As Facebook takes off, MySpace strikes back
Facebook, Schmacebook. Rupert Murdoch's social-network play may
be the template for the media company of the future
FORTUNE Magazine
By David Kirkpatrick, Fortune senior editor
September 19 2007: 6:36 AM EDT
(Fortune Magazine) -- "Everyone believes all the b.s. press that says MySpace is done for and Facebook has passed us," moans Tom Anderson.
You may know Tom. He's president of MySpace. He may even be
your "friend" - he's the first one that all of MySpace's
200 million-plus members got when they signed up. Normally he's
low-key, but the subject of that other social-networking site
has him a little worked up. "It's just ridiculous!"
"But you can't say that too much," gently interrupts his business partner, Chris DeWolfe, MySpace's CEO. "You sound defensive."
If there's a consensus in technology, it's that the next big thing after Google (Charts, Fortune 500) is social networking. People of all sorts are joining this new kind of website because you really can have more fun online - and sometimes even get more done - when you're doing it with others.
Now there's starting to be real money in the business, as every
major consumer advertiser realizes that if you can engage effectively
with these newly networked hordes, they become agents of your
brand. Last year MySpace was on the lips of every teenager. Now
Facebook is growing faster, is usurping the buzz, and thus has
Tom Anderson tied into knots.
Facebook's plan to hook up the world
But defensiveness does not behoove executives who run a division of News Corp. (Charts, Fortune 500), Rupert Murdoch's consummately aggressive company - especially not when that division is the biggest player by far in an explosively expanding business like social networking.
It's easy to dismiss MySpace, with its unruly graphics, clunky navigation, and general sense of chaos. But the masses love it. MySpace is the most trafficked website in the U.S.: It registered 45 billion page views in July, according to comScore Media Metrix. Another research firm, Compete.com, calculates that Americans spend about 12% of all their Internet time there.
And apparently it's not just kids anymore - about half of its members are over 35. Murdoch bought MySpace in 2005 when it had $23 million in revenues; he recently told analysts that in the fiscal year beginning in July, it will take in $800 million, with a profit margin greater than 20%.
Of course, there's no telling whether MySpace's numbers will continue to kick butt. New competitors arise almost every day, and the site continues to be hammered by criticism of its privacy and safety practices. It's impossible to say for sure who's even going to be running the place a year from now: DeWolfe and Anderson are currently renegotiating their News Corp. contracts.
But chances are this operation will be around for a long time.
In fact, I'm going to go out on a limb here: MySpace, Rupert Murdoch's
four-year-old Internet plaything, may be the template for the
media company of the future.
Dawn of the web potato
Comparing MySpace and Facebook is inevitable because of their dominance in the business, but their differences are profound.
Facebook is intended to be used only to connect you to the people you already know offline; it's a "utility," to use the preferred label of its founder and CEO, Mark Zuckerberg. Its user interface is clean and tidy, and the whole vibe is efficiency and getting things done.
MySpace, on the other hand, is a mishmash of modern media - rich with music and video and comedy. It's like a rock & roll club - chaotic, loud, and packed. Many user profiles are florid and flamboyant, with flashing text and music that starts playing as soon as you arrive.
"We're focused on helping people express themselves and do the connection and discovery game," says Steve Pearman, one of Anderson's top deputies in designing the service. "If you want pink blinking text on a black background, who am I to say it's wrong?"
At MySpace you can befriend not only anybody but anything. A dog can have a profile, and so can AT&T. This looseness has powerful effects, very different from anything on Facebook. MySpace became the de facto home page for the music industry because its members could befriend bands. Any brand, political candidate, nonprofit, even government, can create a profile and start adding friends.
Hillary Clinton has 135,000 friends, and Barack Obama has 175,000. The recent movie Bratz accumulated 42,000. Victoria's Secret PINK brand has 210,000. Comedian Dane Cook has the most friends of all - more than two million.
It doesn't cost anything to create a profile, although companies
like Victoria's Secret pay extra for MySpace's promotional help.
