FACEBOOK - Nanyang Technopreneurship Center Version/9...In January 2004, Mark Zuckerberg wrote the code for a new website theFacebook.com. Incidentally, it was not the first website

FACEBOOKUSING CONSUMER-LED TECHNOLOGICAL INNNOVATIONS TO BEAT THE ODDS

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1 | P a g e Nanyang Technopreneurship Case Centre (NTCC)

Facebook – Using Consumer-led Technological Innovations to Beat the Odds

Facebook is the largest social network in the world today but is the idea of connecting with friends

online a novel idea? Apparently, it was not a novel concept because when Facebook started, there

were at least two thriving social networking websites with millions of participants in USA alone.

The Facebook enterprise is now worth USD 300 billion dollars. Why did Facebook succeed when

others failed? How did the website of an unknown, inexperienced 19-year-old college dropout

knockout its competitors, even though they were backed by strong financial assets and management

expertise?

Historical background

In January 2004, Mark Zuckerberg wrote the code for a new website theFacebook.com. Incidentally,

it was not the first website designed by Mark. Before this he started ‘Facemash’ on 23 October 2003.

On Facemash, students could upload pictures and compare two pictures side-by-side. Mark

populated the website with student pictures by hacking into Harvard's database and Harvard

students’ outrage led to the shutdown of the website.

But despite the website’s early closure, Mark was able to gauge the interest of users in uploading

their profiles and pictures and checking out the pictures of their friends. Students’ interest in

Facemash inspired Mark to launch thefacebook.com 4 February 2004 from his dorm in Harvard.

Within 24 hours, ‘thefacebook.com’ succeeded in getting between 1,200 and 1,500 registrants. In

those days, Harvard already had a dorm-exclusive online directory which Mark wanted to expand

into a school network and resource.

The initial student support for Facebook was explosive. Facebook spread very fast. By the end of

February 2004, 10,000 Harvard students had registered on Facebook. Students of Columbia,

Stanford, and Yale joined the Facebook on 25, 26 and 29 February 2004. By June 2004, Facebook had

already spread to 30 colleges in the United States and had about 150,000 users.

For any social media network, reaching the young-college population is the strongest challenge.

Facebook aced this challenge upfront by starting the services exclusively for students. When its user-

base expanded to over 2,000 colleges plus 25,000 schools across the world, it decided to open its

membership to everyone. Zuckerberg now could see the potential of social network for even the

general population (people residing outside of the colleges). The decision to open the membership

to everyone was met with criticism by some experts like David Card, senior analyst at Jupiter

Research (Lacy, 2006), but it proved to be a highly successful decision.

Table 1 shows the growth story of Facebook 2004-2006 (its user base expanding across colleges and

schools to general population).

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Table 1: Facebook expanding user base across colleges and schools to general population

Month/year Event

Jan 2004 Mark Zuckerberg began writing the code for the Facebook

Feb 2004 Zuckerberg launched Thefacebook.com; membership was initially restricted to students of the Harvard University

Mar 2004 Facebook registered members from more than 50 per cent of the undergraduates of Harvard University

Jun 2004 Facebook expanded to all Ivy League and Boston-area schools

Dec 2004 Facebook expanded to most universities in the United States; Facebook reaches the mark of one million active users

Jan 2005 Facebook expands internationally to universities outside the US

Sep 2005 Facebook expanded to high school network

Oct 2005 Facebook expanded to 21 universities in the United Kingdom and around the world

Dec 2005 Facebook expanded to universities in Australia and New Zealand; Facebook covered more than 2,000 colleges and 25,000 schools across the world

Jun 2006 Facebook expanded to the employees of several companies including Apple and Microsoft

Sep 2006 Facebook expanded to everyone aged 13 and older who has a valid e-mail address

Facebook has grown at a phenomenal pace since the middle of 2009, but what about the

competition?

Competitive landscape

When Mark Zuckerberg started Facebook, there were two prominent similar websites dominating

the social media space — Friendster and Myspace.

Friendster

Many people believe that Friendster was the original social network, which debuted in early 2003

and was called ‘one of the most innovative ideas’ on the web (Dworjan, 2010). Google offered to pay

Friendster’s founder Abrams USD 30 million to buy over in 2003 (Dworjan, 2010; Fiegerman, 2014;

Rivlin, 2006), but Abrams rejected the offer.

