Facebook is the world's largest social network

Facebook is the world's largest social network, with 750 million users worldwide as of July 2011.

More than any other company, it is defining what some see as the "social'' era of the Internet, in which connections made among people replace algorithm-driven searches. And its policies, more than any others, seem to be driving the definition of privacy in this new age.

The company, founded in 2004 by a Harvard sophomore, Mark Zuckerberg, began life catering first to Harvard students and then to all high school and college students. It has since evolved into a broadly popular online destination used by both teenagers and adults of all ages. In country after country, Facebook has cemented itself as the leader and often displacing other social networks.

It has also come to be seen as one of the new titans of the Internet, challenging even Google with a vision of a Web tied together through personal relationships and recommendations, rather than by search algorithms. In a major expansion, Facebook has spread itself across other Web sites by offering members the chance to "Like'' something — share it with their network — without leaving the Web page they're on.

In July 2011, hoping to give its users a more intimate, real-time way to stay in touch, the company introduced video chat in a partnership with Skype, the Internet calling service.

Facebook is also working on developing features that would make the sharing of users’ favorite music, television shows and other media as much a part of its site as playing games or posting vacation photos.

An Internet Titan

Facebook has increasingly been seen as the only company to pose a threat to Google, which has used its dominant position in search and online ad placement to expand into most corners of the Web.

But as a closed network, Facebook's oceans of content are out of the reach of Google's search engines, and some analysts think the personal recommendations made through Facebook networks could become a rival to the algorithm-based results pioneered by Google.

In one sign of how much Facebook regards Google as a competitor, The Daily Beast reported that in May 2011 Facebook had hired a public relations firm to persuade reporters and privacy advocates to write stories critical of a new Google service, Social Circles.

Privacy is a sore subject for Facebook, which has made a series of stumbles on the subject. With the potential for legal and regulatory clashes growing along with its influence, the company has layered its executive, legal, policy and communications ranks with high-powered politicos from both parties, beefing up its firepower for future battles in Washington and beyond.

Disputed Origins

The company's rise has been marked by strings of controversies. Three other Harvard students maintain that they came up with the original idea and that Mr. Zuckerberg, whom they had hired to write code for the site, stole the idea to create Facebook.

The company has denied the allegations. Another Harvard classmate, Aaron Greenspan, claims that he created the underlying architecture for both companies, but has declined to enter in a legal battle.

"The Social Network," a movie released in 2010 about Facebook’s tumultuous origins, offered up what A.O. Scott called "a creation story for the digital age and something of a morality tale, one driven by desire, marked by triumph, tainted by betrayal and inspired by the new gospel: the geek shall inherit the earth."

Facebook has strenuously, and Mr. Zuckerberg more quietly, asserted that the portrayal of the company's founding is fiction. And Mr. Zuckerberg disputed the characterization of him in the film, though in a New Yorker magazine profile, he acknowledged having indulged in a bit of sophomoric arrogance.

Privacy Concerns

Privacy worries have bedeviled Facebook since its early days, from the introduction of the endless scroll of data known as the news feedto, most recently, the use of facial recognition technology to identify people in photographs.

At the nub of all those worries, of course, is how much people share on Facebook, with whom and — perhaps most important — how well they understand the potential consequences.

The back and forth between Facebook and its users over privacy is gaining importance as the company's growth continues unabated. Facebook's policies, more than those of any other company, are helping to define standards for privacy in the Internet age.

The company has struggled to find a balance between giving users too little control over privacy and giving them too much, for fear they won’t share much at all. Seeking a happy medium, Facebookannounced changes again in August 2011 that it says will help users get a grip on what they share.

Implicit in these changes is the challenge brought on by Facebook’s own success. It is used by 750 million people worldwide, with varying degrees of knowledge about what it means to have a life online. There is the looming prospect that the company will go public, along with the abiding concern about potential government regulation or litigation stemming from privacy issues.

Not least, there is the need for Facebook to cultivate the trust of its users, amid growing competition from Google’s nascent social networking service, Google Plus, which emphasizes more compartmentalized communications with different sets of friends and acquaintances.

The Goldman Deal

In January 2011, Facebook raised $500 million from Goldman Sachs and a Russian investor in a transaction that values the company at $50 billion. As part of the deal with Facebook, the bank could raise as much as $1.5 billion from investors for Facebook. The new money will give the company more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.

The new investment came as the Securities and Exchange Commission began an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook,Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.

Also in January, catching many off guard, Goldman said that it would limit its Facebook offering to foreign investors, excluding clients in the United States because of worries that the deal could run afoul of securities.

The offering to high-net-worth clients was supposed to have been a triumph for the firm, not the serious embarrassment it became. Goldman has been trying to move past run-ins with regulators, including a $550 million settlement with the Securities and Exchange Commission in 2010 over a complex mortgage investment. The Facebook plan will likely raise new questions about whether Goldman tried to push regulatory boundaries once again.

Mr. Zuckerberg had sought to keep close control over the company, spurning a $1 billion offer from Yahoo in 2006 and playing down the idea of a stock offering. But in the wake of the Goldman investment, Facebook said that it will begin reporting its financial results by April 2012, setting the stage for a likely IPO.