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  • Writer's pictureRohan Bhatia

Facebook: An Economic & Social Machine

We’ve all used it. Or at the very least, we’ve all heard of it. Facebook. Mark Zuckerberg’s brainchild, founded in 2004, has been at the heart of all our social lives over the past decade. It’s infiltrated our daily lives to such an extent that for many - it’s the first and last app used everyday. The platform connects more than 1.4bn people globally to friends and family, but recently - the app has undergone several revamps to make it a great catalyst for economic activity. Features such as Facebook Watch, Facebook News and Facebook Groups have meant that the ability to share information and media across the app has become substantially easier. Features like Facebook Marketplace have made the discovery of goods and services on a local level a lot easier to come by. And the behemoth of Facebook Advertising has provided another medium for global businesses to expand their marketing reach across the world. When you put all of this together, Facebook is a relentless, mass-scale economic engine. It contributes more and more each year - and with the company’s constant drive toward innovation and technological improvement, there are no signs of slowing down.

A key feature that drives economic activity is Facebook Pages as it helps businesses grow sales on a local, national and global level. What makes this feature so powerful is its ability to break down traditional barriers to marketing and support entrepreneurship on a never before seen level. Facebook Pages allows businesses to create their own distinct ‘page’ which not only houses important details about the business, but also a feed that businesses can use to share news, events and deals on offer. It also allows businesses to use the already popular Facebook Messenger as an alternative to live chat and query requests.

Beyond businesses, governments and nonprofits can also use Pages to stay in touch with members and constituents creating a combination of economic and social value. Significantly, the network effects that Facebook provides further exponentially grows the potential benefits that businesses can enjoy. This is largely engineered through the share feature, but the like and comment features can also raise interactions with businesses. Sharing of links not only massively bolsters spread of the Facebook Pages - but it also can be used by Facebook for significant social progress. For example, the feature largely contributed to the $100m in donations that were raised toward ALS research via the “ice bucket challenge”.

The results of economic activity generated by these features is unquestionable. According to Deloitte, Facebook enabled over $380bn of economic impact across the world in 2019 - $198bn alone coming from the US. In addition, the marketing effects of Facebook were said to have created more than 4.5million jobs globally. During a period of economic recovery in 2021, Facebook will continue to play an important role as developed economies look to reemerge from the COVID crisis in 2020.

Beyond marketing, Facebook’s platform and development tools themselves encourage the creation of new features, apps, services and help facilitate content distribution. These platform effects are mainly drawn for the 3rd party products and services built upon the Facebook platform, which allows developers the capacity to further monetise their apps and stimulate economic activity. Integrating with Facebook’s platform enhances the consumer experience and can help businesses and developers drive installations and engagement with other apps and products. Hence, Facebook’s platform can be leveraged by apps to drive sales and bolster revenue levels.

A key example of these platform effects, merged with Facebook’s inherent network effects, is the way in which Facebook games has established a new genre of social gaming. By easily being able to compete and collaborate with Facebook friends over games embedded onto the application, 3rd party game developers are having a field day with the ease of integration and growth opportunities that emerge. Developers can then integrate in-app purchases, expansions and advertisements to boost revenue and drive economic activity.

The effects of the platform effects are clear to see. According to their 2016 Annual Report, Facebook’s platform massively benefits the Europe, Middle East and Africa (EMEA) regions. In 2016, the company estimated that the platform effects amounted to an economic benefit of up to $13 billion USD. This was largely created via the app economy as aforementioned, where games such as Candy Crush - headquartered in the EMEA region - have helped create more than 270,000 jobs.

Finally, as hinted at throughout this discussion, Facebook greatly enhances economic activity via the application’s inherent connectivity effects. Indeed, an improvement in connectivity spills over into the rest of the economy, reducing barriers to trade and hence stimulating economic growth. Facebook’s usage occurs predominantly over smartphones - and hence the mass demand for the application indirectly helps drive demand in phones, internet connections and data. Facebook’s greater connectivity also helps encourage a cycle of technological innovation - both within the company and for competitors as well. Beyond the obvious economic benefits of such innovation, it provides substantial social benefit too. Just consider how much better our lives are with the current level of technology. Would you want to go back to Nokia brick phones?

The aforementioned improvements and demand for phones, broadband and general internet connectivity have large spillover effects for the rest of the economy. It makes us more efficient and productive at producing other goods and services. Specifically in developing countries, where infrastructure is not so developed, these spillover effects can create social benefits too as they help the transition of these economies from physical-based labour into knowledge-based cloud economies.

Ultimately, Facebook - while certainly being in the line of fire over questionable disputes of free speech and censorship - is undoubtedly a key driver of economic and social progress.

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