22 April 2010


I’ve been on Facebook for a couple of years now. It’s a great way of keeping up with what family and friends are doing – always assuming that they post messages every now and again.

I don’t play these games like Farmville or take part in the quizzes, it’s quite simply a way of keeping up with people on a regular basis but the other day I made an exception and joined the group, ‘No, I will not pay £3.99 a month to use Facebook from July 9th 2010’.

And then it clicked.

The previous week I’d been reading that Facebook as a business, was worth between $10 billion and $15 billion. How could this be – there’s virtually no advertising on the site? Apparently there some but I’ve never seen any. OK – you can buy ‘credits’ and make virtual gifts to friends etc but do you know anybody who’s bought credits? And Facebook is not like Linkedin, the business oriented contact web site, where you can pay a premium to be able to contact other users and of course Linkedin being a business site has quite a few adverts. So how does Facebook work? And where do the ‘owners’ get their money from to be able to afford the huge banks of computer servers which allow Facebook to work? Who funds the computers who allow between 200 and 400 million users to contact each other?

First some background – Facebook was developed by some (US) Harvard students back in 2004. Sounds strange – ‘back in 2004’ – it’s only 6 years ago!

Mark Zuckerberg, the current CEO and co-founder was always the strategist and leading light of Facebook but apparently the idea had already been thought of by the ‘Winklevoss’ twins, a couple of other Harvard students who didn’t quite possess Zuckerberg’s technical abilities and never quite developed their idea.

The story goes, that when challenged about ‘stealing’ their idea, Zuckerberg paid the twins $65 million (between them) and off they went to become graduates again and row for Oxford in the University Boat Race this year. By the way – they lost!

So where did Zuckerberg get the $65 million from and where does the on-going funding come from to keep the 200-400 million users exchanging pleasantries?

It seems that some ‘low-profile’ investors have been pumping money into the company in the expectation that one day, Facebook will float on the stock market and make them even richer than they are today.

And then of course, we find that Facebook now plan to charge it’s users anywhere between £3.99 and $14 a month although Zuckerberg denies this. So let’s say after the charges start there’s only 50 million users left on the site and that the charge is a ‘piffling’ $5 a month. That’s $250 million a month or a whopping $3 billion a year. Bingo !

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