Facebook: Tool or Toy?

Developer conferences, typically, are serious business. Apple (Nasdaq: AAPL  ) unveiled the 3G iPhone at its coders confab last month. But that's Apple. Facebook is a richly valued social-networking website. We shouldn't expect anything similarly groundbreaking to surface at its f8 conference, held today in San Francisco, right? As BusinessWeek's Steve Hamm recently wrote, "[Social-networking websites] may provide entertainment for people with time on their hands, but have shown little ability to improve productivity, create substantial numbers of jobs, or earn a profit."

All true, Steve. Plenty of Facebookers are hooked on Scrabulous, or sharing music via iLike, or are chatting up the latest flicks via dozens of movie groups. For me, Facebook whets my appetite for Dilbert cartoons and quotes from syndicated TV series The West Wing. But I also use the site as a business tool.

I'm not alone: Facebook says f8 is sold out. Planned topics include building a business via Facebook, a pitch not unlike what we've heard from eBay (Nasdaq: EBAY  ) . Others emphasize application building, entrepreneurship, and the "fbFund," a $10 million pool for investing in businesses built on Facebook.

Dive in, the water's green
Pool? Make that a puddle. Giant Interactive (NYSE: GA  ) earlier this month said it would invest $51 million in Chinese network 51.com. Twitter, with the help of Amazon (Nasdaq: AMZN  ) founder Jeff Bezos, just got $15 million, according to USA Today. Business network LinkedIn recently attracted $53 million in new VC money. And, finally, there's News Corp. (NYSE: NWS  ) , which, not to be outdone by the "fbFund," has created a MySpace applications incubator called SlingShot Labs.

Add it all up and there's at least $100 million flowing into the Web's Chatty Cathys, which is both encouraging and troubling. The good news? Networks are as varied as the people that inhabit them. Thus, there should be plenty of room for specialized groups.

The bad? Excess money usually creates a bubble and it's very likely that's what we have here. I've already witnessed Facebook users express social fatigue via their status bars. One semi-serious and darkly humorous blog speaks of social networking rehab, as if Twitter is heroin's digital twin.

But does that mean that Facebook, as a business, is worthless, more toy than tool? Hardly. Even if businesses have yet to figure out exactly how to use social networking, the technology is already providing value. Here's how.

  1. Social networking is a proving ground for cloud computing. Facebook is a lightweight cloud-computing platform not entirely unlike salesforce.com (NYSE: CRM  ) . Consider Facebook Chat. Log into your page and the system tells you who's online and available to talk. Why should you care? Users like Web software: Apple's iPhone App Store facilitated 10 million downloads during its opening weekend.
  2. Social networks can lead to high levels of customer engagement. When Iron Man director Jon Favreau sought to engage his customers -- moviegoers and comics fans -- he opted for MySpace over traditional media. Fans loved it; Marvel Entertainment (NYSE: MVL  ) , not so much. And yet the director is now signed on for IM2.
  3. Social networks foster network effects. Common wisdom says that the size of your network increases your opportunity to win business or land a better gig. A billion-dollar valuation for LinkedIn lends truth to this maxim. Think of what happens when personal and business networks intersect. More business gets done, right? That's what happened recently when odmonk, a participant in our Foolish social network, Motley Fool CAPS, landed a job based on skills he learned while tooling around the service.

Still, odmonk's story is rare. And Facebook, purported to be worth more than $15 billion, expects just $350 million in 2008 revenue. Thus Hamm's assertion: Social networking isn't the realm of the business elite.

And yet, in more than 15 years of following tech, I've come to realize that Steve Ballmer is right: developers rule. They're the brains behind the code that enables business to get done. Nowadays, they're writing for the Web and the so-called "toys" that reside there. Toys like, you know, Facebook.

Fool contributor Tim Beyers had positions in Marvel shares and LEAP options at the time of publication. He's also a member of the Rule Breakers team.

Amazon, Apple, and eBay are Stock Advisor selections. Try this market-beating service risk-free for 30 days. The Motley Fool has a disclosure policy.


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