To say you are a MySpace friend of Dane Cook or Victoria's Secret
is a way of expressing an affinity, one that you are implicitly
suggesting your friends might like to share. Abercrombie &
Fitch enjoys a 167,000-member group created by a fan without any
involvement from the retailer.
Facebook dilemma: To friend or not to friend?
Pearman describes the way the MySpace experience typically works: "I know you, and I see one of your friends. Look at them - they're friends with this band. The band is doing a show. They're at this awesome club. Here's a guy who also goes to that club and is a Battlestar Galactica fan - maybe he and I should be friends."
As users happily wend their way through this process, they click through screen after screen, every one of them festooned with ads. (On one day this summer, MySpace showered its users with 7.3 billion of them.)
With all that clicking and friending going on, it's no wonder MySpace is becoming an advertising mecca. Also playing into its advertising appeal is the fact that MySpace effectively runs its own mini-Internet in which users all have their own home pages, replete with data about themselves that can be examined and - to use a cherished Net industry term - "monetized."
Google promised in 2006 to pay roughly $250 million a year to show text-based search and keyword-targeted ads across MySpace through mid-2010. MySpace sells most of its banner ads itself, and the company is rolling out new ad-targeting technologies.
The research firm eMarketer calculates that in 2007, MySpace
will sell $525 million worth of advertising, 58% of the social-networking
industry's total. (Facebook will sell $125 million - less than
a quarter as much.) One huge upcoming opportunity, says DeWolfe,
is ad-supported MySpace on mobile phones.
15 startups that will change the world
MySpace's Beverly Hills offices feel much like those of a studio or a record label, where well-dressed, trendy twenty-somethings queue up for bagels in the cafeteria at 10 A.M. and banter about last night's party or concert. Movie posters line the fuchsia walls in the reception area. In the sofa-filled lounge that substitutes for an executive conference room, a table is covered with magazines: Hollywood Reporter, Variety, and Daily Variety - nothing else. It's probably the only major technology company with valet parking.
What gets MySpace people excited is finding a new band or locking in exclusive online rights to a hot TV show. "Our core competency," says DeWolfe, "is finding the best content out there - from tier-A professional content down to emerging content - licensing it, and bringing it on MySpace."
There are deals with the NBA, NBC (Charts, Fortune 500), and the creators of Thirtysomething to debut a new series on MySpace before it appears on TV. MySpace can make money both by charging content owners for distribution and by finding and promoting its own material.
In fact it actually has a MySpace record label, which signs musicians who bubble up on the service, and will probably establish a similar operation for film and video. The recently relaunched MySpaceTV is the No. 2 video site on the Internet, behind only YouTube. It offers everything from News Corp.-produced clips of The Simpsons to homemade video of your kid's sixth-birthday party. Ford Models paid to include videos promoting its "supermodel of the world" contest. One has been viewed about 72,000 times.
Facebook, meanwhile, has never licensed rights to a single song or video and probably never will. And for the record, its headquarters are on University Avenue in Palo Alto, ground zero for the technology industry, where the parties mostly happen when the employee Ultimate Frisbee team beats Google.
Otherwise people pretty much just work all night, writing software,
tweaking features - and giving hardly a thought to MySpace.
Cashing in on blog bling
Alas, MySpace's Facebook obsession is unrequited. DeWolfe and Anderson insist that Facebook is competition, even as they cite a comScore statistic that 65% of Facebook users also have a MySpace account.
Mark Zuckerberg disagrees. "I've never really considered us competitors," he says. "We've always been trying to do pretty different things, even though we're both in the social-networking space." Anderson is annoyed that Zuckerberg has said the same thing to him on several occasions when they've talked in person or text-messaged on their cellphones. And so it goes.
It's not hard to see why Anderson and DeWolfe see Facebook as a threat. Although Zuckerberg may not be directly attacking MySpace, he's doing a good job of making it easy for other companies to do just that.
