Welcome to “Company in Focus” – a weekly series where I discuss some of the world’s largest companies, including Google, Facebook, Amazon, Twitter and many more of the business world’s behemoths. Each company will be profiled in three sections across three weeks. For the next three weeks, we will be taking a look at tech giant Facebook (FB) and its CEO, Mark Zuckerberg. This week, we will focus on looking at how Facebook started, the business ideas it implemented, and the problems it faced during its infancy.
In October 2003, then-college freshman Mark Zuckerberg exploited Harvard’s online dorm directories, named “face books”, to assemble a collection of student photos. These photos would subsequently be used as raw material for a web project Zuckerberg had named ‘Facemash’, a rendition of the then-popular Hot or Not site. Facemash would present users with photos of two students before prompting the user to select which student was more attractive.
In recent years, Mark Zuckerberg has referred to Facemash as a “prank website” that he “made as a sophomore in college”. Facemash spread virally throughout the student community, where it stirred great controversy before being taken down. On 3 November 2003, Zuckerberg was notified that he would have to appear before a Harvard University disciplinary panel, after which he apologised and promised not to recreate the site. Facemash provided the framework for what was to become Facebook.
On 4 February 2004, the first iteration of Facebook, known as thefacebook.com was born. Initially, the platform was Harvard student exclusive. However, due to extreme popularity, it soon expanded to include students at Yale, Stanford and Columbia. By 2006, anyone in the world could make themselves a Facebook account, as long as they were over the age of 13 and had an email address. In 2005, Zuckerberg had changed the company’s name from “TheFacebook” to “Facebook”, a name that remains to this day.
Facebook – A Stolen Idea?
Merely six days after the launch of “TheFacebook”, Zuckerberg and his colleagues faced serious allegations by Cameron and Tyler Winklevoss and Divya Narendra that the idea for the website had been stolen from them. According to them, they had approached Zuckerberg to request his assistance in creating a social network for Harvard students called “HarvardConnection”.
Following the success of Facebook, a lawsuit was filed against Zuckerberg, eventually resulting in the Winklevoss twins and Divya Narendra receiving 1.2 million shares in the company each (worth an outstanding £328,764,000 as of 17 February 2021).
Much of Facebook’s early success derived from its simplicity and ease of use. At the time, many companies, such as Club Nexus, were experimenting with a variety of scripts and codes to enhance their respective websites, whilst Zuckerberg and his team adopted a simpler approach. The simple nature of their developments meant that the time taken for innovation was minimal, and all Facebook users understood the platform in an era where widespread technological use was in its infancy.
Facebook had also studied areas where previous social networks had failed and treaded carefully to avoid mirroring such errors. For example, in the early 2000s, Friendster and MySpace gained traction across the web before Friendster plummeted in popularity and usage. Friendster did not possess the back-end infrastructure required to support the high usage it was experiencing, resulting in extremely slow servers and declining user satisfaction. Eventually, Friendster users had defected to other networks, resulting in Friendster’s decline.
Based on this, when Facebook was rolled out to other universities, Zuckerberg and his co-founders controlled new registrations. They added one school at a time, waiting until they were certain that their infrastructure could handle it. Zuckerberg correctly identified issues that could potentially lead to the demise of Facebook and ensured his company was protected from them.
Product > Business:
In the early days, Facebook predominantly focused its time and efforts on Facebook’s product rather than lucrative business deals and opportunities. Zuckerberg continually turned away advertising clients, as he felt that ads would ruin the Facebook service. As Facebook grew, Sheryl Sandberg and David Ebersman were hired as senior executives tasked with running Facebook’s business and finances.
The emphasis on product over the business was further evidenced when Zuckerberg wrote a letter to shareholders in 2012 wherein he stated that the company’s intention was to focus on its “social mission” over its business. This approach was also adopted by Jeff Bezos during Amazon’s (AMZN) infancy.
Tune back into The Corporate Feed next week, as I discuss how Facebook amassed 2.8 billion users with quarterly ad revenue of $17.44bn. We will take a closer look at Facebook’s ‘winning formula’ and the different products and services they introduced to swat away potential competitors who threatened their meteoric rise to the top.