The company in 2003 received a funding of USD 13 million from private capital investor firms Kleiner

Perkins Caufield & Byers (KPCB) and Benchmark Capital (Dworjan, 2010; Fiegerman, 2014).With the

initial funding, Friendster expanded to over 3 million users within a few months (Dworjan, 2010;

Rivlin, 2006). In August 2006, Friendster received DAG Ventures’s funding of USD 10 million

(Kawabata, 2006), and later in August 2008, it received IDG Ventures’s funding of USD 20 million

(McCarthy, 2008).

In those days, Friendster certainly was a phenomenon which a Facebook or a Myspace would have

aspired to be and many companies eyed for a pie in Friendster.

If Google had paid him in stock and he had kept it, Abrams would easily be worth $1 billion

today… And with Google's ample resources, Friendster might have solidified its position as

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the pioneering front-runner in social networking. Instead, Abrams has the distinction of

having founded a company that is a symbol of unmet potential (Rivlin, 2006).

In 2008, Friendster crossed its membership base to over 100 million users and later continued its

growth in Asian markets (Wikipedia, n.d.a). Since Friendster was a pioneer in social media

networking, the company had numerous patents related to social networking. Examples include

gauging similar users, storage of social data relationships, content management on the Internet etc.

It sold 18 of such patents to Facebook for a sum of approximately USD 40 million in 2010 (Dworjan,

2010; Fiegerman, 2014).

Myspace

Myspace was started in 2003 by some of eUniverse employees formerly working for Friendster. They

used some of Friendster’s popular features to create Myspace. Myspace was essentially an online

community where ‘friend met friends’ and it offered an interactive, user-submitted network of

friends, personal profiles, blogs, groups, photos, music, and videos (Wikipedia, n.d.a).

Myspace targeted a similar audience, had robust capability, and was in the market long

before Facebook. It generated enormous interest, received a lot of early press, created huge

valuation when investors jumped in, and was undoubtedly not only an early internet success

– but a seminal website for the movement we now call social media (Ahsan, 2015).

Myspace had a significant impact on the music scene and pop culture in 2000s (Molloy, 2008) and

many successful companies including Zynga and Rockyou were launched by using Myspace as a

platform (Eldon, 2009). Myspace was also used by companies and artists to create a unique URL for

their videos and creative work (Lanxon, 2008).

One month after its launch, Myspace already had 1 million people registered and within six months

they had 5 million users. Between 2005 and 2008, Myspace was the largest social networking

website in the world. In June 2006, it even took over Google as the most visited website in the

United States (Cashmore, 2006). At the end of 2006, Myspace was arguably the largest player in

social media space with 43 million active users whereas Facebook was a distant second with only 12

million active users. At that time, Myspace was the fifth most popular US website in page views and

it generated USD 800 million in revenue during the 2008 fiscal year (Dignan, 2007).

MySpace was eventually taken over by News Corporation of Rupert Murdoch for USD 580 million, a

robust media company and thereafter a team of professional managers were guiding and supporting

it. It had all the resources of a powerful media house — a human resources department, technical

expertise, financial muscle, technological superiority, and high server capacities, and was a

successful internet startup creating a new space called ‘social networking’.

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Prevalent company policies in the early days of social media The founding president of Facebook Sean Parker in an interview mentioned that the credit of Facebook’s success goes to the college kids.

Facebook entered the market through college and the reason we went in through college

was that college kids were generally not Myspace users. College kids were generally not

Friendster users also. The ingenious move of targeting college kids led to Facebook’s

eventual market dominance (Tsotis, 2011).

When Facebook allowed early registration in 2003, they took the process slowly, allowing one

college at a time to register while developing the system and infrastructure to provide a backend

support. In contrast, Friendster failed to restrict the usage until their usage was so heavy that in the

absence of proper infrastructure their service slowed to a crawl and most of the users started

migrating to alternative platforms.

In those early days of social media, anonymity was a norm and the web was a different world from

this day and time. It was expected that users come up with innovative handles such as Rambo17 or

Googlegirl. Such names were commonly seen in the chat rooms of Myspace and Friendster. But in

contrast to the existing norms, Facebook ensured that the users were students who used their real

names, profiles, and profile pictures. It was a healthy change and a new practice in those days. It

gave the needed confidence that they were dealing with real people and that made it easy for them

to relate to other users. The use of real names added a sense of authenticity to Facebook over

seemingly fake profiles found on Myspace and Friendster.

Back in 2004, Facebook was an agile company. With virtually no resource, it had the advantage of

letting the market forces decide on the future direction. In contrast to well-managed competitors

with professional teams to make the decisions, Facebook was managed without any written rules in

place and Mark let the marketplace and users decide where to take the business. No rules. No

plans. No forecasting of markets. No foretelling (Ahsan, 2015). Facebook just added features which

users wanted, and altered and deleted the features to suit users. Whatever users and the market

wanted flourished and whatever users disliked simply perished and then eventually vanished.

