The OpenSocial Business Model: Will the biggest social containers win?

November 2, 2007

By David Berlind

I asked two questions during the Q&A session in today’s announcement between Google and MySpace that MySpace would be embracing Google’s recently announced OpenSocial framework of APIs, with executives from both companies. The first question (which I’m really still waiting for an answer on) had to do with how two or more social networking sites will handle the thorny challenge of reconciling dissimilar identity management systems (when the integration involves the exchange of personal profile data). You can see in that post what some possible answers are, but what’s not clear is how, in the demonstration given, unique MySpace IDs are mapped to unique Flixster IDs (the demo involved the incorporation of Flixster social movie reviewing service directly onto MySpace profiles).

Another question I asked had to do with business models in an OpenSocial world. I probably didn’t phrase it during the press conference as well as I should have. But going back to the example of how OpenSocial results in the embedding of Flixster functionality into larger “social containers” like MySpace; It occurs to me that, to the extent the exporter of functionality (Flixster in the demo example) relies on advertising as a business model, the idea that a lot of people might begin to experience an exporter’s content through a container (where the container gets to serve the advertising instead of the exporter) could result in a cannibalization of the exporter’s traffic (and therefore, its ad revenues). Meanwhile, the container (MySpace in this case) benefits, doesn’t it? After all, using the demo as the example, MySpace gets to serve advertising around Flixster’s content. Today, lots of sites (eg: FaceBook) go out of their way to prevent other sites from using HTML’s frames to frame their content and serve their own ads against that content (FaceBook for example purposely “busts” HTML frames).

Therefore, could the OpenSocial network lead to a world where the biggest and mightiest “social containers” win? As you can hear in the full audio podcast we have of the press conference, Google CEO Eric Schmidt answered that question as follows;

It depends on your view of how network effects happen and whether you think a single dominant player comes out in any of these spaces. The history of the Web says that that’s not the scenario that will happen. The history of the Web says that there is enormous diversity in what people are interested in and that people who are willing to take a bet on an open platform whether its a developer or leading site like MySpace get the benefit of a larger pie. It does not end up as a zero sum game. Your question can be rephrased in exactly the same question we asked 20 years ago and 10 years ago and history says that the Internet wins and that the principles of openness; that people can extend things; that in fact they end up winning because the pie gets so much larger in all scenarios.

Given the way FaceBook has come on so strong in the last few months, it would be hard to argue with the idea that no single dominant player will ever emerge so long as the platform is open. But what about a small handful of dominant players like Google, FaceBook, and MySpace. Yes, OpenSocial is also about unlocking whatever profile data you have in your MySpace vault and making it portable to other social networks.

But how often will people really switch after they’ve invested so much time in building their online personas in a MySpace, a FaceBook, or both? Maybe they’ll do it, but my sense is that they won’t do it often or lightly in which case only a few will get to rise to the top. Put another way, Flixster may indeed be a container as much as it is an exporter of data to other containers. But in which direction will most of the data flow? To or from Flixster? My sense is that people will lean in the direction of uber-containers like MySpace and FaceBook (FaceBook has not announced support for OpenSocial) to be their primary containers and specialty function sites like Flixster to serve up data into their containers.

I’m not saying that sites who primarily end up in the role of serving data to larger containers can’t win. But, if you ask me, the existence and adoption of OpenSocial will force many advertising-driven sites back to square one where they’ll have to think hard about how they’ll sustain themselves while also participating. One thing is for sure. Much the same way a day doesn’t go by when some company doesn’t carve out a niche in the FaceBook universe for itself (knowing full well that FaceBook is where the sunshine is right now), support of OpenSocial will be a checklist item for any site that’s in a position to serve data into the larger container sites. Those sites may not realize it right now. But when Google turns on its container (and you know it’s gotta have one coming or it wouldn’t be doing this), a lot of people will have their moment of clarity.

