Inside Facebook’s IPO: How the Social Web Will Reshape the Economy
Facebook’s initial public offering later this spring will create a billion-dollar windfall for its founders and early investors, so it’s easy to be cynical and view the IPO as another example of insiders cashing in on the latest web phenomenon. But the significance — and symbolism — of Facebook’s IPO goes much deeper. Facebook’s astonishing rise is an apt metaphor for the emergence over the last two decades of the Internet itself as a tool for individual self-expression and collective organization. It’s also a dramatic example of a generational shift taking place among the entrepreneurial class, one that elevates social change as a priority along with commercial success. Perhaps most importantly, Facebook’s success is a powerful argument to the transformational impact that a free, open Internet can have on society and commerce.
Facebook’s IPO — the largest in Internet history — is a once-in-a-generation milestone in the evolution of the web. It represents a coming-of-age moment for the second major phase in the development of the Internet as a widespread platform: the rise of the social web. In the initial phase, large portals such as America Online and Yahoo established the web as a repository for vast amounts of information. It wasn’t until Google indexed the web with its search engine that this phase reached maturity, allowing users to quickly find information across the Internet, beyond the borders of these centralized communities. But even as Google democratized the web by enabling ordinary people to exercise their voices and become accessible to the broader online world, the Internet remained a largely individualized experience. (More: Read Facebook CEO Mark Zuckerberg’s IPO Letter)
The emergence of social networks like Friendster, MySpace and Facebook gave rise to the second major phase of the web by establishing it as a platform for social interaction. For the first time, these social networks allowed users to establish personal identities on highly-scaled platforms in order to connect and share with others. These services delighted and empowered users by making them feel ownership of their own pieces of digital real-estate, which they could use as personal calling cards to project themselves into cyberspace. Thanks to savvy marketing and engaging design, Facebook caught on like wildfire, first among college students, and later among the public at large. As it grew, Facebook leveraged the network effect of millions of people connected to each other to create an unstoppable momentum that vanquished its social networking foes.
Facebook’s ascendance demonstrates the power of the Internet as a force for social connection and, over the last few years, for social and political change. This new power has three main features: it’s democratic, because everyone in the free world has access to the same internet; it’s meritocratic, because success on this platform is a function of the power of one’s ideas, not traditional categories of wealth or class; and it’s viral, because the web enables good ideas to spread at light-speed and reach millions. The democratic, meritocratic, and viral nature of the web has shaken existing power structures worldwide, so it’s not surprising that repressive regimes have responded by trying to crack down on web activity in order to clamp down on dissent. This push-and-pull between old-world, legacy power structures and upstart digital communities will continue for some time, but if you believe the digital idealists — and Zuckerberg clearly is one — history is on their side. (More: Mark Zuckerberg: TIME Person of the Year 2010)
It’s no coincidence that Facebook’s recent rise as a cultural phenomenon has mirrored the Internet’s emergence as a powerful social and political tool. Reformers in Tunisia and Egypt used Facebook to organize unprecedented protests against dictators who had held power for decades. Activists in the United States used social networks to launch the Occupy Wall Street movement, which has focused national attention on income inequality and made it a central issue in the 2012 presidential election. Most recently, a viral, web-based campaign against anti-piracy legislation in the U.S. Congress helped convince dozens of lawmakers to withdraw their support. The Internet is emerging as a potent socio-political force in its own right — and social networks like Facebook and Twitter are the glue that holds this force together.
Facebook’s commercial success, meanwhile, demonstrates the potency of the Internet as a platform for building wildly successful businesses from the ground up, as well as a vehicle for established businesses to engage with existing customers and reach new ones. Facebook’s IPO prospectus contains several stunning figures that illustrate the immense reach of the service, and the potential for businesses to engage with users. The company now has 845 million monthly active users — or nearly half of the estimated 2 billion Internet users worldwide — and 483 million of them log in every day. The remarkable thing is that Facebook is just scratching the surface of its commercial possibilities. But Zuckerberg has made it clear that the singular pursuit of profit is not what’s driving him. “We don’t build services to make money,” he writes in Facebook’s IPO letter, “we make money to build better services.” Facebook’s service, in turn, is designed to further what he describes as a “social mission” — “to make the world more open and connected.” (More: Is Facebook Really Worth $100 Billion?)
Facebook has been criticized for encroaching on the boundaries of individual privacy, and the company’s increasing ubiquity will require vigilance by civil liberty watchdogs and, if necessary, the federal government. But Zuckerberg has been nothing if not consistent: He deeply believes that making the Internet more social will, in turn, make society more democratic. “People sharing more — even if just with their close friends or families — creates a more open culture and leads to a better understanding of the lives and perspectives of others,” Zuckerberg writes. In this respect, Zuckerberg is clearly an idealist of the first order, and he’s not alone. Increasingly, young entrepreneurs, particularly in technology, are looking to create businesses that contribute to the public good as well as make money. And it’s not just entrepreneurs who feel this way, but also consumers. “These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits,” he says.
Finally, Facebook’s triumph is an important reminder of the importance of a free, open Internet. When Zuckerberg launched the service as a Harvard sophomore in 2004, it’s unlikely he imagined that eight years later he would be leading a company poised to go public with over 800 million users and a $100 billion valuation. Such an outcome would never have been possible if the web were not the open, fertile environment for innovation that we’ve all come to take for granted. In less than two decades, the Internet has established itself as one of the most transformative economic and social platforms in history. It has created the spawning ground for new, disruptive companies that have created billions of dollars in wealth and economic activity, and changed the way we live forever. And as the web becomes more social, platforms like Facebook and Twitter will have greater impact on politics around the world. Facebook’s IPO is one of the most important business stories of the year, but the company’s success should also serve as a powerful reminder of why it’s crucial to maintain the Internet as a free, open platform. If we, as a society, can do that, there’s no telling where the next Mark Zuckerberg may appear.