In late May, Facebook announced it would open up its site and access to its 41 million members - to software created by anyone, from the largest software companies to dorm-room hackers. That made it, Zuckerberg said, a "platform." There are now more than 4,000 new applications on Facebook - and most of the popular ones replicate features already on MySpace.
Any talk about Facebook and its platform is a great way to spoil the mood around the MySpace offices. It's that defensiveness again. "MySpace has always been a platform," DeWolfe insists. "We have an open platform." What he means is that MySpace allows small software applications, known as "widgets," to appear on the site.
Another way to sour a conversation with the genial DeWolfe is to talk about privacy. Since MySpace places so few limits on who and what can have a presence on it, the service is notoriously hard to police. Users often operate anonymously.
There has also been the infamous problem of sexual predators.
The service has implemented a variety of new privacy protections
in the past year, and DeWolfe insists the new protections have
made MySpace just as safe as Facebook. But on Facebook, protections
are built in as the default, and one can achieve little operating
under an assumed name. To get comparable privacy on MySpace requires
both vigilance and time. Many members simply don't bother.
The Facebook economy
If MySpace is increasingly taking on the complexion of a big multinational media company, that's understandable, considering who owns it. Rupert Murdoch has put his stamp on his acquisition, especially by pushing it to go global, which now gives it a distinct advantage over the competition.
Murdoch visits the hipster-filled headquarters at least once a month, peppering DeWolfe with questions about membership numbers and sign-up rates. In early 2006, DeWolfe enthusiastically told him that MySpace was about to open its first international site, in Britain.
"I was so excited about it," says DeWolfe. "And he's like [mimicking a deep slow Australian voice], 'How many more this year?' and I said, 'Maybe a couple more.' Then he said, 'How about 12?' So we ended up opening 14." (See "Bebo's British Invasion")
Anderson has his own Rupert stories: "He called me once and couldn't log in for some reason. I was trying to help him over the phone, saying, 'Type this. Type that. What do you see on your screen?' And he says, 'It says, 'Welcome John.' And I'm like, 'John? Why does it say John?' and he says [affecting his own version of the deep, slightly cranky voice], 'I don't use my real name on MySpace.'"
So how is it really going, Chris and Tom? "That this has worked out so well and we both hope to be around for a long time is, I think, a really unique story," expounds DeWolfe, as Anderson nods. "We're almost at our two-year anniversary with News Corp. and we're probably going to sign up for another two years, and ..."
Wait a minute. Probably? When pressed, he looks sheepish.
"I don't know," he says, glancing nervously at his PR person. He hesitates. "We may stay with the company." MySpace's top two employees have spent several months negotiating a renewal of their two-year contract, and it's not a sure thing. They didn't own much stock in the parent company that News Corp. acquired, so for all their successes they have not had a big Internet payout.
The two have reportedly pushed for a $50 million, two-year pact and encountered resistance. To be fair, there is every sign they are deeply engaged in their work and are unlikely to leave. DeWolfe's hesitation in our interview could merely be a negotiating tactic.
Murdoch, for his part, is clearly trying to leverage his success with MySpace to gain an even bigger role in the Internet ecosystem. He talked to Yahoo (Charts, Fortune 500) earlier this year about getting a big chunk in exchange for a piece of MySpace.
Meanwhile, just about every other company in tech, especially Yahoo and Microsoft (Charts, Fortune 500), desperately wants to get into social networking. And any consumer-facing company in any industry has to figure out if it will partner with a big social-networking firm or try to go it alone. Viacom (Charts), for one, has taken a do-it-yourself approach (see "Viacom's plan to be cool again").
Regardless of how the jockeying plays out, MySpace will probably power on. For one thing, it has some big deals on the horizon, executives say, that could help retrieve some buzz from Facebook.
"It's the first time I feel like we have a real competitor," says Anderson, obviously recovering nicely from his un-Murdochian moment of defensiveness. "It's a good thing overall, because if there was any complacency within the company, now there's someone you can look at and say, 'Hey, we've got to be better.'"
MySpace will get better. Facebook will get better. Players to be named later will get better. The only sure losers in this business will be the consumer Internet companies that pretend it's all just a passing fad.
