The new face of Facebook

How to win friends and influence people

The social network has turned itself into one of the world’s most influential technology giants, and wants to become ever more powerful

A HUGE thumbs-up, Facebook’s “like” symbol, greets visitors at the entrance to the company’s headquarters in Menlo Park, in the heart of Silicon Valley. The imposing sign is crafted from that of a former occupant of the attractive corporate campus, Sun Microsystems, a once high-flying startup that crashed before Facebook moved there in 2011. When employees leave they can see Sun’s name and logo still inscribed on the back of the sign. This corporate memento serves as a reminder of how quickly fortunes can change if tech startups take success for granted.

Not long ago sceptics dismissed Facebook itself as a fad. Having watched its early rivals stumble, many doubted the longevity of another social network and underestimated the ingenuity of its 31-year-old boss, Mark Zuckerberg. An ill-managed initial public offering in 2012—the firm’s share price sank on the first day of trading—seemed to confirm those doubts. But those betting against Mr Zuckerberg were wrong.

Facebook is now the sixth-most-valuable public company in the world, with a market value of around $325 billion. Facebook claims nearly 1.6 billion monthly users for its social network (see chart 1). Around 1 billion people, nearly a third of all those on the planet with access to the internet, log on every day.

Facebook takes up 22% of the internet time Americans spend on mobile devices, compared with 11% on Google search and YouTube combined, according to Nielsen, a research firm. As a result it has more data about more users than almost any other company in history. It has used that advantage to become one of the most powerful forces in the advertising business. Its revenues have more than doubled in two years, to $18 billion in 2015.

The firm has maintained its dominance by becoming one of the tech industry’s most active acquirers, buying other services that might have lured users away. Since 2012 it has spent more than $25 billion on businesses including Instagram, a photo-sharing site, WhatsApp, a messaging service, and Oculus, a virtual-reality firm. Americans spend 30% of their mobile time with Facebook and other apps it owns (see chart 2).

Facebook has become more like a holding company for popular communications platforms than a social network. But even that description understates Mr Zuckerberg’s ambitions. He is making big bets on the future of communication, mainly messaging services, artificial intelligence and virtual reality. Speaking to The Economist Mr Zuckerberg says that he sees his company as “a mission-focused technology company”. That puts it in direct competition with other tech-industry titans, especially Google.

Faced with the challenge of how to grow when a huge share of the connected globe already uses his products, Mr Zuckerberg is determined to bring the internet, and so Facebook, to people who are not yet linked up. One scheme involves an unmanned solar-powered plane. Such plans are audacious, sometimes controversial and by no means guaranteed to be successful. But Mr Zuckerberg has a history of pushing beyond what most observers thought possible.

I’m liking it

Facebook has reached its position of influence and power by defying three maxims about the internet: that social networks have short lifespans, that it is impossible to make money from them and that mobile advertising is a grim business.

Facebook goes from strength to strength but only narrowly avoided the fate which befell rival services that seemed destined for dominance. Friendster and MySpace fizzled out. Frequent headlines about executive departures in its early days contributed to the suspicions that Mr Zuckerberg was leading his startup to a similar disaster. In 2006 he came close to selling Facebook to Yahoo for $1 billion, but pulled out when it tried to negotiate the price down. Other firms, including Viacom and Microsoft, have also been suitors.

Mr Zuckerberg, however, always had a long-term plan. He spoke about how the service could become a “utility” and talked about the next ten or even 20 years, causing mirth among industry veterans.

That meant ensuring that Facebook did not meet the same end as Friendster, where frequent outages and long page-load times caused users to abandon it. From the start Facebook invested heavily in technology so the site would not go down. It expanded gradually to universities beyond a select group, then high schools and the rest of the world, but only when it felt it had the server capacity to support new users. The firm’s technology infrastructure “is not visible, but that is probably what we have spent most of our time on,” says Mr Zuckerberg.