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Widget Master

November 2, 2007

By Victoria Murphy Barret

RockYou is Silicon Valley’s latest Web sensation. It exists solely thanks to the recent rise in social networking sites. RockYou creates frivolous, mini Web applications that exist on social networking sites such as MySpace and Facebook. RockYou’s popular Superwall, for instance, lets Facebook folks put graffiti–words, photos, videos–on their “walls,” which are public sites where members post messages. Another, called Zombies, encourages people to “bite” friends. Virtually, of course. No joke.

Since RockYou’s founding two years ago, 90 million social networkers have downloaded its applications. For this, RockYou is making more than $100,000 a month in revenues showing ads alongside its mini-applications for brands like AT&T and Sony, as well as by plugging other developers’ mini-apps (for a fee). The pitch to advertisers: We are where the kids hang out. Yet RockYou doesn’t know much else about its customers. Facebook doesn’t share data about members’ ages, locations, education or anything else it might know.

Jia Shen, the 27-year-old co-founder of RockYou, sat down with Forbes.com recently to talk about how to make money selling snack-size software and what Google’s new open platform means for Facebook and MySpace.

Forbes.com: How did RockYou begin?

Jia Shen: We started two years ago noticing that everyone on MySpace was trying to “bling out” their pages. But there was no easy way to do it. We decided to put together a slide show tool. It took one week to build. I worked while I was on vacation in Japan. In one month, we had 100,000 people using it. Then in three months there were one million.

Impressive growth. But were you making any money?

None. You can’t advertise on MySpace. Facebook changed that. So now we’re like any other Web site: We make money on page views. Sony Pictures wanted to promote the film Resident Evil and used our Zombies application for a sweepstakes event.

We also advertise other applications and take a cut. Yahoo! created an application that lets you post music videos on your Facebook profile page. Yahoo! had 8,000 downloads after one month, which is pretty slow. We started promoting the application in banners above our own applications. In a single day on our network of applications, Yahoo! got 120,000 downloads.

What is your initial reaction to Google’s new open platform for social networks?

We’ve been helping Google for a while on this. In theory, it should be very cool. We tested it out with an application called Emote (This is a collection of happy, sad, flirty smiley faces). Before all these networks required different code, and it took us three days to re-write the same application for Facebook to get it to work on Orkut. With the new standards, it took us just 30 minutes to make the same application work on Plaxo. The real test comes two months from now. How many companies will really give us real estate on their Web sites?

Will Google’s open platform give a boost to less popular social networks like Orkut, Friendster and the Hi5?

Sure, if it yields them more applications, it gives people more reasons to flock to their sites. Web traffic isn’t yet a zero-sum game

Is this bad news for Facebook? Will developers spend less time on Facebook apps?

People are making real money on Facebook. So there’s risk in going elsewhere. Am I really going to spend time going after Orkut’s Brazilian audience? I’m more likely to focus on the U.S. market. Facebook is still growing nicely.

Do you worry that the social networking sites, particularly Facebook, will start launching their own applications and compete with outside developers?

It is always a worry, but something that we’ve lived with since day one. MySpace eventually built a competing slideshow, but we already had big penetration, with a diverse set of widgets. Facebook does do little feature creeps here and there. But everything they’ve done so far has been non-competitive.

What will Microsoft get from its deal with Facebook? (Microsoft announced in October a $240 million investment for a 1.6% stake in Facebook, and is serving ads on the site.)

This isn’t traditional brand advertising. But my belief is that Microsoft didn’t want only access to the ad network. Microsoft wanted to make sure no one else got Facebook. (Google was reportedly bidding.)

What were you doing before RockYou?

I came to Silicon Valley in 2000 after majoring in computer science and electrical engineering at Johns Hopkins. The first start-up I landed at failed in three months, so did the second. I thought I was the kiss of death.

But I have a short attention span, so it was fine by me. This company is changing so much I may as well be working at a different place every three months.

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Take That, Facebook!

November 2, 2007

By Wendy Tanaka

Google got back at Facebook on Thursday, announcing that MySpace has joined the growing ranks of social networks that have committed to use its new platform for developers of applications for the sites.