Facebook's plan to hook up the world
The company's boy-wonder CEO wants to take social networking out
of the dorm room and make it a platform for new businesses, reports
David Kirkpatrick in a Fortune exclusive.
FORTUNE Magazine
By David Kirkpatrick, Fortune senior editor
May 29 2007: 5:29 PM EDT
NEW YORK (Fortune) -- Imagine that when you shopped online for a digital camera, you could see whether anyone you knew already owned it and ask them what they thought. Imagine that when you searched for a concert ticket you could learn if friends were headed to the same show. Or that you knew which sites - or what news stories - people you trust found useful and which they disliked. Or maybe you could find out where all your friends and relatives are, right now (at least those who want to be found).
This isn't fantasy. Facebook might make it possible, and soon. Yes, the social-networking site college kids spend so much time on - the one you thought was just about hooking up - could turn out to be more important than any of us thought.
In late May, the company's 23-year-old CEO, Mark Zuckerberg, got up in front of several hundred journalists, analysts, and industry leaders in San Francisco at an event the company called F8 (think of it as "fate") to say that Facebook would no longer be just another social-networking site. Instead, he said, it aims to be the place where you can involve your friends in everything you do online. The company has 24 million members (less than half of whom are now in college), and it is adding about 150,000 a day. In effect, Facebook is now offering the opportunity for any company, Internet service, or software maker - anyone at all, really - to build services for its members.
In advance of the announcement, which had Silicon Valley buzzing, Zuckerberg and other executives spoke to Fortune about the strategy. "We want to make Facebook into something of an operating system so you can run full applications," Zuckerberg told me. He said Facebook is becoming a "platform," meaning a software environment where others can create their own services, much the way anyone can write programs for Microsoft's Windows operating system on PCs. Facebook, he explained, is a technology company, not a media one.
Zuckerberg sometimes lapses into jarringly grandiose language, for example when he told me that what Facebook is unveiling would be "the most powerful distribution mechanism that's been created in a generation." He may be crazy, but then again, he is something of a boy wonder. He consults frequently with Microsoft chief software architect Ray Ozzie and counts Washington Post Co. CEO Don Graham as a friend. Microsoft and the Post Co. were among the 65 companies that launched 85 new Facebook applications at F8.
That so many companies jumped aboard right away is a measure of the enthusiasm businesses have for social networking. Facebook's chief operating officer, Owen Van Natta, describes the opportunity this way: "Take anything today on the Internet and overlay a lens that is the people you know and trust." What wouldn't be more useful or enjoyable viewed through that lens? Watching football? Studying the history of Vikings? Shopping? Planning a vacation? Even - perish the thought - online sex? (Don't presume propriety. The only limit, says Zuckerberg, is that applications be legal.)
Take those examples of community-empowered applications at the start of this story. At least two of them aren't even hypothetical. A company called Digg already allows people to share and rate favorite news stories online. Now it is offering a version of its service on Facebook, which could allow it to accumulate users more quickly. And a company called iLike launched a service at F8 that allows members to connect at concerts. Non-Internet brands like Red Bull are developing Facebook applications too.
Today, social networking is fragmented. There are networks for dating, for philanthropy, for pet owners, for parents. But each has its own ways for members to register, describe themselves, communicate, and interact. Facebook aims to make much of that unnecessary. It will provide the underlying services - a platform - and offer access to its prerecruited pool of members. It will retain some online real estate and will still generate the lion's share of its revenue from advertising.
The platform expert has taken notice: Microsoft (Charts, Fortune 500) is Facebook's biggest business partner. Last year it contracted to broker banner ads for Facebook, reportedly guaranteeing a minimum of $100 million per year through 2011. Zuckerberg met with Bill Gates this spring, and two weeks before F8, Ozzie diverted his company jet for a quick Friday 8 a.m. meeting in a conference room at San Francisco Airport. There, Zuckerberg gave his first demonstration of Facebook's platform. (Ozzie is said to be fascinated by Facebook, but he declined to discuss it for this story.) Microsoft's own workplace network within Facebook has 10,000 members. At F8, Microsoft announced tools to make it easy to create links between Windows applications and Facebook's network.