In contrast, Myspace had a plan. It was run by News Corps managers who created PowerPoint slides,

business plans, investment forecasts, and positive ROI plans for a social media business of which no

one had a clue at that time. Managers tried to look into the future, made forecasts and took rigid

decisions, leaving little for the feedback from users and leaving no space for the market forces to

shape the business.

In fact, Facebook has always operated in a similar fashion. Instead of doing focus groups and

studying the consumers the way other companies did, Facebook just rolled out the features (Oun,

2014). Often these features were met with lot of criticism. For example, Beacon was disliked and

withdrawn immediately. In addition, News Feed was initially disliked but was later tweaked to suit

the user. Facebook always immediately apologised for mistakes and moved on to new features to

appeal to the users. In one of the emails apologizing to users in 2007, Mark wrote,

About a month ago, we released a new feature called Beacon to try to help people share

information with their friends about things they do on the web. We've made a lot of

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mistakes building this feature, but we've made even more with how we've handled them.

We simply did a bad job with this release, and I apologise for it. While I am disappointed

with our mistakes, we appreciate all the feedback we have received from our users. I'd like

to discuss what we have learned and how we have improved Beacon…

The competitors such as Friendster fought with users instead (Boyd, 2006). When users wanted the

group feature, managers at Friendster stopped the users from having that and gave them what they

thought would bring in more revenues and page hits. Facebook, however, followed the market shifts

and changed accordingly. Social media was after all a new space at that time and no one knew how

the users will behave.

In terms of layout, Facebook (primarily due to its lack of financial power) used simple, user-friendly

presentation. Features like photos, comments, likes, and activity were all easily found under

individual profiles; Facebook also had a FAQ page to help answer user questions (Welsh, 2014). In

contrast, Myspace had cluttered pages, and users found it very hard to navigate through them.

Unlike Facebook’s standard layout, the Myspace home page can be customised by users and this led

to the tech-savvy users having slick profile pages whereas non-tech users were left with dull, boring

home pages. Myspace also did not offer any useful database and users had to depend on themselves

(Welsh, 2014).

Investors wanted ROI. As a result, Myspace and Friendster were run like businesses with the focus

on getting fast returns and Ads began to dominate these websites (Welsh, 2014).

Jack Welsh (2014) says that “Ads were everywhere, on homepage, profiles, toolbars, and led to

annoyance amongst users”.

Peter Deng, director of Product for Facebook says about Myspace –

Myspace loves advertisers more than they love users. They over optimise for the

advertiser's experience to the point where it's just embarrassing. Even if you're logged in,

going to myspace.com takes you to the splash page with the big ad of the day (one time,

they sold an Incredible Hulk ad where the Hulk jumped out at you — no joke). When

viewing a profile, the advertisements are more prominent than the person's picture. There

are at least 3 big visual ads on every page.

In contrast, Facebook did not have the pressure of making quick money so their ads were placed to

the side while their user profiles were tailored specifically to each individual (Welsh, 2014)

Writing about Myspace, Jeff Bullas, author of Blogging the Smart Way- How to Create and Market a

Killer Blog with Social Media says,

Myspace was created for 15 year olds and the entertainment industry and unfortunately,

rather than expand the site to appeal to the mainstream market, News Corp let it stay that

way. Myspace profiles were not tailored for marketing a business and if a company created

a profile, it stood out of place. You were able to create a customised Myspace page for

yourself. The problem was that do-it-yourself backgrounds were painful to the eye and set

Internet design standards back by 20 years. In contrast, Facebook’s standard interface was a

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treat and delivered a consistent user experience as opposed to Myspace’s post-industrial-

garage look.

User misbehavior

Mike Fisher, former PayPal vice president of Engineering and Architecture, after interviewing former

Friendster and Facebook executives, writes in his book, The Power of Customer Misbehavior (Fisher,

2013),

Engineers at Facebook noticed that users weren’t just creating accounts for themselves but

were also creating them for their pets. Facebook could have deleted them, assuming that

they were fake accounts or simply refusing to allow users to deviate from some pre-

determined product purpose. Instead, the company embraced that misuse and invested

significant time into exploring it further.

The unique user behavior led Facebook to redefine the original platform on to other related

products such as Catbook and Dogbook where they invited users to discuss their pets on the social

media. Suddenly the user base of Facebook increased, from only human beings to even non-human

beings! In contrast, Friendster stuck to its rigid, anti-misuse philosophy and the engineers there were

very quick to delete any non-human accounts while Friendster refused to entertain any such

innovative use of social media platform by its users.

