Facebook Turns a Profit, Triples Members

While you were posting vacation photos and messaging your friends, Facebook just became the world?s fourth largest ?nation.?ABC News Photo Illustration
While you were posting vacation photos and messaging your friends, Facebook just became the world?s fourth largest ?nation.?

While you were posting vacation photos and messaging your friends, Facebook just became the world's fourth largest "nation."

Pause for a moment to consider that fact. In the last year, Facebook, the social networking site to which you likely already belong, has seen its membership rolls triple in the last year to a total of 300 million members. And if those trends are continuing, Facebook today will add another 3 million members -- that is, the population of a city the size of Berlin, Madrid or Buenos Aires.

VIDEO: The social networking site made more money than expected in the last quarter.Play

Three hundred million members is a mind-boggling number. In terms of population, it would put Facebook on the list only behind China, India and the United States -- and just beyond Indonesia, Brazil and Pakistan. It is almost as big as the entire population of the European Union, of sub-Saharan Africa, or South America. And, incredibly, it is equal to the entire population of the world in the year 1000.

Facebook, of course, isn't really a sovereign nation. Still, one could make the case that at least to millions of young people who visit the site a dozen or more times per day, take their cultural cues from the site, use it as their communications infrastructure to their social groups, and define their self-worth by how they are rated by others on the site -- it is has become a de facto, virtual second country to which they owe a special kind of allegiance.

The cultural side of technology revolutions have a tendency to sneak up on us. We see the tech, of course, but technology by its very nature tends to be personalized, i.e. mass customizable. When you shop on eBay for that special piece of 19th century Limoges china or original "Beatles for Sale" LP, the experience is intentionally intimate and personal. You discover that there are four items for sale, offered at different prices by four different sellers. It is all, by design, the virtual version of walking up to four vendors at a flea market. Only if you look closely do you realize those four sellers are scattered across North America, perhaps even the world.

But even if you notice that astonishing geographic scope, it is unlikely that, viscerally, you also appreciate the fact that beyond your little online room where this transaction is taking place, there are literally millions of other little rooms where other transactions like yours also are taking place at this very moment.

That there are whole regions of eBay -- vast sub-markets selling parts for 1960s manufacturing process control equipment, for example -- that you know nothing about, will never visit, yet are the heart of entire multi-million dollar industries.

These areas are invisible to you because (unlike the natural world) you don't have to pass through them -- like the furniture department at Wal-Mart on the way to the stereo department -- to get to where you are going; because the human brain can't encompass all of these millions of items in thousands of categories, and because you don't have even enough expertise in those arcane fields to know the right terms to search for.

This interesting cognitive phenomenon is what underlies the so-called Metcalfe's Law. No one has yet come up with a precise definition of the law, but everyone knows that it's true. Here's the standard formulation: The value of a network is proportional to the square of the number of connected users. Put simply: The more people use a network, the whole lot more that network is worth to them.

The flip side of that is that the more people use a network, the more other people are likely to join it -- and the more likely existing members are to recruit even more new members. In the five years since its founding, Facebook's most powerful marketing tool has been one teenager saying to another, "What, you're not on Facebook? Are you kidding? Everybody is on Facebook."

Three hundred million users later, Facebook has now become, arguably, more important in the daily lives of the 16-25 demographic around the world than newspapers, radio or television. And it has done so quietly, intimately and personally.

Indeed, any other mass movement that had managed to gather up 300 million adherents in less than a decade would likely be seen as a global and national threat. Law enforcement would be mobilized, laws would be passed, children warned in classrooms. It would be the new Red Menace, or Sputnik, or the modern-day "Why Johnny Can't Read." But again, by its very nature, a phenomenon like FaceBook is perceived as small and personal, benign and a little goofy, run by a small team of 20-somethings and their nerdy CEO/founder Mark Zuckberg. How can you possibly take it too seriously?

Indeed, there has long been a sense that Facebook is just another flash-in-the-Web, the latest kid tech fad. After all, My Space is nearly as big as Facebook -- but, having lost the support of young people, has been in eclipse and decline now for several years. And, after various ill-advised revenue schemes (notably the egregious Beacon, which shared your online purchases with "friends") Facebook too seemed to be about to stumble, alienating away its once-ardent fans. A year ago, journalists were already warming up their "Too Bad About Facebook" stories.

But then something unexpected happened. Last year, as I've already noted, Facebook tripled its membership rolls. Nobody saw that one coming. At that's just the beginning, because this week the company announced that it was profitable for the first time in its brief history.

That last was a stunning piece of news. Remember how long it took for Amazon to turn profitable? Before that, a lot of industry watchers (including me) were declaring that Amazon was a great service surrounding a lousy business model. But once Amazon turned profitable, it never looked back and in the last five years has become one of the most important U.S. companies.

These new financials suggest that Facebook may be on the brink of doing the same thing. It also makes it pretty clear that the $200 million investment by that Russian firm a few months ago -- which gave Facebook a valuation of $6.5 billion -- was pretty smart after all.

The even bigger implication is that if Facebook has finally found the Holy Grail of Web 2.0 -- monetizing all of those millions of users, even if it is with cheesy ads -- then other social networking sites (Twitter, LinkedIn, etc.) can do the same. And that could change the business world.

But Facebook's success raises even more questions than its failure. Even at is current size, the company, were it to continue to expand the monetization of its members, could become a very powerful enterprise indeed. And were it able to organize large fractions of that membership into action -- political or otherwise -- it could become a major international force.

These questions become even more compelling should Facebook continue to grow. And there is no reason to believe it won't, not for a while at least. Every professional person I know, from doctors to real estate agents, now feel compelled to have a Facebook page. As the L.A. Times reported a while back, middle-aged moms are doing the same. So are seniors. And there's good reason to believe this trend will continue around the world.

Facebook's membership will soon pass the population of the United States -- probably this weekend, to move, were it nation, into third place in the world. A couple years from now, at present trends, it will pass India. In one respect, this fact means little, other than to provoke amazement: After all, more people in the world buy Coke, Nestle's chocolate and Big Macs than belong to Facebook.

But the difference is that those others are "dumb" consumables. Facebook is something else: a way of life. It has barely begun to make full use of its powers. And perhaps it never will. But then again, 300 million is a whole lot of people …

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, The Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNews.com "Silicon Insider" columnist since 2000.