The Facebook Effect

by David Kirkpatrick

  One aspect of Facebook’s Americanness was an advantage, especially in its early years among students outside the United States. Its academic roots at Harvard and the Ivy League made it seem even more appealing. “I’ve heard people at Facebook say they worried that it made them seem elitist, but in fact many kids around the world put those schools up on a pedestal,” says Jared Cohen, author of Children of Jihad, an account of how youth in the Middle East view culture and technology. As early as mid-2007, Facebook was being used by 20,000 English-speaking Egyptians, for example, mostly privileged, Western-oriented college students and recent graduates. “I log in three hours a day, more or less, and usually at night, too,” Sherry El-Maayirgy, a Cairo marketing executive, told the English-language magazine Egypt Today in May 2007. “It is really an amazing place to meet new people and catch up with old friends who have drifted away.” Much of the online behavior was libertine. A local group called “If this group reaches 1,000 members, my girlfriend will sleep with me” garnered supportive comments, according to the magazine. And beauty contests proliferated, such as one for “The hottest girl at the American University of Cairo.”

  Facebook’s growth around the world belies the frequent American misperception that it is a site primarily for young people. While in the United States many adults still spurn the service or quickly tire of it, in most other countries it’s used by people of all ages. Facebook’s greatest global increase in 2008 came from people ages thirty-five-to-forty-nine, according to Nielsen. That group now constitutes about a third of Facebook’s users. “Internationally…Facebook is perceived as mainstream and MySpace as being more focused around a younger demographic,” says the Nielsen Company in a report on global social networking. Facebook seems to mirror real-world conditions. Women account for more than half of Facebook’s ranks all over the world—except in certain countries in the Middle East and Africa where their rights are severely curtailed.

  In some countries Facebook’s empowerment of the individual may feel even more important than elsewhere. Educated young people in the Middle East are often passionate and active Facebook users. “Kids there have some of the most intricate profiles,” says Cohen. “These are repressive countries, with little outlet for expression, so people can feel more real online than they are in real life.” Facebook can become a way to assert one’s right to be oneself. In both Turkey and Chile, Facebook is so ubiquitous in many educated circles that not to be on it is tantamount to self-ostracism. One reason may be that in both countries not long ago, to oppose the government could lead you to disappear forever.

  Facebook continues to face potent rivals. MySpace is really not one of them, having shifted its strategy under the leadership of Owen Van Natta, Zuckerberg’s former chief operating officer. MySpace now emphasizes its role as a portal for music and entertainment. More worrisome are social networks that dominate in one country or region. In Japan, leading social network Mixi offers a sophisticated service that works as well on cell phones as on PCs. It specializes in games.

  Orkut still leads by a large margin in Brazil. It also led for a long time in India, though Facebook surpassed it in popularity in late 2009, according to the Alexa Internet data service. Orkut’s peculiar success in these two markets has led to a surprising new sort of Indian pilgrimage—young Indian men trek by plane to Brazil to see women they met on Orkut. In India, Facebook has now introduced versions not only in Hindi, the largest language, but also Bengali, Malayalam, Punjabi, Tamil, and Telugu.

  Displacing Orkut in Brazil may turn out to be its ultimate popularity contest, but in the meantime Facebook faces tough battles elsewhere. In Germany, Spain, Russia, and China, local entrepreneurs created student-focused networks modeled explicitly after Facebook once its U.S. popularity became apparent in 2004 and 2005. While Facebook has now surpassed its clone rival Tuenti in Spain, domestic imitators in China, Germany, and Russia still command dramatically more users.

  The hapless Friendster, essentially ignored in the United States, was until recently Facebook’s big obstacle in Southeast Asia, where 90 percent of Friendster’s 105 million users were located as of mid-2009. But by late 2009 Facebook had trounced it there and was the number-one website of any type in Indonesia, Malaysia, and the Philippines, Friendster’s three biggest countries.

  China’s largest domestic Facebook clone, Xiaonei (the name means “in the school”), got a big boost in 2008 when Japan’s Softbank Venture Capital invested $430 million in its parent company. It then renamed itself Renren, meaning “everyone,” to broaden its appeal. Meanwhile, since June 4, 2009, the twentieth anniversary of the Tiananmen Square massacre, Facebook has been completely blocked in China by the government.

  Part of Facebook’s arsenal against Renren (and Friendster) is Facebook’s close partnership with Hong Kong billionaire Li Ka-shing. Among the many companies this mogul controls is Hutchison Whampoa, a major provider of mobile telephone services across southern Asia. Hutchison has already released a special “Facebook phone” for the region. Social networks are used most commonly on mobile phones in countries like India and Indonesia, so Facebook is creating partnerships with local mobile operators. It has also released a so-called lite version that gives users the basics (without video, chat, and some other features) but requires little bandwidth. It can be used on mobile phones or where Internet access would otherwise be inadequate.

  Facebook is just beginning to model itself to suit the preferences of users in one country. For example, in Germany, Facebook has a deal with the dominant local email provider to make it easier to register and connect with the friends in your email address book. In Japan the site will soon make it easier to blog and to operate on mobile phones. Executives are thinking of ways to accommodate the reluctance of Japanese to operate openly online using their real names, even though that will remain the way to use Facebook.