The addition of the News Corp. social network heaps pressure on Facebook–which recently chose Microsoft over Google to be an equity holder in the company–to sign on to the new set of standards, dubbed OpenSocial. With MySpace, developers gain instant access to the world’s largest social network with 115 million users. Facebook, which rolled out its own developer platform last spring, has 51 million users, less than half of MySpace’s members.

At a press conference to announce the partnership, Google and MySpace executives declined to comment on whether Facebook will join OpenSocial. Vic Gundotra, vice president of engineering at Google, assured reporters gathered at the Internet giant’s Mountain View, Calif., headquarters that the company has reached out to every major social network. “We want to see it adopted by everyone,” he said. “We’re not announcing further partnerships now. We anticipate more momentum now.”

MySpace Chief Executive Chris DeWolfe is confident the new platform will “become the de facto standard” for application developers.

Google had been expected to officially announce the OpenSocial platform Thursday, but reports about it surfaced Wednesday.

OpenSocial will allow developers to build tiny applications that can be used across many social networks, boosting traffic and advertising on their sites. Google and MySpace said the main benefit of the platform to developers is that it standardizes how applications are created.

“Not rebuilding and rebuilding on different standards … will be great for developers and end users,” said DeWolfe, who took part in the press conference at Google’s Mountain View, Calif., headquarters. “One of the big trends on the Internet is that users want to consume content when they want it and how they want it.”

Google Chief Executive Eric Schmidt said Google and MySpace have been working together on the platform for more than a year. It had been rumored, however, that MySpace would launch its own developer platform.

Executives declined to comment on how all the companies that have said they will use the standards, which include Friendster, Hi5, LinkedIn and more than a dozen other social networks, will make money from the platform.

At the conference, Joe Kraus of Google’s JotSpot wiki product said applications embedded on MySpace Web pages, for example, will foster “more interaction on MySpace, which means more time spent on the site and more ad revenues.”

Questions about privacy were also raised. Joe Greenstein, chief executive of applications developer Flixster, another partner, said Google doesn’t have access to partners’ user data. “Google is spearheading the initiative, but Google doesn’t touch the data, doesn’t own it.”

Developers were expected to gather at the Googleplex on Thursday night to test their applications on Google’s Orkut social network.

Some of these developers might also be building applications for Facebook. But if Google’s platform is easy to use, these developers might be tempted to pour their hearts and energies into one platform more than another.

Mark Zuckerberg, are you paying attention?

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MySpace Joins Google Alliance to Counter Facebook

November 1, 2007

By MIGUEL HELFT and BRAD STONE

MySpace and Bebo, two of the world’s largest social networking sites, today joined a Google-led alliance that is promoting a common set of standards for software developers to write programs for social networks.

The alliance now presents a powerful counterweight to Facebook, which, after opening up its site to developers last spring, has persuaded thousands of them to create programs for its users. The addition of MySpace, the world’s largest social network, and Bebo, the No.1 site in Britain, could also put pressure on Facebook to drop its own standard and join the alliance, called OpenSocial.

“OpenSocial is going to become the de facto standard for developers rights out of the gate,” said Chris DeWolfe, chief executive and co-founder of MySpace. Mr. DeWolfe said that developers using OpenSocial would be able to instantly reach 200 million users across various sites.

Google and others said they had invited other social networks, including Facebook, to participate in the alliance, whose existence was first reported Tuesday.

“The most important principle about openness is that everyone is invited to join,” said Eric E. Schmidt, Google’s chief executive.

Other members of the alliance include Friendster, Hi5, LinkedIn, Plaxo and Ning, as well as the business software makers Oracle and Salesforce.com. The creators of several of the most popular programs on Facebook, including Slide, RockYou, iLike and Flixter, have announced their intention to write programs conforming to the OpenSocial standards.

The alliance is not likely to erode the popularity of Facebook or immediately alter the dynamics of the social networking market. But it could help revitalize the sites of some of its members, which have seen their social networks eclipsed by the popularity of MySpace and Facebook. Orkut, Google’s social network, for instance, is popular in Brazil and a few other countries, but has failed to gain traction in the United States.

