Visualising Facebook

Who am I?
YOUR correspondent was shocked to learn that 34% of his Facebook friends are married. Still in his 20s, he does not want to contemplate settling down quite yet. Knowing that 64% of his online friends are male does not help eithermore so because only 57% of Facebook is comprised of women. When he lamented these facts (on Facebook of course) he was asked the obvious question: Did you go through your friends list and count? Well, no. The number-crunching comes courtesy of Wolfram|Alpha, a sort of search engine for quantifiable facts. Begun in 2009 by Stephen Wolfram, a British scientist and entrepreneur, the online service serves up answers to queries by harnessing information from its own databases. It can compute things like the distance between the Earth and the Moon on your parents' first Valentine dinner, for example. Its latest feature lets people analyse their Facebook account for free. Enumerating and plotting the vagaries of one's online life is at times surprising. Since the service began a few weeks ago, more than 400,000 Facebook users have let Wolfram|Alpha examine their digital bitsan outpouring of interest that caught the firm by surprise, says Luc Barthelet, Wolfram|Alpha's executive director. The company plans to expand into other "personal analytics" services. Mr Barthelet declined to be more specific, but it could well entail analysing users' email patterns and other social media behaviour. In February Wolfram|Alpha rolled out a Pro service. At $4.99 per month it gives people the ability to process their own data, or even download Wolfram|Alphas information on a query. Such information is potentially very useful as it comes from the service's own curated databases. Thus, armed with data on homicides in African countries, for example, Wolfram|Alpha can generate various types of graphs (scatter plot, raw data plots, bivariate histograms) to help users understand their information better. It can create a heat map to visualise the data geographically. And it lets users overlay other data, such as GDP of the country, to make, in this case, a GDP-neutralised heat map. The Wolfram|Alpha "answer engine" is based on Mathematica, a software program developed by Mr Wolfram that can perform elaborate calculations. After the site's launch in 2009 it was criticised for being limited in what it could do: solve mathematical problems, answer some scientific questions, but nothing out of the ordinary. Since then it has expanded considerably. As it moves beyond computing the world into analysing the individual, it is providing fresh new ways to look at life.

Facebook

With a little help from a billion friends

SINCE its stockmarket flotation in America earlier this year, Facebook has seen its share price plunge as sceptical investors have dumped its stock. But at least one thing has continued to rise: on October 4th the giant social network revealed it now has one billion active monthly users, twice as many as in July 2010. Mark Zuckerberg, the firms boss, crowed that this puts it in the same pantheon as firms such as Coca-Cola and McDonalds, which also have vast, global audiences. Indeed it does. But Facebook still faces big questions that need to be answered more clearly for its share price to start heading in the same direction as its membership numbers. One is how it intends to earn more money from advertising in the mobile arena. The company revealed that it now has some 600m mobile users, which is another impressive number, and its acquisition this year of Instagram, a picture-sharing service for smartphones, has beefed up its capabilities in the fast-growing mobile market. But it is still casting around for effective advertising formats. Another important question is whether the company can find new ways to share even more data about users online lives with advertisers without prompting a massive backlash over privacy issues. Facebook is already under intense scrutiny from regulators in America and Europe over things such as its use of facial recognition software. It also needs to show that it can diversify its sources of revenue. This is why it is experimenting with things such as allowing users to buy and send physical gifts via its service. The social network will need to tackle these and other challenges if it is to keep growing steadily and profitablyand get its share price back up. But it can certainly be forgiven for taking time out to boast about some impressive numbers, which show that it is still a remarkable company. Its more than one billion users have uploaded almost 220 billion photos. And they have clicked the like button more than a trillion times since it was introduced in 2009. It is now up to Mr Zuckerberg and his team to get investors to like Facebook as much again.

Valuing Facebook

Zuckerbergs rocket, ready for lift-off

Despite the hype as it prepares to launch its IPO, the giant social network still has plenty to prove
OUTSIDE Facebook's vast new headquarters in Silicon Valley is a huge sign with an image of a hand on it giving a thumbs-up sign. A tiny digital version of the same hand sits on millions of websites and invites Facebook's 900m or so users to click on it to share content they have found with their pals. Now Facebook is hoping to get another big thumbs-up when it stages its eagerly awaited initial public offering (IPO) of 12% of

