By JAMI MAKAN
1. "We were in the right place at the right time."
In the hit movie The Social Network, a college student dumped by his girlfriend reacts by building a crude precursor to "Thefacebook" website. And while Mark Zuckerberg, the entrepreneur portrayed, has said the girlfriend "doesn't exist in real life," the success of his invention is anything but fiction. Facebook has 900 million regular users, up from 500 million two years ago, and is now the most visited site in the U.S., according to data tracker Hitwise.
While social networking wasn't new when Facebook appeared in 2004, industry observers attribute its success to a mix of luck, ambition and strategy. "Mark had all three in spades," says David Kirkpatrick, author of The Facebook Effect. By initially limiting access to students from select colleges, Facebook (which declined to comment on much of this article) could choose where and when to roll out, protecting it from too rapid growth. The early requirement that people use real names was also a boon. "There was an appetite on the Internet to be yourself and connect to your real friends," says Kirkpatrick.
Additional reporting by Jonnelle Marte.
This story has been updated; it originally ran on Jan. 10, 2011.
2. "We know where you go online..."
In its seven years, Facebook has evolved quickly, adding features like instant messaging and news feeds. But critics say some developments can compromise user privacy. For instance, you can share online content with Facebook friends using the ubiquitous "Like" button. But press it or not, if you're logged in to Facebook while surfing, it will know when you visit any site with these so-called social plug-ins, says Nicole Ozer, a policy director at the ACLU of Northern California. "Facebook can essentially track you around the Web," she says. Facebook makes all such policies known to users, but critics wonder how many people are paying attention. Responding to a letter from privacy groups last year, Facebook said it stores users' Web-surfing data for no longer than 90 days.
3. "...and we hope you don't mind being tracked offline, too."
In August, Facebook launched Places, a tool that lets you "check in" at real-life locations, such as restaurants and concert venues, with the help of the GPS on your smartphone. The idea: to let friends know where you are. While 18% of smartphone owners use location-sharing services, according to a Pew Internet & American Life Project, critics warn they can make users vulnerable. Privacy experts cite two problematic Places features: One lets users register virtually any location with the service, even someone else's home or office; the other lets friends check you into locations unless you disable the setting. That means other Facebook users may know where you live or where you are, even if you haven't posted that info yourself. Kurt Opsahl, a lawyer with the Electronic Frontier Foundation, encourages users where possible to control the settings that allow for such location updates.
4. "Your account isn't exactly secure."
On social-networking sites, it's increasingly common for scammers to steal passwords and other sensitive data by imitating trusted sources, a practice known as phishing. Facebook is now the second most targeted brand on the Internet, according to monitoring service PhishTank. One scenario: An impostor uses your account to message your friends to, say, ask for money, claiming it's an emergency. According to David Ulevitch, CEO of Internet-security service OpenDNS, people are especially vulnerable on social networks, because there's a natural tendency to trust the sender. "It's not like getting spam in your e-mail for Viagra," he says.
Phishing could become an even bigger problem on Facebook as more users play online games, purchasing virtual goods and currency via credit card. Stolen card data is lucrative, says Chester Wisniewski, security adviser with antivirus firm Sophos. If you make purchases online, he says, use a credit instead of a debit card, since it can be easier to reverse fraudulent charges. He also recommends password-encryption programs like LastPass.
5. "If it feels addictive, it probably is."
Randall Sokoloff of Oakland, Calif., joined Facebook to make new friends. It worked. Within a month, he had 175, but the site had become an obsession. Sokoloff says he logged on to Facebook as many as 20 times a day. After discussing his habit with a therapist, he eventually managed to take a break: "It's like this umbilical cord that keeps you hooked into the computer," he says. Sherry Turkle, MIT professor of the social studies of science and technology, says some users struggle with living up to the tailored version of themselves they present online. For others, she says, "stalking" leads to burnout, since Facebook makes it easy to spend hours scouring others' pages. According to Michael Fraser, a clinical psychologist in New York, no official diagnosis exists for Internet addiction, but users should seek help if work or school performance suffers or if they experience mood swings when away from the computer.
6. "We give brands fans and the occasional headache."
Social networking offers new ways for businesses to connect with customers, and these days many companies create Facebook pages where those who sign up as "fans" can hear about the latest products and deals. It pays: According to research by Michael Scissons, president of Toronto-based Syncapse, which advises firms on social media, a brand's Facebook fans spend an average of $71.84 more on its products per year than nonfans. "Facebook is giving brands an avenue to communicate with their high-value customers," says Scissons.
But social media can also cause trouble for businesses. For one, it makes it easy for consumers to organize and complain. When Gap released a new logo in October 2010, there was a flood of negative discussion on its Facebook wall, prompting a quick retreat to its old logo. A spokesperson for Gap says that while it was "thrilled with the passion" customers showed, Gap will approach future logo changes "very differently."
7. "Get ready for some awkward moments."
It's no secret that Facebook is changing the way people interact. Prep school grads can visit their alumni page for job advice, while grandparents can keep up-to-date "with the minutiae of their grandkids' lives," says Dhiraj Murthy, a sociology professor at Bowdoin College who teaches a course on Facebook. But the site can cause both personal and professional problems. Employers may search job applicants' Facebook profiles, and family can do their own snooping. Aria Afshar, a 24-year-old consultant in New York, says his girlfriend was visiting her parents in Italy when she discovered his profile picture on a computer belonging to her parents, who supposedly didn't know about the relationship. Turns out, they "just put the pieces together through Facebook" and were sending his photo to family members across Italy. "It was a little awkward," Afshar says.
8. "Apps can be tough to police."
Facebook launched a platform in mid-2007, letting software developers build applications, or apps, that run on the site. There are now hundreds of thousands of apps, ranging from horoscopes to fantasy football. According to Justin Smith, founder of market-research firm Inside Network, the biggest category of apps, social games, has become an industry unto itself, bringing in projected revenue of $1.2 billion in 2011. But critics say Facebook should do a better job of policing errant app developers, like those recently caught selling user info to a data-collection firm, a violation of Facebook's rules. Facebook says it is cracking down on such violators; it has also introduced a technical fix to help keep user data from getting shared inadvertently.
9. "We aren't the only game in town."
Despite Facebook's surging popularity, it doesn't have a monopoly on social networking. In the U.S., there's LinkedIn, Google+, Twitter and location-sharer Foursquare. The start-up Diaspora calls itself a "privacy-aware, personally controlled" social network in reference to the privacy concerns surrounding Facebook.
But Facebook's toughest markets may be abroad. The company has yet to succeed in gaining entrance past the great firewall of China, where the social network is banned. And even if the site did gain access, it would face competition from other companies like Renren, Sina, and Tencent, as SmartMoney.com previously reported. Over 450 million people in China have internet access, presenting a big growth opportunity for the company. But entry there could be a long shot, considering China's ban of other Western media companies.
10. "The site may not be free for long."
Facebook's sign up page says "It's free and always will be." But that could change after the company goes public, analysts say. Since announcing the site's initial public offering in February, the company has been experimenting with non-advertising-based ways to increase revenue, the Wall Street Journal reported Thursday. That could mean charging users extra to guarantee a post is seen by all their friends, selling apps, and putting ads on mobile devices. A Facebook spokesman told the Journal the company is trying to "gauge people's interest in this method of sharing with their friends."
Investors may demand that Facebook look for other creative ways to increase its revenue. Analysts say one option could be the "freemium" model, in which basic services remain free, while advanced features require a fee.