Chris Cox, VP of Product, Facebook told the audience at the 2010 F8 Developer Conference,

In early days Facebook allowed user misbehavior to guide their product development path.

In the early days of Facebook, the site was only designed for people to friend each other.

Facebook noticed that its primarily college-aged user base was creating pages for specific

classes that students would “friend”. The savvy engineers at Facebook used this information

to create its now-popular Groups function (Fisher, 2013).

Similar misbehavior was seen when the Facebook team noticed that groups were used to schedule

meet-ups and parties. Facebook engineers came up with different functionality items such as start-

times, locations, and events functionality. In contrast, Friendster was strict with its policies and

deleted the accounts of all those users who did not adhere to its guidelines and codes.

Mark Fisher writes in The Power of Customer Misbehavior,

It’s not the sole reason the company failed, of course, but it certainly contributed to its

demise. That lack of outside-the-box thinking caused Friendster to miss out on some huge

opportunities. And as users began to realise that Facebook was more open to feature

exploration and iteration, they departed Friendster in droves.

Facebook was a very simple product that made it easy to respond quickly to user demands, in

contrast, the competitors were entranced with creating all the amazing features which they wanted

to build into their product (Oun, 2014). Instead of creating a complex product, Mark and his team

made vast improvements to facebook.com over the years with just user inspired innovations

(Blodget, 2012).

About what went wrong with Myspace, founding president of Facebook Sean Parker said,

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The failure to execute product development; they weren’t successful in treating and evolving

the product enough, it was basically this junk heap of bad design that persisted for many

years. There was a period of time where if they had just copied Facebook rapidly, they would

have been Facebook. They were giant, the network effects, the scale effects were enormous

(Tsotsis, 2012).

Response to new technology

Currently around half a billion users access Facebook from their mobile phones (Ha, 2015). In fact

Facebook launched its iPhone app in August 2007 whereas Myspace recognised the importance of

mobile phones only a full one year later. In that one year alone around 12 million iPhones were sold

in the US market (Baer, 2010).

According to Jay Baer (2010), author of Hug your haters: How to embrace complaints and keep your

customers,

MySpace was slow to adopt mobile technology, and the lack of MySpace in your pocket was

part of what killed them. Facebook has been mobile-focused since it was even marginally

practical to be so, and the most recent estimates I’ve seen show that upwards of 65 million

Americans (2010 figures) access Facebook from a mobile device monthly. Further, mobile

users actually spend more time on Facebook, not less.

The tools of social media always change. And that’s why your social media strategy must be

tools agnostic. The next time you start thinking too hard about your Twitter “strategy”

remember MySpace. Will you do that for me please?

Facebook was not the first company to realise the importance of mobile phones. It was in fact,

Google. Google and Facebook rose to dominance on the desktop usage but Google was truly the first

company to realise the importance of mobile phones and started focusing in that direction to

declare itself ‘mobile first’. The term was first coined by analyst Mary Meeker, a KBCB partner.

Meeker, in a report published in 2009, predicted for the first time that more people would soon

connect to the Internet on mobile devices than on personal computers (Guynn, 2012) and taking cue

from this report, firms started building their strategies around the mobile phones. The first to

respond was Google and the second was Facebook. Facebook started focusing on the applications

meant only for smartphones as early as 2008 and acquired Instagram for its enormous mobile phone

presence. According to Stewart Alsop, a partner in the venture capital firm Alsop Louie Partners, says

(Guynn, 2012), “Facebook was smart to buy Instagram, the ‘poster child’ for building products to

work first and foremost on a smartphone”.

Facebook started working on mobile solutions in 2006 and has grown as the mobile phone

technology grew. Initially, it used tools such as m.sites, later web kit touch interfaces, and now is at

the precipice of using HTML5 (Rowinski, 2011).

Zuckerberg was smart enough to realise the importance of mobile phones early. Today, out of 1.32

billion people who use Facebook each month, 399 million (almost a third) use Facebook only from

their mobile phones. While the user base of Facebook has grown at a rate of 14 per cent, its mobile

user base has grown at a rate of 31 per cent! When Facebook went public, the company had not yet

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made a cent from its mobile business and had no mobile ads till 2012. But now it makes 62 percent

of its advertising revenue from mobile phones. Currently over one billion people use Facebook on

mobile devices every month and it is an upward trend. Figure 1 and Figure 2 show the growth of

mobile phone users of the Facebook.