Status update

The company’s commercial ambitions and professionalism changed markedly in 2008 when Mr Zuckerberg hired Sheryl Sandberg as chief operating officer. An early employee at Google, she had an important role in building the search engine’s ad business. At Facebook she has plenty to play with. The mass of data it has on users is attractive to advertisers, who can target messages to their desired audiences with greater precision than they can through traditional media, such as television.

Facebook has had to adapt to fast-changing technology and the habits of users to reap the rewards of digital advertising. By 2012, when it had built a robust ad business primarily for desktop computers, users started spending more time on mobile devices. This sparked a crisis at the company around the time of its initial public offering. “We had a problem, which was that we had exactly no revenue on mobile,” says Ms Sandberg. Services developed for use on mobile devices, such as Twitter, a live-blogging platform, were reckoned more likely to succeed.

Twitter squandered its advantage. And mobile has proved an unexpected boon for Facebook, which is better suited to smartphones. Last year its advertising revenues were eight times greater than Twitter’s, largely because it has more users who spend more time generating more data. But it is also a result of Facebook’s more settled management. Since it went public Facebook has kept most of its senior bosses, regarded in Silicon Valley as among the best at getting things done—unlike Twitter, which is plagued by dysfunction and turnover at the top. And this stability allowed Mr Zuckerberg to devote more time and money to working out a suitable format for mobile advertising.

Mobile devices lengthen the amount of time people spend online each day, and give advertisers more information with which to target messages, including where users are and what type of device they own (wealthier ones tend to have iPhones). Facebook’s ads appear in users’ newsfeeds, where news from friends and other content is collected. They look like updates from pals, featuring a glossy photo or video of a product.

Facebook has also reached new users in emerging markets, such as Indonesia, where mobile phones are more common than desktop computers. Around a third of Facebook’s active users are in Asia (excluding China, where the service is blocked). Another third are in America and Europe; and the rest are elsewhere around the world. Of the top ten apps in India, Facebook controls three.

Facebook is in such an exalted position because no other company, with the exception of Google, has as many users, knows as much about their behaviour online and can target them as effectively. In addition to all the personal and geographical information, interests, social connections and photos users share, the social network is able to see where else they go online. Anywhere with a “like” symbol feeds back information, as do sites that allow people to log on with their Facebook credentials.

Advertisers can reach consumers with laserlike precision. An energy-drink company may target ads at parents of teenage athletes; a retailer can market goods to people from specific neighbourhoods who have visited its website. “There are three compulsory elements to online advertising today: you have to have a mobile website, and be involved with Google and Facebook,” says Peter Stabler of Wells Fargo, a bank. As a result Facebook claimed 19% and Google 35% of the $70 billion spent on mobile advertising worldwide in 2015, according to eMarketer, a consulting firm (see chart 3). Twitter and Yahoo had to make do with a meagre 2.5% and 1.5%, respectively.

Facebook is likely to remain on Google’s tail. Its core service continues to grow. Last year it added 200m new users. It has successfully outmanoeuvred regional competitors, such as Orkut, a social network owned by Google that was popular in Brazil. This is partly down to Mr Zuckerberg and his hacker mentality. He believes in rolling out products quickly: “Move fast and break things” is a company motto. Not everything works. Paper, a stand-alone app that aggregated news articles, was a notable flop. And sometimes employees complain about being “Zucked” when he changes his mind.

Mr Zuckerberg’s big acquisitions have helped to defend his firm’s place in the social-network order. The first was Instagram, a budding mobile photo-sharing service, bought for $1 billion in 2012. At the time, that seemed a huge sum for a firm with no revenues and only 13 employees, but now Instagram is regarded as a steal. Facebook started selling ads on Instagram only last year but this year they could bring in over $2 billion in revenues, according to Mark Mahaney of RBC Capital, a bank.

Instagram’s price tag was modest compared with the $22 billion Facebook paid in 2014 for WhatsApp, a profitless messaging service that then had 450m users, many of them in emerging markets. Services like WhatsApp, which let people communicate instantaneously, are potent because they compete with other social networks for time spent online and data collection
Source:The Economist