MENLO PARK, Calif., February 11, 2016 – Facebook, the first major social-media network, which gained more than a billion users worldwide and revolutionized interpersonal communications forever, died today after suffering a long illness of user dissatisfaction. It was 12.
Facebook is survived by its father, Mark Zuckerberg; stepmother, Priscilla Chan; uncles, Eduardo Saverin, Dustin Moskovitz, and Sean Parker; adopted siblings, Instagram and WhatsApp; benefactors including Peter Thiel and Accel Partners; and numerous children in the form of niche, private social networks.
A memorial service will be simultaneously broadcast at 3 p.m. GMT tomorrow on Google+ and YouTube as well as on major television networks throughout the world. Burial will be under the statue of John Harvard on the campus of Harvard University in Cambridge, Massachusetts. Cameron and Tyler Winklevoss will officiate.
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Facebook’s dramatic life story involved stealth entrepreneurship, startup growth, company expansion, societal disruption, and wealth creation before falling victim to its own success later and turning off its users in attempts to make even more money.
But it all began as just a way for friends to keep in touch. Here were the overlapping phases of the life of the social-media giant. (For more details on the pivotal events in Facebook’s life that I mention below, I will refer you to Wikipedia.)
Phase One: The College Network (2004 to 2005)
After spending a month writing Facebook, Mark Zuckerberg launched the social network on February 4, 2004 as a Harvard-only social network. It was merely a way for students to meet, connect, and interact with each other. Over the next two months, Facebook expanded to eight other major universities and was incorporated into a company founded by Zuckerberg, Dustin Moskovitz, and Eduardo Saverin.
In June, Facebook moved to Palo Alto, California, incorporated into a new company with Sean Parker as president, and received its first capital investment – $500,000 from Peter Thiel. In December 2004, Facebook gained its one-millionth user before expanding to colleges throughout the world in early 2005.
Phase Two: Expanding Into New Markets (2005 to 2007)
In May 2005, Accel Partners invested $13 million into Facebook to fuel its ever-increasing growth. In September of that year, the social network launched a high-school version – allowing teenagers to connect with each other just as college students had been doing.
In September of that year, Facebook unveiled the News Feed, an algorithm that shows a stream of updates from a person’s “friends” on the network, and, most significantly, opened itself to everyone in the world (as long as they were at least thirteen years of age and had a valid e-mail address).
The significance of this move was that Facebook was now a way for everyone to keep in touch with friends and family – regardless of whether a person was at a school or university. It was a pivotal move that made the social network the center of communication between people.
Phase Three: The First Attempt at Monetization (2007 to 2009)
In October 2007, Microsoft bought a 1.6% share of Facebook for $240 million. Rumors of buyouts had been circulating for some time, and other social networks such as Twitter had arrived on the digital scene. Facebook then started to change its focus from simply being an innovative communications platform to finding a way to monetize and make a profit.
In November 2007, Facebook started to offer advertising for the first time with the launch of Facebook Beacon. Data from forty-four partner sites (at the beginning) would be sent to Facebook in the form of targeted advertisements and more based on a user’s activity on one of those sites. This use of personal data was the beginning of what many would see as a growing infringement on personal privacy.
The push for advertising – something that had never existed on the network before – undoubtedly worried more than a few employees who had owned stock options likely because they thought the push to make money would eventually turn users off. (The employees were correct – it would just take longer than they had thought.) In August 2008, several of them sold their shares to venture-capital firms.
Facebook Beacon was closed in September 2009 – but other forms of advertising that would allegedly be “better” would come soon.
Phase Four: Page Payments and Competition (2010 to 2013)
In April 2010, Facebook created “community pages,” which were articles that were populated with information from Wikipedia. This change soon paved the way for businesses, brands, and organizations to create their own “pages” – as opposed to the “profiles” for individual people – to market themselves on the network.
After Facebook pages became very popular as a way for businesses to promote themselves – at first – for free, the network unveiled “featured posts” in January 2012 as a way for them to advertise to the friends of people who had engaged with their pages. Facebook would eventually settle a lawsuit on these renamed “sponsored posts” for $20 million. Moreover, Facebook would start to become the target ofaccusations of “click fraud” and “like fraud.”
In October 2010, the film “The Social Network” was released to tell the story of how Facebook was created, and its unflattering portrayal of Zuckerberg would haunt the network for the rest of its life after people realized the founder’s alleged business practices.
Along with the notoriety came the competition. Google, noting the success of Facebook, created Google+ -- which many viewed as the search engine’s answer to Facebook. Even though Google+ has remained a smaller network – but it is huge in certain niches – its users have liked the fact that everyone’s friends and family members are not there and that people are not bombarded with advertisements. (Besides, Google+ is actually much more than a social network.)
The rise of other networks would come largely as methods to capitalize on the growing dissatisfaction that many people had with Facebook.
Phase Five: IPO AND Acquisitions (2012 to 2014)
By April 2012, Facebook saw that it had a major problem – teenagers, whose reputation as early adopters led them to be viewed as an important demographic, had started to abandon the platform. After Facebook had allowed anyone and everyone onto the social network, high-school students started to get “friend requests” from their parents and other family members.
Understandably, they were horrified and started to gravitate towards other competing networks such as Instagram. So, that month, Facebook bought Instagram for $1 billion.
Despite the warning signs, Facebook went public. In May 2012, Facebook’s IPO opened at $38 dollars per share – valuing the company at $104 billion. More financial activity followed. Facebook offered to buy Snapchat for $3 billion but was not successful. The social network did buy WhatsApp for $19 billion.
Phase Six: Abandonment and Decline (2014 to 2016)
Facebook’s ability to capture and use personal data only improved – much to the horror of users who had attempted to ignore what everyone knew the social network was doing.
In March 2014, Facebook’s face-recognition algorithm – which had been the focus of legal controversy since 2011 – became as accurate as human beings. By 2015, people saw that ads were targeting them based on the images in which they had appeared – even if they had not been tagged and had asked “friends” to delete undesired photos of them. There was no way to delete the information that Facebook had stored.
By the middle of 2015, Facebook faced a serious revenue problem. User growth in developed countries – where the social network can charge a premium for advertisers – started to decline as a result of all of these ongoing concerns while the only increased usage was in developing countries in which people have little money to spend on advertising.
As a result, Facebook began a death-spiral. To keep maximizing revenue and profits in the developed world, Facebook increased its ad penetration. Up to 25% of the News Feed was sponsored content. Facebook began sending push notifications several times per day from advertisers via its mobile app. Outraged users began deleting their accounts. The user growth in the Third World was nowhere near enough to compensate. Revenue plummeted along with Facebook’s share price.
In December 2015 -- exactly eleven years after the network had gained its millionth user – Facebook issued a press release stating that the network would close on February 11, 2016, but that the company would retain the rights to any original content, posts, graphics, and video that had ever first been published on the platform.
The news release closed with this announcement: “We look forward to exploring how to monetize Instagram and WhatsApp just as Facebook did successfully.”
For my extensive analysis, please see my essay on the past, present, and future of Facebook at The Cline Group.
Josh Cline is President and CEO of The Cline Group, President and CEO of Cline Ventures, and General Partner of INE Ventures. You can see more of his thoughtshere. Follow him on Twitter.
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