Figure 1: Facebook’s transition to become a mobile-first company (Statista, 2016)

Figure 2: Number of mobile monthly active Facebook users worldwide (Statista, 2016)

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During 2013 TechCrunch Disrupt conference in San Francisco, Zuckerberg said,

We took a bad bet… Our legacy as a company was building this big website and focusing on

being able to develop for the web. So naturally we tried to look at things and see if we could

build an HTML5 system for across these different platforms and we just realised pretty

quickly that we weren't going to get the quality level that we needed (Wagner, 2013).

Facebook still invests significant amount of resources in finding out the mobile habits of people

across developing countries. The company sent a team of engineers to get a first-hand look at the

ways phone apps are being used in these markets. In another research, Facebook sent one engineer

to local markets in the developing countries to purchase mobile phones for less than 50 USD in an

exercise to understand the type of devices people are using and how Facebook can best integrate its

services even with those cheap mobile phones (Wagner, 2013).

Success of Facebook and the demise of competition

At the end of 2008, Myspace attracted 75.9 million monthly visitors but by May 2011 this figure had

dropped down to 34.8 million users (Gillette, 2011; Szalai, 2011). In that period, Myspace lost more

than a million users per month. At its peak, in 2009 Myspace generated USD 470 million from

advertising which fell to USD 119 million by 2014, compared to USD 12.4 billion revenue of Facebook

in 2014, according to Facebook press release on 28 Jan 2015. In 2011, Myspace sacked 500

employees, slashed its international operations, and changed its focus from social networking to

entertainment and music only (Barnett, 2011). Talking to the Telegraph, Mike Jones, Myspace’s chief

executive, admitted that

Myspace is not a social network anymore. It is now a social entertainment destination. There

have been more than 3.3 million new profiles created, with particular interest around the

new entertainment-themed topic pages (Barnett, 2011)

Meanwhile Friendster focused more on its operations in Asia and shifted its base to Kuala Lumpur,

Malaysia. The company redesigned itself as a social gaming website in June 2011 and its number of

registered users exceeded 115 million. The company operated mainly from three Asian countries –

Philippines, Malaysia and Singapore (Wikipedia, n.d.a). On 14 June 14 2015, Friendster services were

suspended –

However due to the evolving landscape in our challenging industry, the online gaming

community did not engage as much as we had hoped for. Profound development in the

gaming industry has led us to rethink our strategic priorities…….We have thus made a

decision to take a break and pause our services effective June 14, 2015 (Friendster, n.d.).

As of the fourth quarter of 2015, the social network had close to 1.44 billion mobile MAU. Facebook

surpassed one billion mobile MAU during the first quarter of 2014 (Statista, 2016) and its initial

public offering was held on Friday, 18 May 2012. On 13 July 2015, Facebook became the fastest

company to reach a market capitalization of USD 250 billion (Davis, 2015) and by the third quarter of

2015, its market capitalization had exceeded USD 300 billion.

http://www.telegraph.co.uk/technology/myspace/8130097/MySpace-surrenders-to-Facebook-in-battle-of-social-networks.html

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Figure 3: Trend of users on various social media websites from 2005 onwards (Comscore.com, 2007;

2012)

Business model of Facebook

Currently Facebook is the leading social networking site in the world. Facebook users can stay

connected with friends, acquaintances, families, and colleagues and enjoy mostly free-of-charge

features such as “Timeline, News Feed, Photos and Videos, Messages (Email, Chat, Text Messaging),

Groups, Lists, Events, Places, Subscribe, Ticker, Notifications, and Facebook Pages” (Bmimatters.com,

2012).

With so many features at hand, Facebook helps its users express themselves in any way possible by

sharing their opinions, ideas, photos, or activities. With its unimaginable reach, the value of

Facebook for the advertisers is immense. Advertisers can target their consumers on a wide array of

hitherto unavailable information — age, gender, location, education, work history, surfing patterns,

and specific interests. Even business owners can create customised Facebook Pages for their

companies and can engage with the interested audience in a much better way and can maintain

contact with their customers easily and respond to customers in a much timelier manner. See Table

2 and Figure 4 for a summary of the Facebook business model and the user growth.

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Table 2: The Facebook business model (Bmimatters.com)

Key Partners Key Activities Value Propositions Relationships Customer

Segments

Content Partners

(TV shows, Movies, Music, News Articles)

Platform Development,

Data Center Operations Management

Connect with your friends, Discover & Learn, Express yourself

Reach, Relevance, Social Context, Engagement

Personalised and Social Experiences, Social Distribution, Payments

Same-side Network Effects

Cross-side Network Effects

Internet Users

Advertisers and Marketers

Developers

Key Resources

Facebook Platform,

Technology Infrastructure

Channels

Website, Mobile Apps

Facebook Ads

Facebook Pages

Developer Tools and APIs

Cost Structure

Data center costs General and Administrative Marketing and

Sales Research and Development

Revenue Streams

Free Ad revenues Payment revenues

Figure 4: Growth of Facebook users (Wikipedia, n.d.b)

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While most of the services accessible by the users are free, Facebook revenue comes from two

sources.