Google may benefit in other ways. As other social networks draw more users, it could sell more advertising on those sites. TheInternet search giant already has a $900 million advertising partnership with MySpace, and sells advertising on various other social networks. Its ads often appear inside the applications created by third-party developers. Google and MySpace have been in discussions about developing a common set of programming standards for about a year, the companies said.

At a news conference today at Google’s headquarters in Mountain View, Calif., Joe Greenstein, the chief executive of Flixter, whose applications allow users to share movie recommendations, demonstrated his program running inside MySpace.

“We are excited about OpenSocial,” Mr. Greenstein said. But he added that Flixter was not planning to pressure Facebook, where millions of members use the company’s program, to adopt OpenSocial. Mr. Greenstein said that customizing his company’s application that runs on Facebook to run on OpenSocial had been a painless task.Facebook declined to comment.

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Fighting for members, MySpace tries to outcool Facebook

October 29, 2007

By Brian Braiker

Do you Facebook or MySpace? Increasingly, membership in one social network does not necessarily rule out the appeal of belonging to the other. Of course, each company wants you visit their site more often than the other (if not exclusively)—all the more reason to differentiate. To that end, MySpace, the 800-pound News Corp.—owned gorilla, made three major announcements this week—two of which served to underscore a deepening fundamental difference in philosophy from its closest rival, Facebook. “MySpace is Hollywood and Facebook is Silicon Valley,” says David Card, a senior analyst for Jupiter Research. Or you could put it this way: MySpace is glam; Facebook is geek. Not that there’s anything wrong with either.

MySpace announced Tuesday that it has forged a splashy licensing agreement with Sony BMG—the world’s second largest label—for access to streaming videos, music and other content. The partnership calls for the social-networking giant and the music studio to share advertising revenue. And in a bid to conquer the social-networking world beyond U.S. borders, MySpace will soon be offering its 110 million active monthly users free voice chats via a new partnership with Skype (220 million strong, mostly outside of the States). In a new service called MySpace IM with Skype, the Internet phone company will enhance the MySpace instant messaging service with new free VoIP capabilities starting November. (The companies will split the revenue, but specifics of the arrangement were not disclosed.)

These moves stand in direct contrast to Facebook, which instead of teaming with major media players to build services for its network of 47 million active users, allows third-party developers to build applications. A staggering 6,000 applications have been built for Facebook just this year. “We are not a media company,” Mark Zuckerberg, the wunderkind brains behind Facebook, announced at the Web 2.0 Summit in San Francisco in October. Analysts are inclined to agree. “I think there’s a core philosophical difference, but [it’s] the same revenue engine at the end,” says Jupiter’s Card. That engine, of course, is advertising. But with its Skype and Sony BMG announcements, original programming and hosting concert tours, MySpace seems to be morphing into an entertainment portal where everyone is in your extended network (and a potential audience member).

Facebook, on the other hand, has tended to be more of a communications hub than its rival. Its platform infrastructure is built around connecting you to your actual friends—hence the viral appeal of applications like Scrabulous, Where I’ve Been and Top Friends. Oh, and it’s even already possible to make calls on Skype through some Facebook apps. And, to be fair, the private company is a chic geek. It’s a media darling despite having about half the active users of its chief rival. Its enviable flavor-of-the-month veneer is due in no small part to the cagey Zuckerberg, who has declined outlandish offers for his company in order to stay in control. He’s also maintained a vigorous reluctance to publicly adopt anything as mundane as a business model. Meanwhile, Microsoft, Google and other funds have reportedly been in talks with the site, considering investments that industry-watchers say would put the value of Facebook at a hard-to-fathom $10 billion (MySpace has been estimated at least $16 billion).

