Facebook is the world’s most popular social networking site and today it is celebrating its tenth birthday. Created by Mark Zuckerberg in his bedroom when he was a student at Harvard, it has become one of the greatest internet success stories of all time. Now, over 750 million users login every day and after ten years of poking, liking posting and sharing – it now has more than a billion registered users worldwide.

So how does Facebook makes its profits? Well, it sells personal information, such as its users’ likes and friend lists, to advertisers. In practice, its users are its product – and the information they supply voluntarily creates the advertising revenue for the business. In 2013, Facebook’s profit was over $1.5 billion, indicating that its business model is sound.

However, protecting data and privacy is now a key issue, especially since the Edward Snowden revelations about US surveillance on phone and internet communications. Facebook has admitted that it received more than 10,000 requests last year from US government agencies to access people’s personal information.

Another problem for Facebook is criticism of some of the material that appears on its site. It has been heavily criticised for hypocrisy for allowing offensive and shocking materials to be published on its site, while routinely censoring breastfeeding photos. However, political activists operating in countries without a free press have come to rely on social media, including Twitter, YouTube and Facebook, as crucial channels to document and spread awareness about human rights abuses and atrocities. Facebook vigorously defends its position on freedom and will no longer censor content, whatever offence it creates in the process. According to Nicola Mendelsohn the Vice President of the company,

“Facebook is a mission-based company – our mission is to make the world more open and connected and to allow people to share information.”

Facebook’s success has been far from smooth and some analysts are already questioning how long it can survive. From a business viewpoint it is difficult to judge, because social media is such a recent phenomenon that there are few definitive research studies that can be relied upon to support firm conclusions. Certainly, the life cycle of internet businesses has been volatile and following the dot.com boom of the late 1990s, a market correction in 2001 wiped out $5 trillion in the market valuations of technology companies in little less than two years. Could we see a similar correction in the value of Facebook shares?

The question that is generating global research is the future of the business into the medium term.

  • Researchers at Princeton used Google search data to predict Facebook would lose 80% of its users within three years.
  • Digital agency iStrategylabs used Facebook’s own social advertising data to extrapolate that three million US teenagers had left Facebook in the past three years.
  • The Global Social Media Impact Study conducted a study on the Facebook use of 16-18 year olds in eight EU countries, and found that as parents and older users saturate Facebook,  younger users are shifting to alternative platforms. “Facebook is not just on the slide – it is basically dead and buried,” wrote Daniel Miller, lead anthropologist on the research team, who is professor of material culture of University College London.
  • Pew Internet Centre research, also reported that teenagers were put off Facebook because of their parents and this has resulted in teenagers maintaining lower profiles on Facebook while spending the majority of their time on newer contenders, such as Twitter, Instagram, SnapChat and WhatsApp.

However, although studies note a 25% drop in the number of younger users, they also report on an 80% surge in users with an age of 55 and above. So is it simply a case that as Facebook gets older, so does its core audience – and does this matter?  Although the demographic has shifted, this could be a positive for Facebook as older users have more spending power than young teenagers. Nate Elliott, analyst with Forrester Research, has pointed out net measurement firm Comscore’s data that despite premature rumours of its early death, 89% of US 18- to 24-year-olds used Facebook in November 2013. He wrote on his blog that:

“One of Facebook’s greatest strengths is its practice of regularly adding new features and functionality to its site; this both ensures it infects new users and also makes sure existing users don’t become immune to its charms.”

IB-style questions

1. Define the following terms:

  • product life cycle
  • mission statement

2. Explain how Facebook makes it profit.

3. With reference to Facebook’s changing user demographic, analyse the usefulness of consumer profiles to a business.

4. Evaluate Facebook’s decision not to censor its content from a commercial viewpoint.