In February 2004, Mark Zuckerberg and
a college roommate started the original
version of the Web site Facebook. They
wanted to create online social networks for
students. The two entrepreneurs created
an online forum and invited students to
join—for free. In just a few weeks, nearly
two-thirds of their school’s students had
joined. Within months, Facebook had
networks at thirty other universities.
That summer, Zuckerberg made contact
with venture capitalists—business people
who provide entrepreneurs with money
to start new companies. When one offered
them $500,000 to work on Facebook full
time, Zuckerberg and his colleague left
college and worked day and night writing
computer code. By the fall, Facebook
had a million members. Six months later,
Zuckerberg and his partner got $12.7
million more in funding, hired more
workers, and moved the company out
of the apartments where they lived and
worked and into offices.
Questions to Think About
1. Recall the three factors of production.
What land, labor, and capital did
Zuckerberg use in creating and
running Facebook?
2. (a) What risk did Zuckerberg take? (b) Did
it pay off? Why do you think so?
3. What needs or wants does Facebook
meet?
Members like Facebook because they
pay nothing to join and control what
information they publish and who can
see it. Advertisers love Facebook because
they can target their ads, which provide
Facebook its revenues.
To grow, Facebook added networks for
high schools and workplaces and began
attracting older members. By 2008,
the company had networks in several
countries and more than 70 million users
of its Web site.
With growth, Facebook had to keep
buying more computers and hiring more
software engineers, salespeople, and
customer service staff. Despite rising
costs, growing income made Zuckerberg
and other shareholders rich. Several
companies have offered to buy Facebook,
but Zuckerberg won’t sell. He wants to
continue to manage his company’s growth
himself.
4. What might prevent further growth of
Facebook?
5. A Web site similar to Facebook also
enjoyed early success. Its head refused
to sell the company despite high offers.
Then the Web site lost popularity
and it became unattractive to future
buyers. In light of this example, if you
were Zuckerberg, would you have sold
Facebook? Explain.