So Facebook Is Rich: What Has It Done For Us Lately?
Facebook is about to cash in on a public offering that looks likely to net Mark Zuckerberg $28 billion, make hundreds of its employees millionaires, and deliver handsome profits to its investors.
So, what's in it for us? Does value for Facebook and shareholders translate into value for rest of the economy?
To hear some people tell it, Facebook's wealth benefits only the site's staff and investors, as well as a small number of Silicon Valley real estate agents, car salespeople, decorators and landscapers who will help the company's employees spend their post-IPO cash. It's possible that not even the U.S. Treasury will see a direct cut. According to Citizens for Tax Justice, Facebook will be wriggling out of paying federal and state taxes this year.
Yet this overly narrow view fails to account for the growing number of companies and individuals drawing their livelihoods from Facebook. The social networking site boasts an economic footprint that extends far beyond the walls of its Palo Alto, Calif., campus: Facebook's enormous reach and the thriving platform it supports has made it the birthplace for a slew of startups, an engine fueling the growth of entirely new industries, and a creator, by one estimate, of more than 200,000 jobs in fields that range far beyond engineering.
"Facebook's impact extends way beyond the people it employs itself," said Darrel West, director of the Brookings Institution's Center for Technology Innovation. "It's helped create jobs in many other organizations and many other industries all around the world," he said. "We're seeing the transformation of the economy as new jobs are being created that weren't even in existence before."
For years, the charge leveled against tech companies has been that they create wealth, but not jobs. Highly efficient Web firms like Facebook and Google, free from the constraints posed by raw materials and physical goods, employ an anemic staff when compared with the industrial giants of the past that required vast manufacturing teams, hundreds of thousands of people strong.
Facebook's workforce is slim even by Silicon Valley standards. The social network employs 3,200 people, a paltry figure when contrasted with the size of armies at other companies with comparable valuations. Amazon.com employs more than 56,000, Google has more than 32,000, and eBay over 27,000. Boeing, which is estimated to be worth less than Facebook, employs more than 171,000. Like other software companies, the social networking site can scale up its technical capabilities quickly and cheaply, adding hundreds of millions of users without having to expand its workforce. A Facebook spokesman declined to comment.
Some experts say the company's economic contribution has amounted to little more than making a small number of people very rich.
"Facebook goes from nothing to a huge deal in a few years, and the technology itself is so scalable, they don't have to hire that many people," said Tyler Cowen, an economics professor at George Mason University. "The whole thing is set up so the software does the work."
Yet others counter that just as the auto industry created new opportunities for mechanics, insurance salesmen and tire distributors, Facebook has become the lifeblood for a new generation of entrepreneurs who are both pioneering novel ways of leveraging the site's massive user base and helping companies to mine the social site.
More than any other company before it, Facebook has created a web within the Web. The social network has become a self-contained microcosm within the larger World Wide Web where people can do everything they would normally do online, from chatting with friends and watching movies to reading the news and playing games, all without ever leaving the confines of Facebook.com. The Internet gave rise to new efficiencies, companies, opportunities and industries. Now, Facebook is showing its platform can do the same, albeit on a smaller scale.
"What we see are not companies creating jobs, but ecosystems creating jobs," said South Mountain Economics' Michael Mandel, the author of a study about the app economy commissioned by TechNet, a tech industry advocacy group. "Historically, coordinated activities would take place within the same company. With our increasing ease of communication, it turns out you can have coordination without people working for the same company."
The Facebook Platform, as it's officially known, has been one of the site's most important -- and most quantifiable -- sources of job creation. The platform allows developers to build apps that run on Facebook, are accessible to the site's more than 845 million users and take advantage of the data that its users have shared. Since the launch of the platform in 2007, more than 8,000 firms have created over 25,000 apps that can be used to obtain recipe ideas, find online data and tend virtual farms.
These apps are a big business: Facebook paid developers $1.4 billion in 2011 and the social network's ecosystem played a crucial role in the success of gaming company Zynga, which went public last year in the largest IPO by an Internet company since Google.
