had stopped visiting each of the networks I had signed up for the year before because they were courting a demographic different than my own: Friendster was for old people (which, at the time, meant thirtysomethings); hi5 was for people in Europe, or Canada, or somewhere foreign; MySpace was for... well, we all know where Tila Tequila comes from.

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Earlier this year, I finally got around to deleting all those other accounts. It was a Herculean affair, one that involved retrieving lost passwords to old e-mail accounts, calling numerous customer service lines, even sending MySpace a photograph of myself with a sign that included my full name, birth date, and some gibberish about why I was quitting the site. The reason is quite simple: my generation had decided, almost for me, that Facebook was the only social network that mattered, so why bother with anything else? By now, that's a familiar logic, and it's part of the reason the site has grown so quickly this year, from 150 million users in January to 250 million last week. It's a number the site loves to tout with the following fact: were Facebook a country, it would now be the fourth most populous in the world.
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It took just five years for the social network to reach this point, moving its way quickly from a college dorm site, to incorporating in Delaware as a company (five years ago this month), then moving to California and securing venture capital funding, adding access to every college in America, then every high school, then every person who wanted to join. Now, as the site is going international, 70 percent of current users are coming from abroad—many who first downloaded Facebook's translation application, which users have used to morph the English site into 50 languages, all so that their friends who don't speak English can join. "Our favorite story to tell is that 4,000 users translated the site into French in less than 24 hours," says Naomi Gleit, Facebook's project manager for growth. "It's pretty insane, right?"
In terms of attracting users, Facebook has had an undeniably fantastic five-year run. Still, it's had a notoriously hard time transforming its membership base into revenue and profit. This year, Facebook CEO Mark Zuckerberg said that he expected revenue to increase a massive 70 percent this year, with the site becoming "cash-positive" by 2010. As a private company, Facebook does not release earnings, but a recent stock buy-out option valued the site around $6.5 billion. That said, many attempts for the company to make money (mostly through user-targeted advertising) have been rebuked by the users themselves. "If you try to count the products Facebook is testing, it's almost mind-boggling," says Jeremiah Owyang, a senior analyst in Forrester Research's social media department. "Facebook hasn't yet figured out the formula that's going to work for the needs of the users or the brands." Even so, Marc Andreessen, who sits on the board of Facebook (along with Don Graham, the CEO of the Washington Post Company, NEWSWEEK's parent) told Reuters that Facebook would do over $500 million this calendar year, with billions in revenue by 2012. Perhaps as it should be, growth remains a priority over making money—"they're not staffed up to do [advertising] correctly, yet," Owyang says.
But revenue projections are, well, just projections. Here is the current reality: Even as Facebook marks the anniversary of its incorporation this month, nearly every other social network has shrunk. MySpace recently cut almost 500 employees, close to 30 percent of its work force, after the site's visits dropped by five percent in May from the year before. Friendster has all but disappeared. And while it's clear that Facebook isn't going anywhere for some time, the company certainly can't rely on hundreds of millions of people contentedly poking and gifting each other into perpetuity.
"I think the main danger is that the social network is getting too big," says Fred Stutzman, a teaching fellow at the University of North Carolina, who studies how people use social networks. His current research focuses on why people leave social networks, and he's found that the choices people make tend to be pretty sudden, similar decisions to those you make when you stop visiting your favorite restaurant, or start shopping somewhere else. "It's something that's going to happen soon to Facebook—and so their business team has to worry about designing products and services that keep people interested." Essentially, he's talking about the cool factor behind Facebook, one of the few metrics that can't be measured by the company's incredibly smart (and data-driven) employees.

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