  Facebook has exploded across Asia in the last year or so, but for different reasons in each country. In Indonesia, Friendster had been the dominant local social network, but as Internet usage shifted to mobile phones, Friendster didn’t have a good mobile app. Facebook did, and burgeoned. In Taiwan, Facebook usage—mostly on PCs—soared in 2009 for one reason: the Farmville game from Zynga. Playing it became almost a national obsession, and many joined Facebook simply to do so. It grew from almost nothing to 5.6 million people, or 26 percent of the population in the year ended February 2010. In Malaysia Facebook took off among the influential Chinese minority, while those of Malay ancestry tended to stay on Friendster. As of February 2010 Facebook was growing 10 percent per month in Malaysia, according to the Facebook Global Monitor. What makes this growth more impressive is that it occurred without the investment spent by earlier American Internet companies, says Hong Kong–based social media expert Tom Crampton of Ogilvy Public Relations. “Facebook’s romp across Asia is an amazing story that breaks all the rules of internationalization,” he says. “When Yahoo entered Asia it sent huge teams to each country.”

  Scale itself is a growing advantage for Facebook. Sophisticated social networking features cost money to develop. But every line of software code on Facebook can be used by far more people than a comparable line of code on any other service. It is no longer possible as it once was for rivals simply to steal the Facebook software they want. So on a per-user basis Facebook costs less to run, and less to improve. That could prove over time to be a daunting advantage against its rivals.

  The strength of regional competitors outside the United States is the biggest reason why Zuckerberg says that near-term growth is more important for Facebook than profit. He’s not a worrier, but if he worries about one thing it’s that nationalism and insular local cultures will allow services like Renren and Orkut to keep Facebook down. A couple of days before I joined him in Madrid, he gave an interview in Germany in which he said bluntly that “growth is primary, revenue is secondary.” The statement was immediately criticized online as naive, and everywhere I went with Zuckerberg he was hounded abo
ut it by bloggers and press.

  The only reason Zuckerberg is willing to endure the discomforts of a multiweek European road show is that he feels so passionately about the need for Facebook to grow internationally. He would prefer not to stand up and talk to crowds. But if that’s what it takes, he’ll do it. As he walks into a meeting in Madrid with a group of local entrepreneurs, his host welcomes him saying, “There is great expectation for your visit!” “That’s unfortunate,” Zuckerberg deadpans in a serious-sounding voice, as his staff cringes.

  He’s on the road with a purpose, but he does it in his own way, sometimes to his detriment. The trip wears on him. He was up doing email and instant messaging the previous night until four. Back in the van, his assistant Anikka Fragodt says he should take a nap. He doesn’t think that would help. Anyway, he hates to remove his contact lenses. At the next stop, Madrid’s University of Comillas, he is greeted by two deans. One of them holds out a soccer jersey with the university’s logo on it. Zuckerberg refuses to put it on. “This is what I always wear,” he says of his black North Face fleece jacket, T-shirt, jeans, and running shoes. At Navarra a few days later, the lecture hall gets oppressively hot. He tells the crowd he is “burning up” and moves toward an onstage fan. But he does not remove his fleece jacket. Later he confesses he almost fainted shortly before going onstage.

  In May 2009, Zuckerberg gained yet another powerful ally for internationalization when the Moscow-based Digital Sky Technologies spent $200 million for a small chunk of Facebook. Digital Sky, a holding company that invests exclusively in Internet companies, is the primary owner of Russian Facebook clone VKontakte (“In contact”). That, in fact, is what emboldened Managing Director Yuri Milner to make the investment. VKontakte is by far the largest social network in Russia, with a penetration of domestic Internet users beyond 50 percent, and is soundly profitable, according to Milner. Much of its sales come from virtual goods. VKontakte yields revenue more than five times what Facebook gets per user (which is less than $2 per year). “What we see,” says Milner, “is that when the market is mature you can really make a lot of money on a per-user basis. If Facebook can achieve what we’re seeing in Russia, that’s really pretty good.”

  Milner’s confidence that Facebook will eventually be profitable at a gigantic scale is what emboldened him to invest at a price that valued the company at $10 billion. Big as that is, it’s considerably less than the $15 billion valuation that Microsoft and Li Ka-shing accepted in October 2007. Doubts lingered about Facebook’s ability to be a business, and financial markets had cratered since the Microsoft deal. But Digital Sky’s enthusiasm was such that not only did it buy stock from Facebook, Milner is also spending as much as $300 million more buying stock from employees and outside investors. Milner says his commitment to Facebook is long-term and that he may not sell his shares even at its initial public offering of stock, when investors frequently cash out.

  Facebook’s burgeoning global expansion presents challenges both technical and managerial for Zuckerberg. For one thing, Facebook’s only two data centers remain in the United States and everything users around the world see on Facebook emanates from there. It can take a long time for Facebook pages to load on distant screens. That makes it even more amazing that Facebook has developed such a gigantic overseas user base. The company will have to build several very expensive additional server farms. Though it has begun opening offices, a substantial business infrastructure has to follow as well. The company has established an international headquarters in Dublin and sales offices around the world, with more to come.