This is where MySpace’s third big announcement this week enters the picture. Perhaps in a bid to make inroads with the developer crowd that has become so loyal to Facebook, MySpace CEO Chris DeWolfe and News Corp. chairman Rupert Murdoch confirmed at the Web 2.0 Summit that the company is working on a developer platform of its own. Details were sketchy and the date of its launch likely farther off than “within a couple of months” as vaguely promised. Even Kyle Brinkman, vice president of product development of the social network, wavered slightly in his enthusiasm for third-party development. “I do think there’s a place for widgets and add-on applications,” he tells NEWSWEEK. “But where we see core propositions for our users, that’s where we want to build services ourselves.”

Which means MySpace is thinking like, well, an old media company. “They may be creating some big synergies for partnering and monetization, but I don’t think it’s really revolutionary thinking at all,” says Rodney Rumford, a consultant and publisher of FaceReviews, a blog that tracks and critiques the network’s applications. “Where Facebook has a great advantage in the long term is the ability not to serve me ads based on what page I happen to be on, but through my behavior. It knows what groups I’m in, it knows my behavior and it knows my friends.” How they end up doing that remains to be seen. But as far as users are concerned, it increasingly seems to make sense to belong to both: one for your music fix and the other to keep tabs on your friends.

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Peer Networks Like Sermo Point Ways to Profit from Knowledge

October 25, 2007

We can categorize social networks into two extremes: monoliths like Facebook that seek to be everything to everybody, contrasted with networks built by companies like Dow Chemical Co. and KPMG that interest mostly their current (and possibly former) employees.

Even as Facebook CEO Mark Zuckerberg continues to imply that Facebook is worth every bit of its $15 billion valuation, he offers few guideposts for its long-term business plans, reports the Times Online from the recent Web 2.o Conference in San Francisco. After Facebook creates a model of what he calls “the social graph,” Zuckerberg says, “… then we can expose those people to a set of applications which will enable them to share their information more effectively.”

Fair enough. We have little doubt that Facebook will do some very interesting things in the future. But we were intrigued by the emergence of a network for physicians called Sermo.

Some 30,000 doctors use the network to discuss diagnoses and treatments with their peers. Sermo and similar networks such as INmobile.org, which serves executives of wireless companies, appear to stake out a patch of middle ground between Facebook and specialized corporate networks. They are broader than company networks yet far narrower in scope than Facebook (or even LinkedIn), with their ready-made “social graphs” for folks who share professional interests.

Not only that, but they offer more readily apparent business models than Facebook and MySpace. As detailed in a Wall Street Journal article, while membership in INMobile.org is free, members must pay to list their promotions and ads in a “marketplace” section.

Sermo is even more interesting. While its members don’t pay, outsiders like hedge funds — which are interested in tracking doctors’ feedback on topics like new drugs or other treatments — do. It just announced a partnership with pharmaceutical giant Pfizer which is designed to facilitate online collaboration between Pfizer and its members. (While financial details aren’t discussed in a press release, we assume Pfizer pays something for this access.)

While this puts Sermo in the somewhat uneasy position of protecting the interests of both its members and of corporate partners like Pfizer, it is creating a new model in which, says Carr, a network operator can sell “not the eyeballs of its members but their ideas, observations, and conversations.”

Obviously key to this model is avoiding the kind of incidents that have dogged Wikipedia, whose contributors sometimes lie about their credentials. But this is the beauty of a not entirely “open” network, especially one in which members can wreck their careers by not being truthful.

Assuming professional networks can find a reliable and unobtrusive way of vetting their members, we expect to see more of them. If nothing else, we’ll expect many trade associations to beef up their online collaborative capabilities.


How Mark Zuckerberg Turned Facebook Into the Web’s Hottest Platform

October 22, 2007

By Fred Vogelstein

He didn’t have much choice but to sell. It was summer 2006, a little more than two years after Mark Zuckerberg had created Facebook in his Harvard dorm room as a way for him and his friends to better connect with schoolmates. In the intervening years, he’d raised $37.7 million from venture capitalists and transformed his modest Web site into a certified social phenomenon. College kids across the nation clamored for access, which Zuckerberg doled out, school by school. By mid-2006, about 7 million users, most of them college students, had a Facebook account.

