How Facebook Could Earn Its $100 Billion Valuation

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We're reaching an inflection point. The next few years will determine whether developers will code to distinct operating systems or the Web itself.

If distinct OSes continue to dominate, it'll preserve the fortunes of the computing incumbents we've come to love and loathe: Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , and Microsoft (Nasdaq: MSFT  ) , notably.

If the Web triumphs, It'll mark both a moral and financial victory for Google and create a windfall for Facebook. Other winners could include Netflix (Nasdaq: NFLX  ) , Zynga, and hundreds more creative coding shops unbound from legacy OS code.

The biggest winner of all
But if a recent report by TechCrunch's MG Siegler is to be believed, Facebook has the most to gain. Its "Project Spartan" is assembling a full HTML5 layer for hosting fully functioning Web apps within a Facebook wrapper on mobile Safari. If successful, the effort would not only disrupt Apple's own App Store but also change the way we think about acquiring and using apps on any device.

Here's how Siegler describes Spartan, which he claims to have seen:

Imagine loading up the mobile web version of Facebook and finding a drop-down for a new type of app. Clicking on one of the apps loads it (from whatever server it’s on depending on the app-maker), and immediately a Facebook wrapper is brought in to surround the app. This wrapper will give the app some basic Facebook functionality, as well as the ability to use key Facebook elements — like Credits.

Can you imagine? Not only would every app be social, but you'd also have no need for the iTunes Store to purchase additional functionality, no need for iCloud, and no need to download updates. Your iPhone would be, in effect, a server for connecting to the Web and hosting Facebook. All other functions -- aside from phone calls -- would be secondary.

Making this all the more dangerous is how Facebook is either working on or already has apps that substitute for Mac OS and iOS alternatives. The Messages feature subs for Mail and iChat, while Photos subs for iPhoto and is reportedly getting more social all the time.

Facebook also plays the role of third-party software host. Each day, users install a reported 20 million apps on the social network's pages.

Rethinking software development
Go ahead and read Siegler's piece and his follow-ups if you want to fully understand Facebook's strategy. As an investor, I'm less concerned with Facebook's plans to disrupt software development than I am with the broader trend.

Developers like the idea of coding to a layer above an OS, if only because the target audience for software rises dramatically when you aren't confined to one device maker's vision of the world. Distribution cost also comes into play. Build your apps on the write-once, run-in-any-HTML5-browser Web, and you don't have to contend with app-store hosting fees, which top out at 30% for Apple's App Store.

So that's the promise. The reality may prove to be much different, however. Research from Flurry Analytics shows that today's smartphone users prefer native OS apps to mobile Web apps -- a reversal from December, when users spent four minutes more per day working with browser-based software, GigaOM reports.

Entropy is the enemy of action
Yet neither Apple nor Google should take this as a sign of the dominance of apps. Give users what they want in the confines of a browser, and they'll use the Web for just about anything. How else can we explain the rise of Gmail? Or, for that matter, (NYSE: CRM  ) ? The Web has become an attractive platform for hosting high-function software.

Facebook knows this all too well. That's why the company publicly committed to HTML5 last October in a blog post. Notice the enthusiasm Senior Open Programs Manager David Recordon shows for the platform: "It's worth understanding that the term “HTML5” has come to mean more than just the single HTML5 specification, but really represents the next evolution of the web platform and thus dozens of related specifications. Many of them have already been implemented across recent versions of Chrome, Firefox, Internet Explorer, Safari, and Opera."

Facebook has also said that more than 125 million regularly visit its site with HTML5-capable smartphone browsers. Mix in desktop browsers and the number "skyrockets," Facebook engineer Cory Ondrejka wrote in February. He and fellow Facebooker Bruce Rogers have since taken to creating a richer infrastructure for HMTL5 games running on the social network. You needn't know about "Project Spartan" to know Facebook's intent.

But there's also a difference between a general preference for HTML5 and an all-out assault on the very notion of mobile apps and app stores. Siegler's right: This is a war, one that none of the entrenched incumbents can afford to lose.

Do you agree? Disagree? Please weigh in using the comments box below, and when you're done, take a minute to watch this free video right now. You'll walk away with a stock idea from our Motley Fool Rule Breakers scorecard and a richer understanding of the cloud-computing revolution.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Netflix,, Microsoft, and Apple, creating a diagonal call position in Microsoft, creating a bull call spread position in Apple, buying puts in Netflix, and shorting Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 23, 2011, at 10:54 PM, joaquingrech wrote:

    nope. They are not really competing products. Ok, a spreadsheet type of thing maybe (which you would't run on a mobile for most).

    But do you prefer to click on an icon, open facebook, then click on another dropdown, then finally arriving to the calculator that needs internet connection?

    Or just download the app into your phone and use it.

    Another thing, as a computer scientist I know HTML5 pretty well and it seems that it has become a buzzword that most people don't even know what it means. You can't replace tons of apps with HTML5, you can't replace Flash with html5, you can't do lots of stuff with html5.

    What're the best selling apps on any platform? Games. Some basic games you can do on html5. For instance, angry birds high changes you can do on html5 because it's really a very simple game. But you can't do complex things like a 3d racing car game, or flight sim or doom. For the games that you could port, it would require a ridiculous amount of work and run 10x slower than their compiled counterparts. So yes, it can replace some of the products, the same way that nowadays you have online games running on webbrowsers. But some things you just need to run on the device and use the full power. Good luck doing (and running) world of warcraft on html5.

  • Report this Comment On June 25, 2011, at 5:14 AM, RalphEJohnson wrote:

    It seems odd to me that you put Google on the operating system side instead of the network side. In my opinion, Google is the premier company pushing the network as the operating system. Sun was the first company to advance that idea in a big way, but Google has promoted it the most successfully, and it is core to their strategy.

    I've been in the computer field since 1977. Operating systems are much less important than they used to be, and the last 10 years have seen a steady drop in their importance. This will continue, but operating systems are not going to go away. We will always need a layer of software that controls the hardware. They will always be important to programmers, but will be less and less important to consumers. More and more, apps will need to run on a variety of hardware. And what consumers think of as "the computer" will become increasingly the network itself.

    -Ralph Johnson

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