Five Smart Things "The Facebook" Did on its Road to Positive Cash-Flow


facebook_socialnerdiaFacebook has finally done it. The company not only reached the 300 million user mark but it also achieved its positive cash-flow milestone last quarter (ahead of schedule), according to Mark Zuckerberg's blog posting on Tuesday. Here's a look at five smart things they did right  to get to where they are today.

1. Opening Up to Everyone

facebookconnectFacebook started as a social network for Harvard students in 2004. After signing up over half of the Harvard undergraduate population in one month, the site opened up to other Boston and Ivy League universities. The site continued to spread through schools around the nation (including my very own SMU) and opened up to High School students by 2005. Today, Facebook is not only open to anyone around the world, but it has also opened itself so that its users are searchable by nonmembers. More importantly, Facebook grew in both features and popularity by opening itself to others. Mobile web sites and apps are available on all major mobile OS platforms. Developers have created apps like iLike, Scrabulous and Fan Check. Companies like Apple and Microsoft have leveraged Facebook's API to connect to the site through products like iTunes and the Xbox 360. Thousands of web sites like Hulu and blogs like Mashable have allowed users to leave comments using their Facebook accounts via the now multilingual log-in system that we've come to know as Facebook Connect. And let's not forget that it was Facebook Connect that enabled the last push for Facebook to surpass MySpace's traffic in the U.S.

2. Becoming the Anti-MySpace that Doesn't Sell Itself Short

facebookfastcompany_socialnerdiaMichael Arrington once said that Facebook had become the "Anti-MySpace" by deciding to open itself up. Just as Facebook didn't follow in MySpace's paranoid footsteps (remember how MySpace was so threatened by PhotoBucket that it acquired it in 2007?), it also did not flirt with large corporation that would swallow it. With rumors of Friendster being interested to pay upwards of $10 million, the News Corp. acquisition of MySpace in 2005, and Yahoo!'s offer of up to $1 billion in 2006, Facebook must have felt a little tempted. Still, Facebook focused on its site and its users and Zuckerberg's words on July 17, 2007 have been proven to be true: "We're not really looking to sell the company... We're not looking to IPO anytime soon. It's just not the core focus of the company." With 1000 employees and a predicted $500 million in revenue for 2009, it is clear that MySpace is history.

3. Learning from Twitter and Acquiring FriendFeed

facebooklite_socialnerdiaToday, Twitter is Facebook's biggest threat. Sure, Twitter has a much smaller user base and very different functionality, but Facebook has had to learn much from the so-called microblogging site that has taken the world by storm since SXSW in 2007. For example, Facebook's addition of vanity URLs and the recent launch of a Lite version that is simpler, cleaner, and speedier (kind of like Twitter without the Fail Whale). The announcement of "@ Mentions" is a straight up copy of Twitter's "@ Replies" and an expected move since Twitter users on Facebook have been entering non-functional "@" symbols for a while now. But perhaps the most strategic move has been the acquisition of FriendFeed. Facebook had been copying some of FriendFeed's coolest functionalities (comments and liking are FriendFeed-inspired), so it made sense to acquire the company for its talented group of engineers. Facebook's chase after real-time (which was a popular topic at TechCrunch50) is not new but it is now aggressively pursuing it; starting with the announcement of Tornado, an open-source framework created by the FriendFeed team that allows for thousands of simultaneous transactions and powers real-time functionality.

4. Making Social Media Marketing a Reality

fridaysfacebook_socialnerdiaToday, everyone claims to be a "social media expert" and Facebook is partly guilty of this flooding of gurus. Anyone with a few dollars is able to place targeted text and image banner ad on Facebook, and anyone with a couple of minutes can create a Page that others can "fan". The word itself was a brilliant move on Facebook's part because marketers love the idea of "fans" that spread positive messages and experiences virally. Brand pages have become so integrated with marketing campaigns that they have become the center call to action of campaign's like TGI Friday's recent push of its Jack Burger. Facebook users can also create Groups for pretty much anything, including love for companies and products. And, if that wasn't enough, Facebook is experimenting to allow users to buy products from 3rd parties (imagine full catalogs and check out options on a retailer brand page), as well as new payment options for virtual currency and virtual gifts (imagine revenue-sharing agreements with cell phone companies and the ability to use Facebook currency outside the social network).

5. Removing "The" from "The Facebook" and Moving to Palo Alto

thefacebook_aboutface_thumb_socialnerdiaOne of the least known facts about Facebook is that it actually started as "The Facebook". You might not even know that www.facebook.com was previously owned by a company called AboutFace. AboutFace, a company that sells HR solutions, including an "Employee Facebook," first obtained the domain in 1998 and held it until the middle of 2005. The company still offers their original "Employee Facebook" on their web site. You can see screenshots from back in 2002 here and here. AboutFace has barely done any changes to its company web site, but I'm sure they wonder if they could have sold the domain to Facebook for a whole lot of money (or more money if they did sell it) before Facebook finally took over the domain in August of 2005. This decision to go with the name "Facebook" instead of "The Facebook" might seem like a simple branding choice, but I believe it was the beginning of Facebook's wise decision-making. And moving to Palo Alto? Well, that was just common sense.

Conclusion

facebookprototypes_socialnerdiaFacebook is not done growing and enhancing itself. The company just announced that it will extend its chat functionalities to enable voice chats over a browser plug-in from Vivox (which will certainly create a clear alternative to Skype and even phone calls) and that it is letting us get a glimpse of what is to come through the launch of Facebook Prototypes, including a "Recent Comments Filter".

Whether they will be able to become a profitable company in the long-term (whether they IPO or not) and expand in Google-like ways is still to be seen, but Facebook's focus on users has taken it where other social networks can only dreamed of. It is no coincidence that despite privacy concerns, Facebook is today one of the top 10 most trusted web sites, according to a study by the Ponemon Institute and TRUSTe.

Facebook might some day become yet another failed social network, but if 300 million users and a positive cash flow are indications of its future, I am willing to bet that skeptics and critics are going to be quite surprised with where Facebook goes in the next 5 years.

Copyright © Esteban Contreras. All rights reserved.