Facebook began as an idea for connecting students at Harvard University. A young Mark Zuckerberg, a second-year student at Harvard, developed a program that would allow students to compare pictures of fellow students and vote for which one they thought was ‘hot’. Zuckerberg posted the site, which he called ‘Facemash’, on the University computer system: he was subsequently threatened with expulsion for breaching security, violating privacy and violating copyright since he had sourced the pictures from the University's own student ID systems.

Zuckerberg was allowed to stay on, however, and with the experience he had gained he developed an online student directory. In US universities, students provide a photograph and basic information, which is compiled into a directory nicknamed a face book. For a long time, students had been asking why the system wasn't online, so Zuckerberg decided to transfer the information onto a web page called ‘the facebook’. Eventually, this was rolled out to other universities with great success: Zuckerberg included systems whereby people could contact each other, post information about themselves and connect with friends. 

In 2005, Zuckerberg obtained funding to expand the system to most universities in the United States, and in 2006 the system was rolled out to anyone over the age of 13. The problem for Zuckerberg was, of course, how to make money from his new invention. People are reluctant to pay for online content – they expect anything online to be free, which means that producers of online material can't make a living unless they can find some way of monetarising the content. The answer most go for is advertising, but there is a limited amount of advertising revenue available, and a lot of websites fishing in that particular pond.....

Case study questions 

1. What is Facebook’s product? 

2. What are the main threats to Facebook’s future? 

3. Apart from advertising, what other ways of monetarising online sites might there be? 

4. How might Facebook increase click-through rates? 

5. How does Facebook’s success relate to relationship marketing?

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