But for all of Facebook’s success, there were also signs of trouble. Zuckerberg wanted the site to be more than a campus thing. He wanted to supplant and surpass MySpace and make Facebook the largest social network on the planet. He wanted it to become the next Google, a site that people of all ages would find useful in their daily lives. But that hadn’t happened. Facebook had cornered the market for college students, but its 11-month-old effort to capture the attention of high school students — and take users away from MySpace — was going nowhere. Indeed, Facebook’s growth was leveling off, inching its way toward 8 million members, while MySpace’s continued to surge, with 100 million members in August of 2006.

At the same time, suitors like Viacom and Microsoft had begun to take a serious look at Facebook, and they were tossing out numbers with lots of zeroes. Some investors and executives began wondering if it was time for Zuckerberg to sell. It was starting to look like Facebook had peaked.

Zuckerberg disagreed, but when Yahoo came calling with a bid of $1 billion in cash, the pressure became too much. He relented in July, verbally agreeing to sell Facebook to Yahoo. Strategically, it seemed like a good match. Yahoo had hundreds of millions of users, but its foray into social networking was struggling. Facebook had cool tools and was looking for a mass audience.

The timing, however, couldn’t have been worse. In the days after Zuckerberg agreed to sell, Yahoo announced it was projecting slower sales and earnings growth, and that the launch of its new advertising platform would be delayed. Its stock price plunged 22 percent overnight. Terry Semel, Yahoo’s CEO at the time, reacted by cutting his offer from $1 billion to $800 million. Zuckerberg, who had been warned about Semel’s reputation for last-minute renegotiations, walked away. Two months later, Semel reissued the original $1 billion bid, but by then Zuckerberg had convinced his board and executive team that Yahoo wasn’t a serious partner and that Facebook would be worth more on its own. He rejected the offer and became famous as the cocky youngster who turned down $1 billion.

Today, Zuckerberg, 23, is famous for other reasons. For one thing, analysts think he could be the nation’s richest man under 25, with a net worth estimated at $1.5 billion. But more important, he has transformed his company from second-tier social network to full-fledged platform that organizes the entire Internet. As a result, Facebook is the now most buzzed-about company in Silicon Valley, and Zuckerberg is constantly compared to visionaries like Steve Jobs and Bill Gates. Even some of the tech industry’s most legendary figures are genuflecting before Zuckerberg. In an entry on his blog, Netscape cofounder Marc Andreessen called Facebook’s transformation “an amazing achievement — one of the most significant milestones in the technology industry in this decade.” Says Marc Benioff, CEO of Salesforce.com, “I’m in awe.” (So am I. I have known one of Facebook’s executives since childhood.)

As for those concerns that Facebook’s membership had peaked? Well, now it’s signing up nearly 1 million new users a week. By the end of August there were 36 million of them. And these aren’t just the tweens or college kids you might suspect; the fastest-growing segment of Facebook users is over 35, a group that represents 11 percent of all site users. Total registrations have more than quadrupled over the previous year. The number of employees has tripled, as has revenue. And venture capitalists say that if Facebook were to go public today, investors would value it at more than $5 billion — five times what Yahoo had been prepared to pay.

But Zuckerberg’s greatest contribution goes beyond Facebook’s success. His company suggests a new model for how connection, communication, and commerce can work online — a radical and ambitious rethinking of the Internet’s potential.

Zuckerberg’s journey from snot-faced upstart to dotcom deity began in the summer of 2006, just after the demise of the first Yahoo bid. Zuckerberg won’t speak directly about this time period, but associates and friends say that, for the first time in his career, the curly-haired tyro found himself facing immense external pressure. Sure, he’d retained control of his company for the time being, but he hadn’t solved any of the problems that led him to consider a sale in the first place. Critics were accusing him of hubris and foolhardiness. He had something to prove.

