Facebook debuted in 2004 and is the brainchild of Mark Zuckerberg and four of his Harvard classmates. The company continues to increase its revenues ($19.77 Billion) and has positive cash flow. The company is profitable and continues to expand its network. It is always in the search for ways to reach more and more users.
While at Harvard, the brothers Cameron and Tyler Winklevoss created a social media network known as HarvardConnect, later renamed to ConnectU. When Zuckerberg released Facebook to the public, he was sued by the Winklevoss brothers for allegedly stealing the concept as well as a chunk of the source code from ConnectU to be used for Facebook. Zuckerberg countersued, and both parties ended up with a settlement where Zuckerberg paid $65 Million.
How the Company Started
What inspired the company?
The founders originally used Facebook as a way to connect with other students in Harvard. They expanded to other Ivy League universities until they made the decision to include students from any colleges and even high school students. The website still has an age restriction of 13+. Although, it’s difficult to say if they have any way of determining age. People can enter whatever they like for their age.
When Facebook first came about, MySpace was the dominant social network at that time. Facebook quickly took over that title and remains one of the largest, if not the largest of all the social networks.
You can think of the company and the social network as being one-in-the-same. The company is the social network. Its main revenue generation is via its advertising platform.
Facebook was well-funded from the start, largely through venture capital. As the network grew, it became much easier to obtain funding from these VC’s. As more of them jumped in to supply funding, pressure rose for Facebook to go after an IPO. This became a reality in 2012 which gave the company, even more funding for expansion.
Throughout the early years, there were plenty of bids from major players, including Yahoo, to buyout Facebook outright. All those bids were denied by Zuckerberg.
Facebook was considering the idea of charging a subscription for its service early in its invocation. This was met by its members with complaints and threats to abandon the network if they followed through on this tactic.
Facebook instead, adopted an advertising model and became aggressive with this form, especially after becoming a public company in 2012. Management now had to answer to shareholders and these shareholders wanted the company to become profitable.
Another problem is that Zuckerberg never actually created the Facebook interface with the intent on having a company. It was meant to be a platform for his own friends to connect. When the popularity of Facebook exploded, he wasn’t quite ready for the growth. He had to come up to speed quickly.
Why it Works
Facebook contains features that are unique from other social networks. It gives users the ability to share, but it also allows users to use instant messaging to talk directly to each other. It also lets users create pages and groups and tended to be more business friendly earlier in its inception.
Another key factor is Facebook gives almost any user the ability to make money with Facebook by advertising his or her product or service. This product or service can be shown to many, and the demographic targeting is second-to-none. If a user wants to target people who fish and are within the age group of 30-55, this is very easy to do with Facebook advertising. Compared to other ad networks, Facebook advertising is relatively cheap.
Facebook uses a concept known as Edgerank, which has angered many members, but it does increase its advertising reach. The concept is only to display what is relevant based on an algorithm determined by Facebook. It will give preferential treatment to pages that contain a lot of engagement, including likes, follows, shares, and comments. People who do not continually engage in a post or page will fade over time, and those members will no longer receive updates.
The complaints by members is that page creators will need to constantly update their efforts to reach members when followers keep fading out of existence. The argument being that these page creators will need to spend advertising dollars on Facebook to get more engagement. And if they pay for that engagement and it fades, it’s a never ending cycle.
It will be interesting to see if these complaints will fall on deaf ears. Facebook makes money from this practice which makes shareholders happy.
If you are online, you know about Facebook. End of story! Facebook gains its following primarily by the expansion of its network. When you sign up for Facebook and complete much of your profile, Facebook will start making potential connections based on the information you provide. Put your age and the name of your high school and you will soon see old, familiar friends appearing on your newsfeed.
Facebook also expands by the use of apps. When you connect certain apps to your Facebook page, you will be asked for permissions on how that app can use your Facebook page. Many people blindly accept all permissions and then later wonder why certain information is being posted on their behalf.
Facebook is a massive voting platform. When people find something they like, they will click the Like button; they may share it, and they may even seek out the creator’s Timeline and follow that person. People will also comment on posts when it strikes the right kind of chord.
Lessons Learned By The Business
- Facebook essentially dissected the functionality of MySpace and decided to do exactly the opposite. MySpace allowed extensive customization whereas Facebook allows very little. Facebook is a much more structured environment, and that is a large part why Facebook overtook MySpace.
- One of Zuckerberg’s favorite sayings is, “move fast and break things.” He says this to give his company confidence that as you grow, don’t be afraid to try new things. It’s the mistakes that you make that often lead to great solutions.
- Facebook doesn’t seem to mind making members upset by introducing new features. They believe it’s better to have those functions than not. As the Timeline features shows, initial complaints faded over time. Sometimes, features introduced may require management to evaluate the impact of the changes and either abandon them or come up with a compromise.
- Zuckerberg isn’t afraid to take risks, and he is not afraid of allowing his workers to do the same. He feels you can’t know what is going to work unless you try it and that requires stepping outside your comfort zone.
- Facebook currently supports its initiative of Internet.org. This effort is designed to make the internet accessible to as many people as possible. The company has been criticized because it would give Facebook control of what those internet users would have access to. This goes up against the concept of Net Neutrality.
How Other Businesses Can Learn from This
- Other businesses should learn how to take risks. Facebook management is good at this, and it has led them to their current success.
- Create products that make it easy to share with others. While this may seem easier to accomplish with a social media company, companies can always find ways to share valuable information which can help extend their reach.