Facehooked

By Ian Rose
The Money Programme

Facebook has proved to be an international hit.

Facebook seemed to come from nowhere to everywhere in 2007.

One person in eight in the UK has become a registered member.

Why has Facebook been so successful against stiff competition from other social network sites?

And as the company tries to turn its popularity into profits, will its millions of members stay faithful?

Early Days

The site was launched by student Mark Zuckerberg with two friends in their dorm room at Harvard University in February 2004.

Most popular Facebook countries USA Canada UK Australia Turkey Sweden Norway South Africa France Hong Kong Source: Facebook

It was initially intended to let his fellow students check each other out and make friends online.

By December 2004 it had grown to have nearly a million users among students at top American colleges.

It arrived in the UK in 2006 and by March 2007 was making headlines as more than a million people had joined up.

Now seven million people in the UK are on Facebook and there are more than 50 million worldwide members.

The phenomenal growth of Facebook prompted Microsoft to buy a 1.6% stake in it for £117m this October.

This gives the entire site a value of some £7.5bn ($15bn), almost as much as the value of Ford Motors and an extraordinary achievement for a company that has only been in existence under four years.

Facebook doesn't do anything new. In Britain, social networking online came to prominence with Friends Reunited, which started in 1999.

Katie Byrne and Zara Adams are typical Facebook users.

Ms Byrne is a busy public relations professional living in London and uses the site to constantly stay in touch with her friends. She has a couple of hundred people she likes to talk to.

For Ms Adams, the site offers a mixture of personal and professional opportunities. She has just launched The Talent Magazine and uses Facebook to stay in touch with a staggering 2,100 contacts.

Security concerns

Increasingly there are concerns about the advisability of putting so many personal details online without taking adequate precautions to screen who the information is available to. Some users add dates of birth, home addresses, pet names and other information that could be used by internet fraudsters to open bank accounts and order credit cards.

Companies like Facebook will want more and more information about us Open University: Facing an invasion of privacy

There are privacy settings on the site, which users can change to maximise their privacy, but most users do not use them.

Other information people publish, such as lists of their favourite products, music, films and holiday destinations, are increasingly being used by businesses.

For example, brand advisory and marketing company 1000heads monitors conversations on behalf of big brand clients on Facebook and other websites. It relays important insights on how consumers feel back to its clients.

Separately, Cadbury this year relaunched the iconic chocolate bar Wispa after a campaign by fans on Facebook.

Thousands signed their name to it and Cadbury said it was too tempting not to give it a try.

Advertisers dream

Facebook is an advertising-supported business and if it is to realise the mind boggling valuations being made of it, then it will have to sell more ad space.

Facebook timeline 2004: February - Mark Zuckerberg and co-founders Dustin Moskovitz and Chris Hughes launch Facebook from their Harvard dorm room 2004: March - Expands from Harvard to select other Ivy League Colleges 2004: December - Reaches nearly 1 million active users 2005: September - Expands to add high school networks 2005: December - Reaches more than 5.5 million active users 2006: May - Adds work networks 2006: December - Reaches more than 12 million active users 2007: March - Reaches 1 million active users in UK 2007: May - Opens up its platform to application developers 2007: October - Microsoft takes equity stake in Facebook 2007: October - Facebook reaches over 50 million active users 2007: November - Launches Facebook Ads and Beacon 2007: November - Modifies Beacon

In November Facebook gave a presentation on how it will turn its huge popularity into what it hopes will be one of the most powerful advertising tools available.

The company has collected all the information members have submitted about themselves online.

Advertisers can simply select the type of people they are interested in reaching: age, sex, location, interests and so on.

Then Facebook will send relevant ads directly to that social group.

So for example if you had listed the Spice Girls as your favourite pop group, their record company or concert promoter would be able to target you with concert and CD details.

Another advertising feature, which Facebook dubbed "Beacon", told users what their friends were buying online.

This prompted a vocal revolt from thousands of users and Facebook hastily changed the feature.

This signals a wider issue for Facebook if the valuation put on it of £7.5bn is to ever be truly realised.

How will Facebook commercialise itself without alienating its members?

Users like Ms Byrne and Ms Adams don't want to see advertising whilst talking to their friends.

If the site gets it right it could establish itself alongside other internet superstar companies like Google, Yahoo and You Tube.

Facebook caught the popular imagination and grew phenomenonaly quickly. But what will happen to it if these members move on to the next big thing?

Money Programme: Facehooked, broadcast on BBC Two at 1900 GMT on Friday 21 December.