Advertising

Advertising, estimated at more than USD one billion per quarter, to its 1.2 billion monthly active

users, is the main source for revenue for Facebook (Bmimatters.com). With the vast amount of data

about Facebooks’ users, advertisers can skillfully target their customers’ personal information and

usage patterns.

Figure 5: Growth of Facebook’s revenue (Wikipedia, n.d.b)

Advertising accounted for 82 per cent of its total revenue (amounting to a total of USD 872 million)

in the first quarter of 2012. Some of the biggest spenders of advertising dollars on Facebook include

Ford, HSBC Bank, Visa, McDonalds, Dell, Starbucks, Disney, Samsung, Nestle, and Budweiser. Most of

the advertisers are looking for likes and shares, sidebar ads, sponsored stories, and promoted posts

and generally pay around five cents to five dollars per click.

Payments

The other major contributor of the revenue for Facebook is payments. Within the payments

category, virtual games contributes most to the topline; for example, selling credits for the online

game Farmville contributed USD 186 million for Facebook in the first quarter of 2012. While the

advertising remains the mainstay for the revenue source in Facebook, the contribution from

payments is showing a steady increase. Payment revenues increased from about two per cent in

2009 to nearly 11 per cent in 2011.

However, with more people accessing the Facebook now from their mobile phones, the revenue

from payments is slated to decline because people no longer play those games on the mobile

phones. According to the company’s quarterly report, “Facebook usage on personal computers has

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been declining and will continue to decline in the future, resulting in a decline in our Payments

revenue” (D’Onfro, 2015).

Facebook has also partnered with content providers such as Netflix and Hulu to provide online

movies, shows, music, among others. This feature has increased Facebook user engagement

tremendously and may contribute to the future revenue model.

While advertising is still the main revenue source for Facebook, the cost centre for Facebook is

mainly Facebook-owned data centres (see Table 1) which currently store more than 100 quadrillion

bytes of photos and videos. This data is growing each day and the company has to invest more and

more in resources.

Facebook has also made some costly acquisitions. For example, Facebook bought Instagram for USD

1 billion in 2012. However, at the time of acquisition, Instagram had just 13 employees and zero

revenue (Oreskovic, 2015). How such acquisitions will contribute to Facebook’s revenue is yet to be

seen.

The technological space is evolving very fast while new business and advertising models keep

evolving with it. At present it is anyone’s guess how the revenue of Facebook will shape up 10 years

down the line!

The Future

Will Facebook continue to rise in the same spectacular fashion?

Will the success of Facebook continue in future?

Is Facebook still popular with teenagers and the current generation?

Well some people disagree! Age restrictions keep Facebook accessible only to people aged 13 and

older. Are the youngsters below this age are not using any kind of social media or are they simply

not using Facebook?

Facebook has more than one billion users worldwide and is often seen by teens as a site which is

“too risky and, above all, too overrun by parents to give teens the type of digital freedom or release

they crave” (Grove, 2013). Currently, 80 percent of teenagers use social networking websites

(Madden et al., 2013) and form a major chunk of active users in any social network.

David Ebersman, Facebook’s chief financial officer (CFO) admitted that

What we do know is that Instagram is already a very popular service that continues to grow

rapidly, and we believe, based on the information that we have, that it's quite popular

among these kinds of users that you're asking about, the younger generation. It is very

important for Facebook to build products that are useful to those users, and to build

products that they feel comfortable...they can have a good experience with. Definitely high

on the list of priorities for us (Grove, 2013).

S/N 88-16-009



Jennifer Grove (2013) writes that teenagers are already getting bored of Facebook, and “for tweens

and teens, Instagram and more recently, Snapchat, an app for sending photos and videos that

appear and then disappear is the opposite of Facebook: simple, seemingly secret, and fun”.

A Pew Research Centre report shows the following trends —

Many teens are annoyed by the personal and social “drama” found on Facebook and feel

pressured by the associated social expectations. Some teens are concerned about

maintaining and managing their online reputation.

Focus group discussions with teens show that they have waning enthusiasm for Facebook,

disliking the increasing adult presence, people sharing excessively, and stressful “drama,”

but they keep using it because participation is an important part of overall teenage

socializing.

