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Management Report

Management reports, briefs and video-clips issued by Samsung Economic Research Institute

Success Factors of Facebook

Success Factors of Facebook

SUH Minsuk

Nov. 4, 2010

Transcript

Welcome to our video program. I’m Suh Min-Suk, Research Fellow at the Technology and Industry department.

The film “The Social Network” is all the rage in United States, topping the US box office on the first weekend of release. The buzz about the movie was created mainly because of its main character Mark Zuckerberg, who is the CEO of Facebook. The movie tells the background behind the creation of Facebook by a 19-year-old Harvard student, back in 2004.

In 2010, Facebook membership in Korea has shown the highest growth rate in the world, with more than one million people signing up for the site.

Facebook is a cyber home for 500 million people worldwide, and the population of Facebook is now right below the number of people in China and India, and above that of the United States.

What has made Facebook stand out from the pack of Social Networking Services?

The first factor for its success is in its ability to anticipate the changing needs of people and give quick responses.

Other popular social networking services like MySpace had been focused on delivering photos and video clips among teenage users. However, Facebook predicted that the main usage of the service would shift to conversations in text format, and social relationships between people. In response to these changing needs, Facebook developed a text-based platform for simpler and user-friendly services.

Facebook’s light platform is well-suited for mobile connections, which is the major trend in telecommunications nowadays.

In fact, Facebook dwarfs all other social networking services in terms of popularity among smart-phone users. In the United Kingdom, the connection to Facebook’s mobile web site is free of charge, because of the contract between Facebook and network providers. As a result, five million Facebook users in the UK spent 2.2 billion minutes connected to Facebook in December 2009.

For the second factor, Facebook has provided the solutions for the problems in existing services, by making the best use of its major strength.

What issue do social network users worry about the most? “Security”.

Facebook worked on the security problem and came up with solutions. Unlike other social networking sites, Facebook asks prospective users to submit real names and active e-mail addresses for registrations. Some other sites allow you to read the posts of other people and post messages even if a fake name and fake e-mail address are submitted.

But Facebook makes sure that a person cannot be active for its service until the submitted e-mail account is confirmed. To protect user’s privacy, Facebook also devised a simple reporting system through which a member can notify the company for any malicious comments or defamation.

Facebook’s search system has also contributed to its success.

When you are shopping online, whose review will you consider the most? A review from a total stranger or one by someone you know? I think the answer is the latter.

Facebook has been developing its own semantic search system, where priorities are given to the opinions of people you know. When one of your Facebook friends clicks the “Like” button for a product and you search for it, the product will show up on the top of the list.

The system applies to any other things or events like news, movies or restaurants.

In other words, your friends’ recommendations occupy the top spot of Facebook search results, in contrast to existing search services based on priorities by page views.

The last, but not least, recipe for Facebook’s success is in its development of smart business models.

Many had doubts about Facebook’s profit model. Facebook, like any other online businesses, has been relying on paid advertisements. But the company diversified its profits by introducing new profit models such as social games and social shopping.

One of the most popular social games in Facebook is Farm Ville. Farm Ville boasts more than 80 million active players per month. Facebook charges 30 percent of fees from its paid-game providers. Also, Facebook is expecting a huge amount of profit from its business with Amazon in the form of social shopping.

Facebook Credit is the currency used in Facebook, which is the backbone of its business models. With Facebook Credit, a user can purchase the products from Amazon or even make transactions with other Facebook members, without using services such as PayPal or Google Checkout. Currently, the beta test is underway for the credit system. It would be interesting to see how Facebook Credit, a single currency which is used among 500 million people in the world, will impact the future.

So far we have discussed the success factors of Facebook.

Now the concept of social networking services are about to be implemented in high-end products such as smart TVs, smart phones, and game consoles. Facebook’s success story gives inspirations to those who venture into new businesses or try to expand their business scope.

However, there is an issue which needs to be resolved.the balance between openness and ethics. We have already observed some crimes where information from social networks is collected and used for malicious purposes.

The issue raises the needs for prompt and thoughtful measures by the providers of social networking services, as well as legislation to regulate the industry.

Thank you for watching. I’m Suh Min-Suk.

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