Zuckerberg's bold plan for world of business

As the top social networking site prepares for its IPO, Facebook's chief executive tells potential investors his company will be a transformative force in commerce.

Businesses that fail to embrace social networking with the advent of Facebook may see their customers wooed away by rivals. Joerg Koch / AP Photo

Facebook has unveiled a radical strategy prior to an initial public offering that could value the company at up to US$100 billion (Dh367.31bn).

In an open letter to potential investors, Mark Zuckerberg, 27, a co-founder and the chief executive of the social networking website, said Facebook was poised to transform the way businesses behaved.

"Businesses will be rewarded for building better products - ones that are personalised and designed around people," Mr Zuckerberg wrote.

Facebook reports that its developer platform has already enabled hundreds of thousands of businesses to build higher-quality and "more social" products.

"We have seen disruptive new approaches in industries like games, music and news, and we expect to see similar disruption in more industries by new approaches that are social by design," Mr Zuckerberg wrote.

More companies are using social networks to develop stronger bonds with customers, and the IT industry is preparing for a new era, one in which all businesses will have to embrace social networking to survive.

"Today, social networks are being used to raise brand awareness, build company reputation, increase Web traffic, generate leads and improve customer support," says Richard Edwards, a principal analyst at the research company Ovum.

But he adds: "Tomorrow, social networks will be about product/service advocacy and social selling, and each and every business, whether business-to-consumer or business-to-business, can benefit from that."

Businesses that fail to embrace social networking may soon start to see their customers wooed away by rivals with a better grasp of the power of internet-based social networking.

According to a study conducted in August by the global market research company Nielsen, the average US subscriber to Facebook spends more than seven hours a month on the website. As social networking engages users in a way that more passive media such as television do not, Facebook is in pole position to take advantage of advertising diverted from old media such as print and TV, where advertising revenue has plummeted as a result of the popularity of internet-based entertainment and other activities.

"Every epoch has its transformative network," says Mr Edwards. "Once upona time, these were real-world networks - shipping, canal, train, telegraph, airline, telephone, computer, cellular, etc- and each had a significant impact on the business of the day.

"The transformative networks of the current epoch - Facebook, Twitter, LinkedIn, V Kontakte, QZone, Orkut, etc - are social networks powered by the internet and pervasive computing technology."

But before any potential investors start rubbing their hands in anticipation of the Facebook IPO, they should take a closer look at some of the other radical sentiments expressed in Mr Zuckerberg's letter, some of which appear to endorse unorthodox methods of building new products and services.

"We have cultivated a unique culture and management approach that we call the Hacker Way. The word 'hacker' has an unfairly negative connotation," Mr Zuckerberg wrote.

He continued: "Hacking just means building something quickly or testing the boundaries of what can be done. Like most things, it can be used for good or bad."

The history of IT is littered with billion-dollar lawsuits prompted by rivals of companies taking shortcuts and testing boundaries. Even more radical-sounding to investors is Mr Zuckerberg's seeming disregard for future profit generation.

"Simply put: we don't build services to make money; we make money to build better services," Mr Zuckerberg wrote. "These days I think more and more people want to use services from companies that believe in something beyond simply maximising profits."

But Facebook's strategy of appearing uncommercial in its motives may be wiser than Mr Zuckerberg's idealistic tone might suggest. Internet users are fickle.

That Facebook was so easily able to overtake its predecessor MySpace, which News Corp bought for over $580 million more than six years ago, has been partly attributed to a blatant and premature attempt to commercialise the MySpace website.

Investors should therefore bear in mind the ephemeral nature of internet-based businesses when considering making medium or long-term investments in online social networks.

While Facebook is far and away the most popular social networking site today, competitors such as the microblogging sites Tumblr and Twitter are waiting in the wings. LinkedIn, a social network that has had business users in its sights from day one and has more than 130 million professional users, is ideally suited to offer business-based services.

Market watchers believe that while Facebook may be the market leader as an online enabler for businesses to amplify their messages to consumers, it is far from being unique.

"Amplification is all about gain, bandwidth and efficiency," says Mr Edwards. "Facebook today is like the Marshall amp of the hard rock and heavy metal music world, but others exist, too. Think Denon, Yamaha, Marantz, etc … Industry's heavy rock bands will plug into Facebook for sure, but other social networks will find their audiences and businesses, too."

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