Several attempts have been made to quantify the size of the Facebook app economy and the number of jobs it supports, although government number-crunchers have yet to break out statistics for this emerging sector. A University of Maryland study sponsored by Facebook estimated that the site's app industry directly employs 53,434 people, which includes not only programmers but all the other employees at a tech firm, and has created at least 129,310 additional jobs outside those firms, contributing from $12.19 billion to $15.71 billion in wages to the U.S. economy. Another Facebook-commissioned study completed by Deloitte concluded that the site supports 232,000 jobs in Europe.
A more recent research report produced by advocacy group TechNet pegs the total number of U.S. jobs created by the app economies of Facebook, Google, Apple, Research in Motion, Microsoft and others combined at 466,000. The TechNet study, unlike the University of Maryland report, did not isolate Facebook's contribution, but assumed that developers working on Facebook apps were also building apps for other software platforms.
Despite several differences between the research teams' methods, all reached the same conclusion: Facebook is spurring the creation of thousands of jobs.
"The technology itself doesn't employ a lot of people, but the impact it has is many, many orders of magnitude higher," said Il-Horn Hann, an associate professor at the University of Maryland's Robert H. Smith School of Business and co-author of the report on the Facebook app economy. "Facebook has the largest of the platforms and there is potential for it to create huge value and employment opportunities."
Joe Essenfeld, CEO of Jibe, a hiring and recruiting platform that syncs with job hunters' social networks, said his 22-person startup wouldn't exist without Facebook and LinkedIn, a networking site for professionals. These social sites allow startups to tap into information that it would take years for them to acquire on their own and the viral nature of social networks helps companies gain publicity more easily and quickly than they could without it, Essenfeld explained.
"When we first started building [Jibe], Facebook presented an amazing opportunity and there was a lot of energy to try to use it as an advantage over other startups. Now, it's a necessity," Essenfeld said. "Before it was innovative and cutting edge. Now, if you're not building on Facebook, you're not building the proper product."
Facebook has also spawned a host of companies that specialize in services related to the social site, including marketing tips, advice on optimizing Facebook ads and insights about Facebook fans. Friend2Friend, for example, promises to coach clients on ways to “cultivate and engage fans on social media,” while BuddyMedia peddles "social enterprise software."
Chronicling Facebook's updates, upgrades, missteps and strategy has become an industry unto itself: Entire websites are dedicated to dissecting Facebook's latest releases, more than 2,800 Facebook-related books are available from Amazon.com, and Facebook hosts an annual conference attended by upwards of 1,000 people that is dedicated entirely to Zuckerberg's site.
A burgeoning breed of professionals have built their careers on Facebook and other social media sites. News sites employ social media editors to tend to their accounts, as do celebrities, corporations and even restaurants. There are now social media marketing experts, social media gurus, Facebook analysts and Facebook whisperers.
Even if Facebook's platform has been a springboard for startups, and jobs, there are experts who say they worry that those positions are primarily for skilled engineers -- a group already in high demand -- and out of reach to most Americans. Yet both the University of Maryland and TechNet estimates for job creation fueled by the app economy took into account positions created outside of tech firms, such as those at local businesses that service startups' staff.
"The companies hiring people probably look like little Facebooks and are looking to hire the same people as Facebook, like developers and marketers," said Martin Ford, a software developer and author of "The Lights in the Tunnel."
"These aren't jobs for regular people," Ford said. "These businesses are creating jobs for engineers who would have found jobs anyway."
There are indeed risks to relying too much on Facebook. The apps, and, really, all aspects of the site, remain at Facebook's mercy, and the company has been known to quickly and drastically change course.
"Facebook is scary because it's controlled basically by one dude," said Riley Gibson, CEO of Napkin Labs, which helps companies connect with customers on Facebook. "The ultimate risk is that they can pull the plug on us. If we do too many things against their terms -- and this has happened to a couple startups -- they can just turn us off."
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First Posted: 02/16/2012 7:31 am Updated: 02/16/2012 3:54 pm