It's a bad idea to get into a scuffle you don't know how to get out of. Case in point: Facebook is trying to one-up a stronger competitor, Google (NASDAQ:GOOG), in a rush to establish programming standards for social networks.
Since Facebook opened its network beyond colleges, allowing anybody to sign up for an account in fall 2006, the social-networking site's traffic has built up a head full of steam. From relative obscurity as a focused school-and-business network, Facebook quickly became a major force in social networking, with page views and visitors to rival News Corp.'s (NYSE:NWS) (NYSE:NWS-A) MySpace and Internet heavies like Google and Yahoo! (NASDAQ:YHOO).
Share your secrets
Now the upstart socialite is figuring out how to profit from all of this attention, possibly to prepare for some sort of merger or IPO action in the fairly near future. Investments from Microsoft (NASDAQ:MSFT) and a Hong Kong tycoon value the company at roughly $15 billion. That would make for a very, very large acquisition indeed, or a splashy public offering with the power to move markets.
An important ingredient in Facebook's profit recipe is the ability to attract plenty of new users, then make them stay on the site for a while. This allows users to see (and react to) the advertising that makes the money machine tick. MySpace used to be the king of sticky traffic, but Facebook is stealing this crown, too.
After the Faceobok application API was opened up to all comers last summer, allowing anyone to write media-rich, interactive plug-ins for Facebook profiles, Facebook instantly disrupted the social-networking market. Adobe (NASDAQ:ADBE) Flash video viewers, casual games, and other inventive widgets became very popular implementations of Facebook's platform. The company spent nearly nothing to build or operate these tools, but it reaps huge rewards from their ability to grab users' attention.
We all float down here
Those third-party apps truly are the secret sauce in Facebook's recipe for success. If you haven't seen them yet, you will soon. Your friends -- people you know, trust, and even love -- will invite you to Facebook to try this cute little toy, or beat them at that silly game, or compare your taste in movies, or fashion, or general savoir faire ... and then you're hooked, inviting uninitiated friends of your own. You're doing Facebook's bidding, for free. And you'll like it.
Oh, I know what you're thinking. This Fool used to be a skeptic, too. On the surface, social-networking sites look like a multimedia extension of email spam. At their worst, that's exactly what they are. But once a network like MySpace or Facebook reaches critical mass, it's amazing how far back into your own life you can reach for long-lost friends, enemies, and so on. I'm talking to my best buddy from kindergarten again. He didn't become the pilot he wanted to be way back when, but air traffic controller is close enough. And I'm better at movie trivia.
Google has users, too
Unfortunately for Facebook, Google has also picked up on the secret formula. The OpenSocial programming platform can bring addictive little applications to the masses through a standards-based, open interface applicable across various sites. The first wave of partner sites includes MySpace, Google's own Orkut, Friendster, and Salesforce.com (NYSE:CRM) -- definitely a strong enough contingent to pose a serious threat to Facebook's newfound regency.
I cannot overemphasize the importance of Google's open standards. Any site can use OpenSocial community components, including the Fool or even your personal homepage. That's a surefire way to attract freelance programmers with an open-source mind-set, as well as companies where the programmers already know plain old JavaScript and HTML. That's all you really need. Don't be surprised to see OpenSocial applications strewn across the Internet any day now.
Atlas shrugged
Facebook is already fighting back, promising to open up its own APIs for use on other sites. Now, Facebook and Google are going head-to-head to win the affections of developers and users alike. There's some chance that the two technologies will eventually merge into one all-powerful social-networking platform, but that would force Facebook to compromise its walled garden, and Google its free-for-all ethos. Neither is likely to happen anytime soon.
It's impossible at this early stage to name a surefire winner, but the non-proprietary nature of OpenSocial makes it my bet. Also, Google knows a lot more about making money from online traffic than Facebook does, and it's happy to share some of that expertise with its content-providing partners.
Don't get me wrong -- I like Facebook, and I visit the site every day. But likable or not, this is one fight that could sink the service into a commodity quagmire in the blink of an eye -- never to be seen again.
Watch this space.
