Outside the Beltway

Facebook’s Business Model

Facebook's 26-year-old founder, Mark Zuckerberg, is one of the wealthiest men in America. Most of his work force is unpaid.

James Joyner · Thursday, September 23, 2010 · 4 comments

Forbes has released its annual list of the 400 Wealthiest Americans.   The top of the list has the usual suspects this is interesting:   “Facebook Inc. CEO Mark Zuckerberg, 26, who is tied for No. 35 on the list, saw his wealth jump 245 percent to $6.9 billion, the largest percentage increase of anyone on the list.”

Computer World‘s James Niccolai jokes, “If Mark Zuckerberg had a dollar for every user on Facebook … oh wait, he does.”  He adds,

The Facebook founder’s wealth was swelled by private equity deals that put the company’s value at about $23 billion, Forbes said. His education is listed on the site as: “Dropout, Harvard University.”

Zuckerberg wasn’t the only person to profit handsomely from the growth at Facebook, which sailed past its 500 millionth user in July. Dustin Moskovitz, who left Facebook in 2008 but retains a stake in the company, is on the list for the first time, in 290th place, with a net worth of $1.4 billion. He’s also the youngest person on the list, at 26. (Forbes says he’s eight days younger than Zuckerberg.)

Facebook co-founder Eduardo Saverin also made the Top 400 for the first time, with personal wealth of $1.15 billion.

Facebook has become, in a very short time, the key destination site on the entire Internet.  So, who’s to complain that its founders have gotten wildly rich?  John Robb, for one.  He sees something rather insidious about the company’s business model.

Good for them, but bad for us.

Why?  IF these companies represent the most valuable new industry of the early 21st Century, where are the jobs that will provide prosperity for millions today, and potentially tens of millions in the future?  They don’t exist.  These companies create few real jobs.

The distressing part is that in reality these companies actually employ hundreds of millions of people, particularly young and otherwise un or underemployed superusers.  People that work for them day in and day out for free: finding, sifting, sorting, connecting, building, etc.

Let’s take Facebook as an example.  Currently it’s valued at ~$25 billion by the market.   However, it could be argued that ~100,000 superusers out of 500 million part time users, are the reason that Facebook is valuable.  They generate the core network that is the backbone of the tool.  Their devoted use, high levels of connectivity, and loyalty forms the engine that grows Facebook, year in and year out.  They are the materials, labor, and product of Facebook’s assembly line.  Yet they aren’t paid for their effort.  They aren’t generating wealth for themselves or their families.

Robb goes so far as to call those who create this content for nothing “Cognitive Slaves.”

Now, I reject that label.   Zuckerberg,  Moskovitz, and company aren’t forcing anyone to spend hours a day creating content for Facebook.   Ditto the people behind Digg, Reddit, Twitter, and other highly popular social media sites.   They’ve built platforms, people have decided that they enjoy using said platforms, and they happily generate content.

Frankly, it’s probably less insidious than the model being used by HuffPo, Gawker, AOL, Yahoo, and others of paying very small amounts of money to large numbers of people under intense deadline pressure.   At least the Facebook users are enjoying themselves.

But Robb’s larger point has substantial merit:  These sites have created a business model where a tiny number of people get extremely wealthy and the “workers” get little or no compensation.   It’s not exactly going to replace manufacturing as a way to make the economy go around.

Not mentioned by Robb but also noteworthy:  Most of the “work” being done to generate the content on these sites is in fact yielding compensation for the workers.  It’s just being paid by firms expecting their employees to be doing something other with their time than tending to their Facebook farms and posting pictures of LOLcats.