  Then there’s the complexity of ensuring that those hundreds of millions of users and tens of thousands of application developers around the world adhere to Facebook’s rules, no matter their language. For example, Facebook didn’t notice that groups were talking freely in Arabic about “pig Jews” until Israeli activists pointed it out. The groups were shut down for violating Facebook’s prohibition against hate speech. But it’s an open question how Facebook will monitor, for example, hate groups in languages like Tamil (Tamil guerrillas waged civil war in Sri Lanka for over thirty years). So far the company is content to let users do the monitoring themselves, much as they did translation.

  A provocative signal about Facebook’s future arose in Indonesia in mid-2009. With 8.5 million users at that time, it had become the country’s most popular Internet site. Facebook’s popularity led seven hundred of the Muslim nation’s imams to rule on its acceptability at a two-day meeting. “The clerics think it is necessary to set an edict on virtual networking, because this online relationship could lead to lust, which is forbidden in Islam,” said a spokesman for the clerics as the meeting got under way. In their nonbinding ruling the imams said, “Facebook is forbidden” if it is used for gossiping, flirting, spreading lies, asking intimate questions, or vulgar behavior. However, overall the clerics came out surprisingly upbeat. Not only could Facebook “erase time and space constraints,” they noted approvingly, but it could make it easier for couples to learn whether they are compatible before they get married. By February 2010 more than 17 million Indonesians used Facebook.

  15

  Changing Our Institutions

  “Are you familiar with the concept of a gift economy?”

  One night over dinner I asked Mark Zuckerberg about Facebook’s effects on society—especially politics, government, media, and business. He responded by talking about the potlatch. That’s a traditional celebration and feast of native peoples on the northwest coast of North America. Each celebrant contributes what food and goods they can, and anyone takes what they want. The highest status goes to those who give the most away.

  “Are you familiar with the concept of a gift economy?” Zuckerberg asks. “It’s an interesting alternative to the market economy in a lot of less developed cultures. I’ll contribute something and give it to someone, and then out of obligation or generosity that person will give something back to me. The whole culture works on this framework of mutual giving. The thing that binds those communities together and makes the potlatch work is the fact that the community is small enough that people can see each other’s contributions. But once one of those societies gets past a certain point in size the system breaks down. People can no longer see everything that’s going on, and you get freeloaders.”

  Zuckerberg says Facebook and other forces on the Internet now create sufficient transparency for gift economies to operate at a large scale. “When there’s more openness, with everyone being able to express their opinion very quickly, more of the economy starts to operate like a gift economy. It puts the onus on companies and organizations to be more good, and more trustworthy.” All this transparency and sharing and giving has implications, in his opinion, that go deep into society. “It’s really changing the way that governments work,” he says. “A more transparent world creates a better-governed world and a fairer world.” This is, for him, a core belief.

  While many would surely question Zuckerberg’s idealistic notion that a more transparent world will necessarily be better governed and fairer, it’s worth examining some of the effects the service is having. Zuckerberg essentially argues that any individual’s public expression on Facebook is a sort of “gift” to others. That has different manifestations depending on what kind of expression it is. In the most humdrum of exchanges, when one high school student writes on another’s wall, “LOL that was a funny comment,” it is merely the gift of being ourselves in front of others, of including our friends in our lives. That’s hardly anything new. It’s just happening in a new electronic neighborhood.

  When it comes to political activism, Facebook offers a more fundamentally altered landscape. In most cases we are irrevocably identified by our names there. When we say something on a political subject we are exposing our views. Others will not necessarily share them. The “gift,” so to speak, is what we do for others when we put our ideas out there and make ourselves vulnerable to criticism, which can easily on Facebook
be directed at us under our real names. In Zuckerberg’s view, you are in essence making a gift into this free-sharing economy of ideas if you comment on Facebook about, for example, President Obama’s health-care reform efforts. Think of it as a gift of opinion into the polity, a gift of ideas that may ultimately strengthen the polity.

  Joining a protest group on Facebook is unlike standing in a crowd and holding up a sign at a protest. It may be easier to do in terms of convenience, but it is a more public commitment. It’s more like signing a petition with our name and address in a way that many others can immediately see. Think of how Oscar Morales hesitated that last night before he took the leap of creating his group against FARC. Facebook for the first time gave him a platform where he felt comfortable taking the leap, whereas in the past in Colombia such expressions had often been considered too risky.

  Our act of expression is less fraught when we are passing on an opinion about commercial behavior—telling what we think about a company or product—or when we are merely forwarding something like a news story we’ve seen and found interesting. Nonetheless, we are making a gesture of friendship and generosity, albeit in a way that Facebook makes routine. And that gesture potentially alters the landscape of business and media by enhancing the relative power of the consumer vis-á-vis the company or large institution. In all these sorts of beneficial expressions, you are rewarded for your contribution, typically by the reciprocal contributions of friends, and often by a sort of chain reaction of contributions by others you don’t even know. Facebook is of course not the only service that enables these effects either in business or politics. Twitter, notably, is another. But Facebook is by far the largest tool of its kind.