Zuckerberg designed Facebook to re-create online what he calls the “social graph” — the web of people’s real-world relationships. That was different than most social networks. Sites like MySpace practically encouraged users to create new identities and meet and link to people they barely knew. Zuckerberg didn’t care about using the Internet to make new friends. “People already have their friends, acquaintances, and business connections,” he explains. “So rather than building new connections, what we are doing is just mapping them out.”

To that end, Facebook has always emphasized two qualities that tend to be undervalued online: authenticity and identity. Users are encouraged to post personal information — colleges attended, workplaces, email addresses. Facebook also emphasizes honesty: Because users typically can view profiles only of people they’re linked to, and they can’t link to them unless both partners confirm the relationship, there’s little point in creating a fake identity.

Zuckerberg saw that if he could successfully map the social graph, he’d create a powerful new model of communication — a giant word-of-mouth engine. Imagine if, every time you logged on, you weren’t greeted by NYTimes.com or even a Google News like aggregator, but a collection of headlines and blog postings, written or handpicked by your closest friends and relatives. Instead of information spreading hub-and-spoke like from major media outlets, it would flow to consumers the way it does at a dinner party, through people they know and trust. The result, Zuckerberg says, is that “it may no longer be optimal to have a few big media companies in the center controlling the flow of information.”

When Zuckerberg walked away from Yahoo in July 2006, his grand vision had yet to be realized. He had a network of 7 million students, not an alternative media empire. To transform his company he would have to accomplish three things: First, make it easier for friends to communicate with one another; then extend Facebook’s membership to the entire world; and finally, open the site to developers and encourage them to build Facebook applications that would keep people signing up and coming back to the site.

Zuckerberg’s first step was almost his last. Previously, Facebook users had to visit one another’s pages or send an email to see what they were up to — what features they’d added, announcements they’d posted, new friends they’d linked to. Zuckerberg wanted to streamline that process . His solution: News Feed, a feature that automatically broadcasts users’ most important activities to everyone in their networks. Add a friend, post a photo, install a feature — almost anything you did was filtered through Facebook’s computers, which then sent bulletins to all of your friends, notifying them every time they logged on to the site.

News Feed was announced on September 5, 2006 — about a month before Zuckerberg turned down Yahoo’s second bid — and launched the same day. The freak-out began almost immediately. The new service didn’t look like a means of easing communication between friends; it looked like Facebook was manipulating and spreading their information without permission. Hundreds of thousands of Facebook users emailed to protest. A student at the University of Florida organized a boycott, calling it A Day Without Facebook. “The New Facebook is too… well, creepy,” wrote Carlos Maycotte in The Cornell Daily Sun. “It just makes too much information visible.”

The easiest thing for Zuckerberg to do was simply dismantle News Feed. But he refused. News Feed was not just any feature. It was the infrastructure to undergird the social graph. So, three days after the feature launched, he posted a 485-word open letter to his users, apologizing for the surprise and explaining how they could opt out of News Feed if they wished. The tactic worked; the controversy ended as quickly as it began, with no real impact on user growth.

With the News Feed engine in place, the next step was obvious, if terrifying. So far Zuckerberg had tightly controlled Facebook’s user base, opening membership slowly to colleges, high schools, and a few businesses. Now it was time to let anyone in the world join.

The notion was risky. When Facebook opened registration to high school students, the tepid response helped spur talk of a sale. A similar showing would make it even harder for Zuckerberg to keep prospective buyers at bay. But this time, open registration turned out to be a huge success. Adults, many of whom had yet to sign up on a social network, were drawn to Facebook’s relatively staid and conservative structure. By January 2007, Facebook’s user base had grown to nearly 14 million, up from almost 9 million in September.

Fully engaging those new users proved to be more difficult. They were happy to log on, share photos, and send quick messages, but when they wanted to do something a bit more complicated, like keep track of their eBay auctions, for instance, they had to leave Facebook to do it. Zuckerberg knew the site needed more applications, but he also knew that his development team wouldn’t be able to satisfy every whim of his user base. “We said, ‘This is a problem,'” says Dustin Moskovitz, one of Facebook’s cofounders. “What people really want is one online identity to do all these different things. What users wanted was the long tail of applications.” It was time for Facebook’s third, and most audacious, step.

