Wednesday, March 04, 2009

Facebook

facebook The world's most popular website has reached another milestone, it now has 175 million active users worldwide.

This is an amazing achievement for a website that was started just four years ago, and it has made it's founder a billionaire, even though he's not yet 25. 

Harvard

Mark Zuckerberg set up Facebook (then known as thefacebook) whilst studying at Harvard in 2004. The original site was only open to students at the University, but this was soon expanded and grew into the multi-million pound business that it is today.

So, you may ask, how did Mark Zuckerberg come up with such an amazing idea it made him a billionaire before his 25th birthday?

The origins of Zuckerberg's billion dollar idea are somewhat clouded. Several former classmates took legal action against him claiming that he had stolen their idea.

His classmates, the owners of ConnectU.com, claimed that they had hired Zuckerberg to make them a dating website for Harvard students whilst they were all studying at Harvard with Zuckerberg and that Zuckerberg used this idea and their source code to create Facebook.

Whether this was the case or not, an out of court settlement this month gave his former classmates $65 million in cash and shares, meaning that Zuckerberg isn't the only Facebook millionaire.

Privacy

Along with the lawsuit, something else had dogged Facebook throughout its development - privacy.

Two MIT students managed to download 70,000 Facebook profiles using a simple script in 2005 and as recently as last year the BBC demonstrated that a simple data mining application was able to gather information on profiles and the profiles of friends.

The more information that is placed in the user profiles and the more accessible it is (i.e. public) the more likely it is that the information could be stolen. Sure, with 175 million users on Facebook the odds may be in the users favour, but security by obscurity is not the wisest option.

Other concerns are highlighted in Channel 4's The IT Crowd's parody of Facebook - friendface.

Sure it's funny, but some of the points raised in the joke advert are very real. Facebook does, for example, state in their terms and conditions:

"We may share your information with third parties, including responsible companies with which we have a relationship."

Your information literally means anything that is uploaded to the website, from profile information and messages through to pictures and video. Like the in the spoof advert, Facebook promises not to hand over information to third parties, at least according to a spokesman:

"Simply put, we have never provided our users' information to third party companies, nor do we intend to."

The very fact that such a clause is in the terms and conditions would seem to imply otherwise.

What's more Facebook altered their terms and conditions on 4th February 2009 to make clear that they wish to keep your information, permanently, even after an account had been cancelled!

This caused something of an uproar when spotted by and pointed out by a consumer rights blog and a few weeks later Facebook was forced to back down and revert to its previous terms and conditions.

Beacon

In November 2007 Facebook launched an advertising programme called Beacon, which again raised serious privacy concerns. Privacy advocates main concern with Beacon was that it sent information back to Facebook from partner sites, so that Facebook can better target adverts, all without the users permission.

Even when Facebook made this an opt in only service, it was still discovered that information was being sent to Facebook, even when users had opted out, or were not logged in.

A lawsuit was filed against Facebook and its partners in the Beacon program in 2008, alleging that the system broke several laws.

Income

The concerns about Facebook are likely to be well founded, after all it is a business and businesses are there to make money. At the moment and despite the massive user base and the apparent worth of the business, it doesn't have a clear way of making money.

Facebook had an estimated turnover of $300 million in 2008, but this doesn't tell the full story. Those servers, bandwidth, staff and other facilities do not come cheap, estimated expenditure in 2008 was $200 million, so they are not getting much change from that $300 million.

It is believed that Facebook generates most of its revenue from advertising but with the click through rate apparently at around 0.02-0.04%, its no Google search.

Google itself is having similar problems with Youtube, the site is popular, it has millions of users but it just isn't making enough from advertising, especially when it spends so much on servers, bandwidth and so forth. It isn't enough just to have lots of visitors to a website, you need some way to convert these hits into cash.

Google is also looking at other ways to make money from Youtube. We can expect the same from Facebook, after all they are not running their respective websites for charity. There are only a few ways of making money from a website, even popular ones, so it will be interesting to see what direction both of these huge websites take in order to monetize their user base.

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