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New Economy, Leadership, Entrepreneurship, Management, Global Business

Learning From Facebook

Posted by iBlog on May 13, 2008

For most business executives, Facebook remains a remote, somewhat mysterious, online frontier. Many executives harbor strong doubts that Facebook is at all relevant to “real business.” After all, isn’t it just a bunch of college kids sharing photos of drinking exploits and trying to hook up with each other?

Let’s start with the stats. Facebook now brings together 66 million online users. While many of these users are students and recent graduates, users 35 years old and older account for more than half of Facebook’s daily visitors and are the network’s most rapidly growing demographic. Currently the average Facebook visitor spends about 2.5 hours per month on the site, which was founded in February, 2004, and was valued at $15 billion three years later when Microsoft purchased a 1.6% share of the company.

Facebook is still largely a social environment where very little commerce occurs. In fact, many businesses have expressed concern about the low click-through rates on advertisements placed on such social network sites. Products are generally not bought or sold on Facebook, but it is becoming an important site for creative talent and businesspeople to achieve visibility and build networks.

On the Edge, But Not Marginal

Dismissing Facebook as irrelevant to business would be dangerously shortsighted. Yes, it is on the edge of traditional business activity, but it is an edge where new approaches to business are being tested and refined. Like most edges in the business world, it may look marginal at the outset, but has the potential to redefine business more broadly over time.

Consider the momentous decision by Facebook in May, 2007, to make its site available to independent, third-party developers to offer their applications to the network’s participants. In one fell swoop a single edge between Facebook and its users fragmented into thousands of edges where a growing number of independent developers can connect and interact with Facebook users in very diverse ways. Developers, drawn by the large numbers of Facebook users, swarmed in to offer a bewildering variety of applications. At last count Facebook had attracted 150,000 active developers, who are now generating more than 20,000 applications.

These edges are fertile with innovation because participation requires such a small investment in time and money. Last fall, psychologist B. J. Fogg taught a class at Stanford University in which he assigned students to develop Facebook applications. During the 10 weeks of the class, 73 students developed applications such as Kiss Me, Oregon Trail, and Secret Admirer, that have since resulted in 25 million installs and, by the end of the class, were attracting about 1 million daily, active users. These applications have generated more than $500,000 in ad revenue since September. At least three companies were formed by students in the class.

Ads Into Action

Edges not only spawn product and service innovations; they also catalyze business-model innovations. On Facebook, for example, the fragmentation of development activity made it inevitable that brokers would emerge to help entrepreneurial application developers monetize the results of their programming efforts by connecting them with advertisers. One of the most prominent of these early brokers is SocialMedia, a company formed by Seth Goldstein, a serial entrepreneur and venture capitalist who recently migrated from Silicon Alley (the infotech neighborhood of Manhattan) to Silicon Valley.

Goldstein sees a massive shift in the online world of communications and advertising, shaped by social network sites like Facebook, as applications provide a new context for placement of relevant advertisements. Rather than placing an online ad on a page of static content, why not place it in an application at appropriate points within a sequence of user actions? To take it further, why not make the entire application a promotion for a product or service?

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