Founded by three Harvard students in 2004, Facebook is currently the world's second-largest social network in terms of users and probably the fastest growing. It employs over 200 staff, with 23 year-old founder Mark Zuckerberg, acting as CEO. It has received USD38.2m in three rounds of VC funding from its investors: Peter Thiel, Accel Partners, Greylock Partners and Meritech Capital.
Dramatic growth in global users
Between 2004 and 2005, active Facebook users grew 450% globally from 1m to 5.5m, as the social network expanded to include high school networks and around 800 new college networks. Growth between 2005 and 2006 (118%) was less dramatic, but remained high as Facebook launched 20 partner sites around the world and added 'work' networks, alongside college networks. In Sep 2006, however, Facebook opened up the site, allowing anyone to register and join the social network. Since then, the number of users has skyrocketed, with growth of 125% in the 6 months between Dec 2006 and Jul 2007 as the active user base grew to 27m. Facebook's own figures show that the global number of users has grown more in the last six months, than in the whole of the previous year, while comScore's figures indicate that the growth was driven by teenagers and people aged 24-35. These are people who would most likely been excluded from the site when registration was limited to university members.
Dec-04: 1m
Dec-05: 5.5m
Dec-06: 12m
Jul-07: 27m
US growth and demographic trends
In the US, Facebook's largest market, demographic statistics indicate how the opening up of the site has driven growth in the last year. According to research firm comScore, in Aug 2006, 34% of Facebook's 14.7m users in that month were aged 18 to 24, 33.5% were between 35 and 54, while only 14% were in the 12-17 year-old age group. Over a year later, in May, the number of visitors in a month was 26.6m in the US, 89% higher than the figure in May of the previous year. comScore's figures for this period show growth of 181% in the number of visitors between 24 and 35, 149% growth for the 12-17 year-old age group and growth of only 38% in the 18-24 year-old age bracket. Facebook appears to be more appealing to professionals than other mainstream social networks and both MySpace and Bebo in different ways market to a younger demographic.
Facebook's popularity in the UK
Growth in the UK, the social network's third largest market, has been much greater than in the US in the last year. In Apr, there were 3.69m users in the UK, which represents year-on-year growth of 1,617%, according to comScore. Despite dramatic growth in Apr, Facebook still had fewer users in the UK than social networks MySpace, Bebo, Windows Live Spaces, Blogger and Piczo: Facebook had a 16% share of the social network audience, compared with MySpace's 43% share. Facebook users were also spending less time on the site than MySpace and Bebo in the UK. The average session on Facebook was 14 minutes 17 seconds, which was less than half the 32 minutes 22 seconds figure for Bebo.
Drivers of future growth
Future growth is likely to result from the social network's decision in May to open its platform to third-party developers. In the last month, 40,000 developers took advantage of this opportunity to develop applications for people's Facebook profile pages and 1,600 applications have already launched. comScore's figures indicate that this may already have had an effect. According to the research firm, the number of US page views in May was 149% greater than in the same month of the previous year. US user growth for that period was 89%. This implies that not only are more people using Facebook, those same people are using the site more.
Further vindication of Facebook's strategy is seen in the decision by VC firm, Bay Partners, to set up a dedicated seed fund aimed at developers who create applications for Facebook. The VC firm plans to make around 50 investments of between USD20,000 and USD25,000 in applications. It believes that the social network's platform will create an economy of third-party applications built upon it, as Microsoft's Windows did in the 1990s. This is despite the fact that Facebook does not allow third-parties to profit from its platform at the moment.
Facebook may also benefit from the growing demand for social networks from professionals who wish to make and maintain business contacts. 65% of professionals use social networks for business purposes, according to the Institute for Corporate Productivity. Some commentators think Facebook will be increasingly attractive to these professionals, as its privacy settings allow users to decide how much of their profiles other people can view. In addition, Facebook would be even more attractive to business professionals if it allowed users to have multiple profiles based on different relationship types. This would put pressure on professional networks, like LinkedIn, as users would most likely prefer to manage their business and personal relationships on one site. A sign that LinkedIn, the most popular professional network, is already feeling the heat from Facebook is that it has announced it will follow the social network giant's example and open its platform to third-party developers.
Facebook's decision to open an office in London should aid the company in its attempt to overtake MySpace and Bebo in the UK, where Facebook's two rivals have a share of around two-thirds of the market. In June this year, MySpace saw its first drop in the monthly traffic since Sep 2005, according to research by Nielsen/NetRatings. The research firm claims that if May's growth rates were replicated in the coming months, Facebook would overtake MySpace in the UK in Sep 2007, despite the fact that MySpace currently has twice as many users as Facebook in the UK. Over the past six months, Facebook's audience has grown 19 times faster than MySpace in the UK, according to the research: Facebook saw growth of 523%, while MySpace only experienced growth of 28%. Even if MySpace's performance in May is just a blip, Facebook will overtake MySpace in the UK at some point in the next few years, if Nielsen/NetRatings is correct.
Potential pitfalls
Some argue that although it is encouraging growth at the moment, the decision to open up the site to third-party developers could potentially damage Facebook's appeal in the long run. One of the reasons people are currently attracted to Facebook as opposed to MySpace is that the profile pages load quickly and are not full of applications and spam. In addition, there is a concern that Facebook is elitist and this could stop it becoming a mass market phenomenon. A recent study by Danah Boyd of the University of California suggests that Facebook users tend to be middle-class and university educated, unlike MySpace, which Boyd claims is more attractive to working class children and first and second generation immigrants, at least in the US. If Facebook is seen as more for middle-class users, people from lower socio-economic groups may find the site less accessible than MySpace or Bebo.
Facebook's future
Over the past year, there has been growing speculation that Yahoo! will acquire Facebook. In Sep 2006, the Wall Street Journal claimed that the social network turned down a USD1bn offer from the search giant. Later in the year, Facebook declared that it was not for sale, adding that it was considering an IPO. However, last month, according to various blog sources, Yahoo! came back with a USD2bn offer, which was also rejected. With dramatic growth in the last year, however, it appears unlikely that Facebook will sell out any time soon, unless a truly astronomical offer arrives. Facebook CEO Mark Zuckerberg says that he views selling a company as an exit, which suggests that he will not sell even if user growth slows. In all likelihood, Facebook will hold an IPO when it eventually needs more capital to cope with its growing user base, just as many founders of successful Silicon Valley firms, like Sergey Brin and Larry Page of Google, have done in a bid to maintain control of their creations.