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Making a fortune from Facebook: What is Mark Zuckerberg's secret of success?
WHEN Mark Zuckerberg's parents discovered he'd spent his time at Harvard University setting up a website to chat to his friends, they would have been forgiven for wondering where exactly they went wrong.
However, if there had ever been words about time wasting and future prospects, they would no doubt have been quickly forgotten when yesterday, four years after he began tinkering on the internet, 23-year-old Zuckerberg sold what seems a measly 1.6 per cent share in the site for a massive $240m to Microsoft.
The announcement ended weeks of negotiations, which had included talks with Google, and now with a value of $15bn it's expected the next few weeks and months will see the start of ambitious expansion plans.
Since its beginnings in that American university dorm, Facebook's influence has crept across the Atlantic and the rest of the world, and the number of members who regularly log on to chat to friends, play scrabble and search voyeuristically for exes and long lost friends, currently stands at 50 million.
While its popularity is not in doubt, for many it remains difficult to see why Bill Gates would pay so much for what on paper seems apparently so little. However, for those inside the industry it has always been a question of when rather than if Facebook's fortune would be realised.
"I'm not surprised by the amount of money which Microsoft has paid for what seems to be a very tiny share in Facebook because that's the way the market has been going," says Andy Lopata, a business networking strategist. "There are two reasons for the price. Firstly, there is what Microsoft will see as the intrinsic monetary value of the site itself, but the real attraction and one which is impossible to put a price on is the information it generates."
While most may see it as a way to keep in touch with friends, with each member registering personal information, likes and dislikes, collectively it's the kind of database which, if used correctly, could be a licence to print money.
"The demographic information it contains is an advertiser's dream," says Lopata. "It's not just basic things like their age and where they live, but they post what films they like, what books they read.
"In the last five or so years, the ways companies can reach their potential audience has changed beyond recognition. In the past, it was very much more limited.
"With television advertising, the theory went that if you threw enough money at it, some of the mud would stick and among all those people watching you would hit your target.
"What networking sites offer is the ability to refine a marketing strategy to specifically target people who you know are more likely to buy your goods or want your services and that's where sites like Facebook come into their own.
"The other factor is that members of networking sites invest a large amount of personal capital writing their profiles, posting messages and keeping their accounts up-to-date. Just like with a bank account, they become reluctant to switch providers and at least at the moment, they are a captive audience. That's something no amount of money can buy."
If Zuckerberg, a man who couldn't look less like a sharp-suited entrepreneur, seems to have risen effortlessly to the top of the pile, it hasn't been all good news for Facebook in recent weeks.
One study of its popularity claimed workers were spending so much time on the site it could be costing UK firms up to 130m a day and earlier this week, users were warned they were opening themselves up to fraudsters who with very little effort could copy their personal information and steal their identities.
Such stories are unlikely to worry either Zuckerberg, Microsoft or any of the other companies who have already successfully capitalised on the social networking trend.
While the $240m may be the biggest deal so far, it follows a whole raft of headline making online acquisitions.
The origins of the phenomena can traced back to July 2005 and the decision by Rupert Murdoch's News Corporation to buy Myspace for $580m. The announcement was greeted by more than a few raised eyebrows, but despite describing himself as a "digital immigrant", where Murdoch led others followed.
Friends Reunited, the site which was responsible for bringing back together long-lost school friends and, according to some, reigniting first loves and adding to the divorce rate, was the next to go.
By comparison to the Facebook deal, the 120m ITV paid in 2005 for the site which then had 15 million users might look like small fry, but for its creators, husband and wife Julie and Steve Pankhurst, it was a nice return after just five years work.
Then in October last year, YouTube, which in the 18 months since its launch had managed to become the most popular website on the internet, was snapped up by Google for $1.65bn.
The dot.com crash of the late 1990s proved that even virtual bubbles can burst , but while it remains a stark warning in a sector which is changing so quickly, the future is proving increasingly difficult to predict.
"There have been attempts to forecast what will happen in five or 10 years' time, but the truth is there are no guarantees," says Lopata. "Personally, I think it will stabilise, with the best, most efficient networking sites rising to the top and the less successful folding.
"However, I also think we'll see the rise of niche market sites. People might, say, use Facebook to keep in touch with their friends, but they may also be a member of a separate community business network or site which is set up specifically for football or rugby fans."
While investing in social networking comes with risks, just as those companies who failed to catch on to the importance of internet sites found out, being left behind could prove disastrous.
"Previously I was managing director of a business networking site,"says Lopata. "We had a website and we tried everything we could to get them to get members to post a personal profile of themselves and their company, but it was like banging your head against a brick wall. Six months after we pulled the pages, we suddenly had people asking why we didn't do it.
"On the internet when change happens, it happens quickly and those who don't catch on will be left counting the cost."
THE WEBSITES THAT MADE MILLIONS
YouTube
What is it? Effectively a video-sharing site
Who uses it? 72 million a month.
The good news: The Highways Agency lent its backing to a campaign to try to cut death and injuries among young road users in Cumbria, funding a project which uses YouTube videos and texts.
The bad news: Earlier this month, gatecrashers trashed a teenager's house in Wiltshire and beat up his brother and father after spotting his 16th birthday party publicised on the site. Seven of the intruders – youths aged 15 to 18 – were arrested.
Value: Google bought the video-sharing website for $1.65bn in October 2006.
MySpace
What is it? Allows users to set up a personal web pages which can host images, video clips as well as being used as blogs.
Who uses it? 100 million registered users with 1.5 million signing up each week.
The good news: After launching the careers of pop stars, it's now become a political tool. Peter Hain, Hazel Blears and Hilary Benn all set up pages when running for the deputy leadership.
The bad news: In July, it emerged more than 29,000 convicted sex offenders in the United States had profiles on MySpace – up from a figure of 7,000 given in May. The profiles of the offenders have since been removed.
Value: Bought for $600m in 2005.
Friends Reunited
What is it? The site was set up to allow school reunions without actually ever meeting up.
Who uses it? Current membership stands at 19 million
The good news: A mix-up on the Friends Reunited website led to romance. Richard Lewis emailed Anna Wrench, thinking she was an old friend, but in fact had confused her with another Anna in the same class at Bath High School. However, they met up, romance blossomed and they married in 2005.
The bad news: In 2004, the number of couples getting divorced was at its highest level for seven years and relationship experts at Relate said the increasing number of people going to websites like Friends Reunited to look up old partners was having an impact.
Value: Bought for 120m in 2005.
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