Mark Zuckerberg develops Facebook as a social network platform to help empower global connections among family and friends.

Amy Hamilton

2020-02-12 09:31:00 Wed ET

Mark Zuckerberg develops Facebook as a social network platform to help empower global connections among family and friends.

David Kirkpatrick (2011)

The Facebook effect: the inside story of the company that connects the world


In this business book, Kirkpatrick delves into the life of founder-entrepreneur Mark Zuckerberg and then discusses how he designs Facebook that connects the world via the Internet. Facebook has become a utility-driven social network platform that enables global connections. People can share substantive amounts of information on Facebook via the electronic enhancement of real-life relationships. As a social network platform, Facebook can lead to positive or negative customer experiences via information cascades, network effects, and scale economies. Facebook affects the online lives of more than 2.2 billion users worldwide. As the executive founder, Mark Zuckerberg needs to uphold the company's vision and integrity through many years of exponential growth.

During his sophomore year at Harvard University in 2003, Mark Zuckerberg found the ingenious idea of fresh and novel Internet social media services in collaboration with his roommates Dustin Moskovitz and Chris Hughes. Facemash was an online program that invited Harvard students to compare different faces of the same sex to declare which one was hot or not. Due to discriminatory concerns, the Harvard disciplinary board deterred Zuckerberg and then put him on probation for the stunt. However, the school restriction was insufficient to stop him from building the next phenomenal website Facebook.

In February 2004, Zuckerberg recruited Eduardo Saverin to help out with business matters, and then Facebook went live. Zuckerberg designed Facebook as a social directory of college students that allowed them to look for people, classmates, and friends of friends with better social network visualization. Each user created a core profile page with real information and then invited others to join the social network. User experiences would improve as friends invited their friends to join Facebook, and as a result, the whole platform value of Facebook would increase exponentially with social network size.

The social network service expanded to other Ivy League schools, and Zuckerberg invited Moskovitz and Hughes to help run Facebook. With their dense and vigorous social networks, college campuses were a key innovative laboratory for Facebook. Meanwhile, Saverin began to help Facebook generate revenue from online ads. In order to enhance Facebook user experiences, Zuckerberg retained tight control of standard ad banners. The young executive founder chose to ignore high advertiser demands for any privilege or special treatment due to his prescient concerns about user interface design.

A former Napster co-founder, networker, and salesman Sean Parker brought fresh professionalism to the company. Parker and Zuckerberg skillfully paced Facebook user growth with the new addition of servers as Facebook became a real business phenomenon. By the end of Summer 2004, Facebook had attracted 200,000 users, and Zuckerberg and Moskovitz decided not to return to Harvard.

In Fall 2004, an opportune outside investment came from PayPal co-founder and serial entrepreneur Peter Thiel who agreed to lend Facebook $500,000. Later this investment would turn into 10% equity stakes in the company. Thiel further joined the board of directors for Facebook. Moreover, Parker arranged a $300,000 3-year line of credit for Zuckerberg and his team to handle the exponential user growth at Facebook. In late-November 2004, Facebook registered more than 1 million users. At this stage, Facebook began to attract the money and attention of Silicon Valley bigwigs, angel investors, and venture capitalists.

In May 2005, Peter Thiel and the venture capital firm Accel Partners invested about $12 million in Facebook with an implicit equity valuation of more than $98 million. Parker created an additional empty board seat to protect Zuckerberg's ownership and control of Facebook. With 2 board seats, no one would be able to force him to sell the company.

Facebook refreshed the target audience ads with better mobile website redesign. In Fall 2005, Facebook social network membership hit 5 million users. Facebook added a new feature to allow users to upload-and-share photos, photo tags, photo comments, and online albums. Whenever users got photo tags, these users would receive automatic email notifications.

Zuckerberg regarded the high demand for social interactions as a proof of concept: people wanted to know what was new, what had changed, and what had happened that they did not already know. With better privacy control mechanisms, Facebook introduced the newsfeed for all users to see the status updates, photos, video clips, and posts etc of their family and friends within the same social network ecosystem.

In September 2006, Facebook launched open registration for all prospective users. The college and high school users did not appear to be complaining about the new older demographic group. Zuckerberg opened up Facebook for new mobile apps. New applications would generate more website visits, more page views, and more ad sales for Facebook. At the outset, Zuckerberg wanted to introduce more socially conscious types of mobile software apps, but numerous users focused on playing games with one another via Facebook.

Zuckerberg emphasized the essential need for more active users in the Facebook social network platform. In an aggressive series of major deals, Facebook acquired Instagram, WhatsApp, and Oculus to further increase the global number of active users. Zuckerberg viewed Facebook as a primary example of a reciprocal society where someone would share information with another person and then that person would give back out of obligation or generosity. The Internet empowered Facebook to operate this online social community at a large scale. Zuckerberg and his team regarded this core social mission as more important than monetization.

In March 2008, Sheryl Sandberg joined Facebook as the Chief Operations Officer (COO) with her prior experiences of digital ad sales at Google and public affairs as the Chief of Staff of the U.S. Treasury Secretary Lawrence Summers. Before she joined Facebook, the company primarily focused on building a cool social network platform; Zuckerberg and his team assumed sales and profits to follow as a result. Sandberg leveraged her prior experiences of running Google keyword ads to boost the average revenue per user (ARPU) in the Facebook social network ecosystem. In 2010, Facebook became profitable as the newsfeed began rolling out digital ads that targeted active user interests, preferences, and behaviors. Sandberg oversaw core Facebook business operations from business development and personnel to public policy, compliance, and communication. In 2012, Sandberg became the first female member of the board of directors at Facebook.

Statista suggests that Facebook achieves an impressive ARPU of $20 per user in 2018-2019. Out of this $20 ARPU, about $8 can be viewed as the net cash profit. This superior financial performance empowers Facebook to leverage the network platform as a gigantic ecosystem for mobile app design, social media, and even e-commerce etc. The purpose-driven Zuckerberg ethos serves as the root cause of long-term fundamental profitability with better ad monetization over time.

In the next decade, Facebook faces challenges across the competitive landscape. Zuckerberg, Sandberg, and their team need to attend to regulatory antitrust probes into their recent acquisitions of Instagram, WhatsApp, and Oculus AR. Facebook must re-assess consumer privacy, user information exchange, data protection and transmission, regulatory compliance, as well as fierce competition in social media, public communication, e-commerce, Internet software, and mobile-first app design. On balance, the law of inadvertent consequences counsels caution.



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