Those teens who used sites like Twitter and Instagram reported feeling like they could better

express themselves on these platforms, where they felt freed from the social expectations

and constraints of Facebook. Some teens may migrate their activity and attention to other

sites to escape the drama and pressures they find on Facebook, although most still remain

active on Facebook as well (Madden et al., 2013)

In its third-quarter earnings call with analysts, according to Facebook chief financial officer David

Ebersman, "[Y]outh usage among U.S. teens was stable overall from Q2 to Q3, but we did see a

decrease in daily users partly among younger teens" (Wagner, 2013).

Recent reports have indicated that the teen usage of Facebook has been declining and that the teens

are moving on to other apps like Snapchat. Without teens’ support, the company will not be able to

attract future users. Teens have become such a problem for Facebook so much so that during

Facebook's fourth-quarter earnings call, the company even declined to discuss teens (Wasserman,

2014).

Daniel Miller, an anthropologist at the University College London recently led an eight-nation,

multicity study on social media use among 16- to 18-year-olds, he observed that "[m]ostly, they feel

embarrassed even to be associated with it [Facebook]". In his words,

What appears to be the most seminal moment in a young person’s decision to leave

Facebook was surely that dreaded day your mum sends you a friend request. You just can’t

be young and free if you know your parents can access your every indiscretion (Ross, 2014).

Miller even added that older teens in the United Kingdom "are turning away in their droves” and

Facebook is “basically dead and buried among U.K. youth”.

In a recent study, Cornell University researchers used epidemiological modeling of online social

network dynamics to predict that Facebook will lose 80 per cent of its users by 2017 (Aziz, 2014;

Cannarella & Spechler, 2014). They believe that Myspace once took the path that Facebook is taking.

S/N 88-16-009



The following table provides the anecdotal evidence of the declining share of Facebook among the

teens. The data shows a collective drop of around 33 per cent users between the ages of 13 and 24

years.

Table 3: Anecdotal evidence of declining share of Facebook among teens (Facebook Social Ads

platform; Mathews, 2014)

As on Jan 2011 As on Jan 2014

Users Percentage Users Percentage Growth

(in per cent)

GENDER

US Males 63,645,480 43.4 82,000,000 45.6 28.8

US Females 80,711,340 55 96,000,000 53.3 18.9

Unknown 2,448,180 1.7 2,000,000 1.1 -18.3

Total 146,805,000 100 180,000,000 100 22.6

AGE

13-17 13,114,780 8.9 9,800,000 5.4 -25.3

18-24 45,406,460 30.9 42,000,000 23.3 -7.5

25-34 33,171,080 22.6 44,000,000 24.4 32.6

35-54 39,595,900 27 56,000,000 31.1 41.4

55+ 15,516,780 10.6 28,000,000 15.6 80.4

CURRENT ENROLLMENT

High School 7,292,080 5 3,000,000 1.7 -58.9

College 11,748,840 8 4,800,000 2.7 -59.1

College Alumni 36,441,600 24.8 60,000,000 33.3 64.6

The data shows that teens still use Facebook but no longer see it as the most prestigious social

networking website (BI Intelligence, 2015).

The rise in more teens listing Instagram as their "most important" social network, and the

decline of Facebook in this category, has been one of the most pronounced demographic

trends in social media (BI intelligence, 2015).

The following figure shows how the share of other social networks among the teens is increasing

steadily whereas the share of Facebook is declining at the same time. To quote analyst at BI

Intelligence Piper Jaffrey, “In late 2012, 42 per cent of teens listed Facebook as the ‘most important’

but by early 2015 only 14 per cent did so. That's a 28-point drop”.

S/N 88-16-009



Figure 6: Declining Facebook popularity among teens compared to other social networks (BI

intelligence, 2015)

All advertisers want to target young consumers as the consumption in that age group is more

malleable and the decreasing usage of Facebook among the teens can make it less lucrative for the

advertisers in future (Mathews, 2014). Moreover, the advertisers are more interested in active users

who can be targeted based on their behavior on social media. If teens are active users of other

websites, then Facebook can lose a valuable salable database of its young users’ online habits,

thereby affecting the advertisers’ ability to target the youth more effectively.

It is not that Facebook is not aware of these challenges. Mark Zuckerberg recently gave his strategic

visons for the company as follows:

Three-year plan – “continuing to grow and serve our existing communities and businesses and

help them reach their full potential”

Five-year plan – “taking our next generation of services, Instagram, Messenger, WhatsApp and

Search and helping them connect billions of people and become important businesses in their

own right”

Ten-year plan – “driving the fundamental changes in the world that we need to achieve our

mission, connecting the whole world, understanding a world with big leaps in AIs and developing

the next generation of platforms, especially in computing” (Shontell, 2014)

In fact, Zuckerberg departs from its existing business model in his 10-year plan which is based on

new technologies of drones, artificial intelligence, and virtual reality (King, 2015).

