Facebook: what future for social networks?

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Facebook: what future for social networks?

Facebook has become the 'vanilla' social site millions use as readily as e-mail, while MySpace and YouTube dominate the consumer media, and LinkedIn the business market. That Facebook, like e-mail, is 'beyond fashion' may be key to its success: roughly half of its users log on every day, says founder and CEO Mark Zuckerberg, who established the company in 2004 while a student at Harvard.

Like the World Wide Web itself, Facebook's roots were in academic communication then, but from its student beginnings just five years ago the Palo Alto-based company has grown to employ over 700 people - it is aiming for 1,000 or more in 2009 - and achieved 2008 revenues estimated at $300 million. So is the Facebook revolution unstoppable?

  1. The social graph
  2. Growth but at what cost?
  3. A measurement of true success

 

 

1 The social graph

The about-face in behaviour that social networking has inspired has been rapid and extraordinary. Ten years ago, the idea that millions of people would voluntarily share their private contacts with the world would have been unthinkable, especially in business. Facebook and its rivals trade on what we can term 'mass proximity' to - and privileged insight into - an individual's world. Beyond that, of course, Facebook and its peers are powerful, stable platforms for application development.

Facebook says it aims to be "the social graph" of the 21st century. Its usage has clearly become integrated into many people's lives, notably in the UK where its adoption is nearly three times that of its main rival, MySpace.

However, the exact number of global users is unclear: at the November 2008 Web 2.0 forum in San Francisco, Facebook claimed over 120 million users (18.4 million in the UK), while MySpace was quoted as having 118 million users globally (7.8 million in the UK). In January 2009, however, Zuckerberg announced that passing 150 million users had been a "significant milestone" for the company.

 

2 Growth but at what cost?

If all those figures are correct, they suggest Facebook is growing at over 10% a month, but this should be taken with a pinch of salt: duplicate profiles are legion, while TechCrunch traffic statistics puts the company's US growth rate at just 3.8% and slowing. ComScore statistics put MySpace ahead in the US and worldwide, but suggest Facebook will become the largest social network by 2010.

It is not just about personal profiles, however. Well over 130,000 businesses make either formal or informal use of Facebook as a networking tool.

Despite the impressive uptake, the revenue models for it and other social networks remain unclear. In November, analysts at IDC found most users ignore adverts on social sites, despite the fact that more than 75% of them visit at least once a week and 61% spend over 30 minutes online each visit.

Social-network adverts also generate fewer click-throughs - 57% versus the web average of 79% - and only 11% of those translate into purchases (compared with 23% elsewhere). IDC found that only 3% of users would be willing to expose their private networks to advertisers, and so the ability to create any leverage from those millions of personal profiles remains untapped.

 

3 A measurement of true success

Put another way, 150 million users and $300 million in revenue means two dollars per user per annum. Of course, $300 million revenue after five years' trading is an astonishing achievement, but the underlying story reveals the social networks challenge: how to persuade all those users - as opposed to business partners - to spend money? Or does Facebook even care?

At the 2008 Web 2.0 forum, Facebook and MySpace took to the conference stage. MySpace CEO Chris DeWolfe saw expanding advertising as his goal, while Zuckerberg identified aggressive global expansion. "Growth is a strategic thing for us," said Zuckerberg. "We're not as focused on optimising revenue. People have said we're not thinking about it, but that's completely wrong. We have thousands and thousands of advertisers coming to the site and reaching people."

One part of Facebook's underlying business model was revealed just two days earlier at the annual Dreamforce summit of software as a service (SaaS) firm, Salesforce.com. The two companies announced a suite of tools to marry Salesforce.com's business productivity applications to what was described as the "interpersonal power" of social networks.

According to Facebook's COO Sheryl Sandberg: "Facebook's users are always eager to try new applications that can improve their ability to connect and share in a trusted environment... our work will give Salesforce.com's 100,000 developers the tools to create and deliver a new class of business applications for Facebook's 120 million [in November 2008] active users."

In other words, if businesses have both a stable platform and a community that it serves, then they can build native applications. Zuckerberg is betting that Facebook-style behaviour will spread to mainstream business.


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This was first published in January 2009

 

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