Mark Zuckerberg faced a make-or-break year in 2010. From its first incarnation in 2004, Facebook had expanded effortlessly to a point where nearly half of the global online audience had visited the site but it was beginning to face a backlash from tech geeks, who accused founder Mark Zuckerberg of going too far in declaring the age of privacy over.
Flash forward to the start of 2011 and the outlook could hardly be more different. Bolstered by Facebook hitting the 500 million user milestone in July, a $450m (GBP290m) backing from Goldman Sachs and immortalised on film in Aaron Sorkin’s The Social Network, Zuckerberg seems more confident, skilled and omnipotent than ever. And Facebook appears to have achieved the ultimate coup: threatening to unseat the mighty Google as the superpower of the web.
There are some things money can’t buy and, for Google, they are market-leading social media propositions. Despite its position as a technology superpower and with an estimated $33bn in the bank, it has largely failed to deliver a convincing consumer proposition for social networking.
YouTube, which Google owns, has a vast network that reached 30 million monthly users in Britain alone last October, according to comScore, yet has little coherent, constructive community. Any enthusiasm for Google Buzz evaporated in a cloud of privacy controversy, while its Orkut site may be a Brazilian favourite but has failed to gain ground in Google’s home market.
Google is very far from anything like a crisis but it has been slowly undermined by Facebook’s audacious development, the realisation of Zuckerberg’s plan to reconfigure the web through social navigation and Facebook hiring some of Google’s hottest talent.
Google has never underestimated Facebook. In 2007 it attempted a major investment in Facebook but was beaten by Microsoft, which took a 1.6% stake for $240m. Facebook’s extraordinary, exponential growth — up to 633 million global users by October, according to comScore — is positioning it as the most powerful site on the web. Already secured as the busiest website in the world, Zuckerberg envisages a future where we will navigate the web through our social graph — our network of friends and contacts — with recommendations rather than searches determining what we buy, watch and discuss.
The statistics, as estimated by comScore, speak for themselves. By October 2010, Facebook had already become the U.K.’s largest display advertising publisher, showing 24.4bn ad impressions, or five times as many as Microsoft, to about 30 million web users. The number of advertisers tripled in a year. Revenues are estimated at $2bn for 2010, which would mean Facebook has raised revenues faster than Yahoo and almost as fast as Google.
Facebook also had the third highest number of video viewers, behind YouTube and just behind the BBC, with 9.4 million unique users. And 47% of the global online population visited the site in 2009. Facebook’s U.K. audience hit 31.6 million unique users for October.
“Facebook, along with Google, is now one of the titans of the internet universe,” said Simon Carmichael, of merchant banking firm Torch Partners. “Look at the audience it has and how they monetise that; advertisers are already very keen and they are creating a whole ecosystem around Facebook.” Peter Thiel, an entrepreneur who was an early investor in Facebook, said in September that the company would not go public until 2012 at the earliest. Carmichael agrees. “Facebook doesn’t need to IPO to raise capital as its stock is already very widely spread, and there’s a very lively secondary market for Facebook stock in the U.S. But it would be good for the tech industry.” Investors cannot get enough of Facebook on these secondary markets, which allow Facebook shareholders — though not staff — to cash in on their stock. Trading has surged since November when Accel, one of the largest investors, sold 15% of its stake for $517m, valuing the company at $35bn.
Under U.S. law, firms with more than 500 different shareholders must go public but Facebook won an exemption in 2008 by stating that most shares were held by staff. Regulators are looking again at these markets because of the volume of trading. Facebook’s stock is by far the most popular and trades hands at rates valuing it at more than $50bn.
With investors convinced the Facebook phenomenon is only just beginning, how will it grow? Zuckerberg has said Facebook is “almost guaranteed” to reach the one billion user mark — and is attacking on every front.
The list of Facebook products introduced in the past 12 months testifies to Facebook’s ambitions. From dominating photos and gaming, as well as expanding its email system, Facebook has now added features designed to add revenue potential to gaming and local commerce, including credits, deals, places, and a Q&A tool.
Juniper’s principal analyst, Windsor Holden, says Facebook’s future depends on mobile. “Mobile usage is far more engaging because it taps that dead time, like waiting for a train.” He says augmented reality, where images and information services are overlaid on a phone’s camera, will explode in 2011. “There are 100m augmented reality-capable smartphones in use. That could be powerful for Facebook’s advertising as it’s a natural fit for advertisers.” Facebook faces challenges in reaching one billion users, not least because Europe and North America will soon reach Facebook saturation, and markets such as China and Russia are dominated by domestic rivals. But the developing world is a huge opportunity for Facebook and one it has already begun to address by working with at least 50 local operators to offer Facebook Zero, a pared-down version of the site that users can access for free via mobiles.
Already the web’s biggest photo site, Facebook has disrupted sites such as Photobucket and Yahoo-owned Flickr. Facebook has provided a vast platform that allowed games studios Zynga and Playfish to flourish; Zynga’s revenues alone are estimated at $600m for 2010.
Television is lined up next; Facebook is an important app being built into many internet-connected TVs that will allow users to Facebook message friends about the shows they are watching together, finally giving TV the potential for targeted advertising.
The volume of information generated by Facebook globally is daunting. In any 20 minutes, Facebook typically sees 1m shared links, 2.7m photos uploaded and 10.2m comments. Facebook also records 7.7m “likes” every 20 minutes, generated not just by users on facebook.com but on more than 2m other sites that have embedded Facebook’s commenting tools.
More than 10,000 sites are adding Facebook’s tools each day, and about a third of users access the site this way at least once a month. Facebook hopes this strategy will make the site ubiquitous by allowing users to take their Facebook identity with them throughout the web.
Until Facebook goes public, its priorities will be growth in users and revenues, which means more of these aggressive plans to expand. Those plans have just been boosted by a fresh investment round. With momentum like that, it might be easier to ask what isn’t a target for 2011? “In the next five years almost every major product vertical is going to get rethought to be social,” Zuckerberg told the Web 2.0 Summit in November. “You’re either going to have an incumbent turn their business around, or some creative entrepreneurs with great engineers who are rethinking the product from scratch. Get on the bus.”
Copyright: Guardian News & Media 2011