Drones – between 1.1 to 2.8 billion people or 16 per cent to 40 per cent of the world's

population does not have access to a mobile network connection to the Internet. Facebook is

30

27

23

54

24

32

24

1413

4

12

8

5

0

5

10

15

20

25

30

35

Instagram Twitter Facebook Snapchat Tumblr Google + Pinterest Other Don’t use social

networks

Pe

rce

nta

ge u

sers

Most important social network among teens (US)

Spring 2014

Spring 2015

S/N 88-16-009



investing in technology where drones can beam internet access to these areas from satellites. In

Zuckerberg’s words,

It’s easy to take for granted that most people have access to the internet, but

actually only one third of the worlds, 2.7 billion people, currently have access to the

internet. Upgrading to a smartphone doesn’t instantly mean access to the internet,

that’s just not true. So we’re not on a path to connect everyone right now, unless

something dramatic changes (Gibbs, 2014).

Artificial intelligence – As the world is getting connected, more and more content is being added

each day and Zuckerberg feels that in future, a person cannot easily find the information he is

looking for. Sensing this opportunity and the future need, the Facebook is increasingly investing

in artificial intelligence for helping the user to sort out the information and provide tips for

finding the correct information in the virtual maze.

Virtual reality – To Zuckerberg, “sharing our lives through text, photo, and video is not enough”.

Moreover, “Facebook wants users to feel like they’re actually sitting next to whichever aunt

decides to film an embarrassing video of their cousin's first school play” (King, 2015). In future

Facebook wants its two users to sit next to each other and talk or hug using virtual reality

platforms.

In the current social media space, four new contenders for the crown have emerged — Twitter,

Instagram, Snapchat, and WhatsApp. Facebook already owns Instagram and WhatsApp, so it is still

the biggest player, but because technology is evolving very fast, no one knows what the future holds

for Facebook.

End-of-Case Questions

Question 1

What was it that Facebook was doing differently which the competitors failed to incorporate in their

business model?

Question 2

How is marketing in social networking platforms different from traditional industry? And did anyone

know this at that time?

Question 3

Can consumers drive the product innovation in social media or is it a job best left to engineers?

Question 4

Will Facebook continue to be the major player in social media in future? How should it market itself

to the youngsters?

S/N 88-16-009



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About Nanyang Technopreneurship Case Centre

With funding from both the National Research Foundation of Singapore and Nanyang Technological

University, the Nanyang Technopreneurship Case Centre (NTCC) was one of the initiatives of the

Nanyang Technopreneurship Centre (NTC) to enhance the quality of entrepreneurship education

through the case pedagogy. These are part of NTC’s efforts to foster, promote and nurture

enterprising mind-sets, skills and knowledge in entrepreneurship education.

There is a plethora of business cases but a general paucity of cases highlighting the specific problems

faced by technopreneurs in growing their ventures. NTCC adds value to Technopreneurship

education by developing a pool of cases on technology-based local and international enterprises.

Through the cases, NTCC hopes to share the experiences, success stories and challenges faced by

entrepreneurs/intrapreneurs in growing their organisations and how they overcome their problems

to sustain growth.

The theme of this first compendium is “innovation through technology”. It features Singapore-based

and global companies confronting issues and challenges due to technological shifts in the industry

and changing market and competitive dynamics; when introducing new products in the marketplace;

and in using technology to drive organizational change.

Online versions of these cases are available for complimentary downloads at

www.ntc.ntu.edu.sg/ntcc .

Teaching notes are also available to faculty members for use as reference, reading and/or teaching

materials in various academic and professional programs. For further information, please contact

Ms. Denise Lee ([email protected]) and Mr. Wu Chong Chuan ([email protected]).

Acknowledgment

The Nanyang Technopreneurship Case Centre (NTCC) was supported by the National Research

Foundation (NRF) and the Nanyang Technological University (NTU). We would like to thank NRF and

NTU for their funding support.

We would also like to show our gratitude to all the writers, reviewers and anyone who have

contributed to the accomplishment of the NTCC.

http://www.ntc.ntu.edu.sg/ntcc

mailto:[email protected]

mailto:[email protected]

Documents

FACEBOOK - Nanyang Technopreneurship Center Version/9...In January 2004, Mark Zuckerberg wrote the code for a new website theFacebook.com. Incidentally, it was not the first website