On May 24 of this year, when Zuckerberg announced he was opening Facebook to independent developers, it was clear to Jonathan Sposato that the company had done something revolutionary. He knew how to develop and successfully distribute software: In 2005, Sposato, a former group manager at Microsoft, started a company that made it easy to create software widgets, and he sold it to Google later that year. In mid-2006, he and two fellow Microsoft alumni created Picnik, a slick online photo-editing site.

But even Sposato was surprised at the response from Facebook users when Picnik was included as one of the 85 initial applications in Facebook Platform, the new development tool. Within three days, more than 100,000 users downloaded his program — about 10 times more than he’d anticipated. Because News Feed instantly and automatically notified friends whenever someone downloaded Picnik, word of the application spread exponentially. Sposato called colleagues in a desperate — and ultimately successful — hunt for extra server capacity and bandwidth to avoid outages. Currently almost 250,000 Facebook users have installed Picnik on their pages, making it the network’s top photo-editing tool.

Sposato’s experience shows the power of Facebook Platform as a new model for disseminating software. The plummeting costs of bandwidth, processing power, and storage had driven down the price of application development. But unless you could figure out a way onto the Google homepage, it was still tricky to tell the world what you’d created. Facebook now gave even the most modest developer the opportunity to win instant and mammoth distribution through its word-of-mouth engine. Users no longer need to search for applications that they may not even know they want; instead, the applications find them.

Since then, more than 3,200 new applications have sprung up on the site, a number that is growing by about 180 a week. Those offerings have made Facebook a fully functioning social hub, where users can keep track of one another’s favorite music and videos, share and compare movie reviews, and hit one another up for contributions to pet causes. Facebook promises to become an online identity for recruiters, bosses, and colleagues looking to hire and promote; a souped-up business card for job hunters; and a dossier of people’s likes and dislikes that vendors can use to provide targeted products and services. Salesforce’s Benioff even imagines Facebook pages serving as universal health records.

And by turning itself into a platform for new applications, Facebook has launched a whole new branch of the software development industry, just like Bill Gates did with MS-DOS in the 1980s. By allowing developers to charge for their wares or collect the advertising revenue they generate, Zuckerberg set up a system for every programmer to get paid for their efforts. Now venture capitalists like Bay Partners are scrambling to fund almost anyone who has an idea for a Facebook application.

Skeptics may argue that we’ve seen this movie before — in 1999, say, when anyone with a vague concept for a Web site could get VC backing. And, they point out, nobody actually does pay for Facebook applications. Still, the startup costs for developers are extremely low, and the potential is high. For the Internet, email was the killer app — a program so useful that it transformed the platform into a massive communications tool. There’s no killer app for Facebook yet. But if someone can develop one, they will be sitting on a gold mine.

For all the excitement, one sobering fact remains: Facebook has yet to prove itself as a business. The site’s nearly 40 million active users generate more than a billion pageviews a day, but ad clickthrough rates are low. An estimated half of its $150 million in revenue comes from an advertising deal with Microsoft. Independent developers are drawn to Facebook because Zuckerberg lets them keep any advertising revenue their applications generate; if Facebook can’t prove itself as an advertising venue, the deluge of new applications will slow to a trickle.

Nevertheless, Zuckerberg’s notion of the social graph has proven so powerful that almost every other company in the Valley is trying to replicate it. Jeff Weiner, one of Yahoo’s top executives, refers to users of Yahoo Mail as a Facebook-esque “dormant social network” that his company “needs to activate.” And MySpace is expected to respond to Facebook’s challenge; CEO Chris DeWolfe has made vague statements about the site’s “evolution.”

Whatever ultimately becomes of Facebook, Zuckerberg has already had an impact. A year ago, the Valley wondered if this cocky youngster had turned down his only shot at $1 billion. Now it’s wondering if he has defined the future of the Internet.

Source: Wired