Platform providers keep trying to do more. Apple (Nasdaq: AAPL) is making its iPhone more businesslike; salesforce.com’s (NYSE: CRM) Chatter is as much a virtual water cooler as it is a collaboration tool. Even Facebook, home to some of the world’s most popular online games, has become a place where business gets done.

And not just for networking. In June, Walt Disney (NYSE: DIS) sold tickets to the hit sequel Toy Story 3 through a Facebook page called “Disney Tickets Together.” Call it f-commerce rather than e-commerce. As a platform, Facebook is cashing in on the business of fun. The business of business could be next, but only if Google (Nasdaq: GOOG) doesn’t get there first.

What makes a platform
More on that idea in a minute. First, let’s talk about platforms. They are, in the simplest term, soil. Composed of hardware and software, they provide fertile ground to grow new software and business ideas. Zynga grew out of Facebook, oneforty out of Twitter, and dozens more out of the iPhone.

Tech investors love popular platforms because (a) they’re hard to displace and (b) they offer defensible and typically generous cash flows. Consider these examples:

  • salesforce.com, whose Force.com platform for creating on-demand software now hosts more than 100,000 applications. The company has produced more than $260 million in free cash flow over the past 12 months and had more than $950 million in cash and investments on hand as of April 30.
  • Amazon.com (Nasdaq: AMZN), whose Web Services ecosystem not only backstops Twitter but more than 500,000 customers in all. The e-tailer is also the primary digital platform for publishers such as Random House and Bertelsmann. Amazon has generated nearly $2 billion in free cash flow over the 12 months ended in June.
  • Microsoft (Nasdaq: MSFT), which created what may be the best platform of all time in Windows. So good that it made CEO Steve Ballmer sweat. To this day, the PC king produces more than $20 billion in free cash flow annually.
  • Apple, whose iPhone App Store now hosts more than 200,000 apps. Though significant challengers such as Research In Motion (Nasdaq: RIMM) and Google’s Android remain, the iPhone is looking like the Windows of the mobile world. Apple, already flush with more than $45 billion in cash and investments, has produced more than $14 billion in free cash flow over the past 12 months.

If Google wants to beat Facebook, it’s because there’s widespread belief that Facebook could become this kind of platform.

Two techies enter, one techie leaves
Google can’t allow that to happen. The more users trust Facebook to conduct business or provide entertainment, the less likely they are to use Google services, and usage is everything to the search king.

Forget about people who say Google Earth doesn’t provide revenue. The Big G makes money by creating an index of, well, everything. The more it knows, the more insightful its advertising engine becomes. Well-targeted ads are worth paying for.

But don’t take my word for it; look at the numbers. Facebook took in more than $700 million in revenue last year by presenting us with relevant ads. Only on Facebook, relevance isn’t measured in terms of searches, but in terms of actions. How we spend time on the network, and who we spend it with, determines what we see.

The approaches may differ, but the desired results are the same. Google and Facebook are fighting over the future of digital advertising. Both will profit, but one is going to profit a lot more. Click here for part two, in which I reveal who I think will be the winner.