its equity on America's NASDAQ stockmarket on May 18th. Assuming all goes according to plan, the flotation will be the largest yet undertaken by an internet company. On a roadshow across America to promote the listing this week, Mark Zuckerberg, Facebook's 27-year-old boss, and other executives were treated like rock stars. Long queues snaked out of hotels where they were holding meetings, as investors lined up to hang on their every word. Hordes of photographers rushed to take pictures of Mr Zuckerberg, in his trademark hoodie, as he and his colleagues were whisked off to waiting limousines. This frenzy is further proof, if any were needed, that Facebook has become a global internet idol. Facebulls reckon the flotation, which could raise almost $12 billion (with about half going to shareholders selling up), will help transform the social network into a web powerhouse in the same way that Google used the riches from its 2004 IPO to spread its tentacles across the web. And they confidently predict that Facebook's shares will start trading well above the range of $28-35 that the firm has set for them a range that would value Facebook at $77 billion-96 billion. (Editors Update (06:55 GMT on May 15th): According to press reports, Facebook has increased the price range to $34 to $38 a share. At the upper end of that range the company would be worth $104 billion.) Some financiers think it could command an even bigger price. If Facebook's valuation were to hit $100 billion, it would put the company roughly on a par with, say, Amazon and give it a market capitalisation greater than those of Dell and Hewlett-Packard combined. One analyst even dismissed Facebook's suggested pricing as pretty silly, pointing out that its shares were changing hands at $44 on at least one secondary market before trading in them was suspended ahead of the IPO. However, there are good reasons for caution. Several high-profile internet firms that went public last year, including Zynga, a social-gaming company, and Groupon, a coupon-peddler, have seen their shares fall below their IPO prices and stay there (see chart 1). Even seasoned investors find it hard to resist a lemming-like rush to grab stakes in high-profile web firms. When it comes to consumer-internet companies, enthusiasm often overwhelms pragmatism on offering day, notes Lise Buyer of Class V Group, an IPO advisory firm. Facebook is admittedly in a different league to the likes of Zynga and Groupon. Its size gives it access to mountains of data and to economies of scale that others cannot match. It can also tap into a wide range of moneymaking opportunities. Last year the company made most of its $3.7 billion of revenue from online display advertising. But it also takes a slice of the sales of digital tractors, swords and other virtual goods in games run by Zynga and others that use Facebook's platform to reach customers. This business generated $557m for the social network last year. Such sums of money are impressive given that Facebook was only launched in the same year that Google went public. But the network's rise also raises several important questions that investors would do well to ponder. The first of these is whether Facebook

can become a part of the fabric of a more social web, rather than simply a destination on it. Within five years, Mr Zuckerberg sees all kinds of applications being linked to Facebook in one way or another. But to achieve this goal, the network must convince users to stick with it. The brief history of social networking is littered with examples of former high-flyers, such as Friendster and MySpace, whose fortunes faded after users dumped them in droves when they were no longer considered cool even though this meant abandoning the content they had built up there. Alert to this risk, Facebook has been rolling out new features such as Timeline, which encourages users to load their life histories onto the social network, to bind them in more tightly. So far, this approach appears to be working. Facebook trumpets that it had 901m average monthly users in the first quarter of 2012. And 526m, or 58% of them, used the service daily in March, up from 55% last year. This matters not least because frequent users are the most likely to click on ads and to splash out on virtual crops and other gaming paraphernalia. Next there is the question of whether Facebook can adapt fast enough to the brave new world of mobile computing. The jury is still out on this. The firm has almost 500m mobile users, but its mobile apps are clunky and reflect the fact that its roots lie in the personal-computer era. To help cure this weakness, Facebook recently splashed out $1 billion on Instagram, a fast-growing mobile photo-sharing service, and it may use some of its post-IPO riches to snap up other mobile outfits. But until it can develop a more robust mobile platform of its own, it is likely to remain vulnerable to a disruptive challenger. Facebook has little advertising on its mobile site, so its revenues could be hit if many more people access it on their phones. Investors will thus need to ponder whether its mainly computer-based ad business justifies such a lofty valuation. On targeting Facebook fans among admen rave about the network's ability to deliver a vast audience and to aim ads at specific groups of people using its mountain of data on them. Facebook is probably the single most powerful platform out there right now for targeting consumers, says Dick Reed of Just Media, a media-planning agency. Perhaps, but the company has yet to demonstrate it can translate this power into a bold new social-advertising model. In recent months, Facebook has expanded one of its innovative ad formats, sponsored stories, which allows brands to pump puff -pieces into the news feeds of the brands' Faceb ook fans and their friends. Yet when it surveyed 21 executives in America who were running ads on Facebook, ITG Investment Research found that almost half had no intention of increasing their spending on it this year. Steve Weinstein of ITG says that many advertisers still prefer to place traditional directresponse ads on the network, even though Facebookers generally are too busy chatting to their friends to click on these. Perhaps Facebook needs to work harder to educate

advertisers about how best to use its platform. It will also need to find ways to aim its ads even more effectively without irritating or creeping-out its users, who have grown wary of its intentions after various privacy debacles.

Facebook's recent figures raise other red flags. Its ad revenues were lower in the first quarter of this year than in the final one of 2011. Facebook has blamed this dip on seasonality, which is an excuse one expects to hear from a grizzled industry stalwart, not a young web revolutionary. Worryingly, the company has also seen a slowing of growth in average revenue per user, though this is still above 6% a year (see chart 2). To boost it the firm will need to find more creative ways of making money from its expanding user base without driving up its costs, which have soared as it pumps money into new data centres and other infrastructure to support its growth. The obvious way for Facebook to boost revenue is to keep inventing clever ways to advertise on its network. But it also intends to explore a host of other areas, from payments to social commerce (eg, online stores to turn Facebookers' likes into purchases), either by itself or through applications run on Facebook's platform by other firms which pay to reach its audience. Such initiatives may in theory bring in billions of dollars of extra revenue. But until there are clearer signs that they will, a valuation towards the lower end of Facebook's own pricing range seems reasonable. Investors who buy shares in the IPO will also have to accept that Mr Zuckerberg will continue to control more than 50% of the voting rights. One person owning so much of a potential blue-chip company is more or less unheard of, says Debarshi Nandy, a professor at Brandeis International Business School. Other tech firms, such as Google, have flourished under the tight control of small groups of founders, and Mr Zuckerberg shows every sign of maturing into an exceptional technology leader. But if something were to go badly wrong at Facebook in future, its shareholders will be able to do little more than give him a big thumbs down.