Microsoft's imprimatur is a big first step in transforming a company that until now has been just another social network - albeit a hugely successful one, second only to giant MySpace. Neilsen/NetRatings counted 14 million unique U.S. web visitors to Facebook in April, compared with 57 million at MySpace, though Facebook is growing three times as fast. Both services, along with scores of smaller ones, offer a profile page to compile information about yourself - your sign, your favorite music, your major and class, or your job, and probably your sexual preference. You then "friend," or link to, others via their profiles, and exchange messages, join groups, and engage in a variety of collective activities.
Among the younger set, e-mail is increasingly passé. Instead, when they want to reach someone they "facebook" them. Groups can emerge for anything. One group of 227,000 at Facebook supports Barack Obama, and for some reason 143,000 - presumably mostly feckless college kids - have joined the group "I Secretly Want To Punch Slow Walking People In The Back Of The Head."
What sets Facebook apart - and makes its new direction possible - has a lot to do with its emergence from the hothouse of undergraduate life. Founded in February 2004 in Zuckerberg's Harvard dorm room, it required students to join using their real name and college e-mail address. So a culture of authentic identity became part of Facebook's DNA. At most other social networks, role-playing, pseudonyms, and anonymity are rampant - "On the Internet nobody knows you're a dog," as the classic New Yorker cartoon put it.
Facebook became not so much a place to meet new people as a tool to lubricate and intensify relationships with the people you already know. And yes, sex has from the start played a big role in Facebook's popularity on campus. It even still has a feature which enables you to "poke" another member - something most people interpret to mean a sexual come-on. I can tell you my Facebook friends aren't using it on this 54-year-old married guy.
The Facebook CEO padded into an interview recently on his 23rd birthday, barefoot, unshaven, wearing a T-shirt and jeans. Zuckerberg couldn't find an eraser for his whiteboard, so he used a knit hat he picked up from the floor. When I failed to notice, he pointed it out to me, attempting to be a helpfully colorful subject of journalism. He seldom does anything but work. For a while he led midnight staff meetings, until COO Van Natta, who has two small children, couldn't stand it anymore.
Zuckerberg uses one term constantly to describe the core value of Facebook: the "social graph." The programmer-turned-CEO says he means this "in the mathematical sense of a series of nodes and connections, with the nodes individuals and the connections the friendships." This is the essential asset that Facebook will now make available to others, he says.
His epiphany about its importance came when Facebook launched a rudimentary photo application in 2005. Though it lacked many features of other online photo sites, it almost immediately garnered the most traffic by far. The reason, he decided, was that Facebook members could quickly learn when friends uploaded new photos, and thus they looked at more of them. He hopes the best new applications by outsiders on the Facebook platform will experience a similar viral popularity.
That same year, Zuckerberg met the Post's Don Graham through the daughter of another Post executive who went to Harvard (as Graham had). "He described Facebook, and I just thought 'Gosh, that's one of the best ideas I've heard,'" says Graham, who, according to Zuckerberg, offered to invest $5 million for 10% of the company. (Graham says he made an offer, but declines to confirm the number.) Zuckerberg decided to take it. But word got out that Facebook was seeking investors.
Jim Breyer of Accel Partners, an investor in major tech companies, heard that Zuckerberg was willing to sell a stake. "We jumped all over it, even though we were told the deal was done," he recalls. He took Zuckerberg to dinner at the classy Village Pub in Woodside, Calif. Breyer ordered a Kistler Pinot Noir, a formidable wine, and suggested Zuckerberg do the same. Instead the CEO ordered a Sprite. He wasn't yet old enough to drink. Breyer said he'd invest $12.7 million for 13% of the company.
Zuckerberg went back to Graham, saying he felt a moral obligation to stick with their original deal. But Zuckerberg says the Post CEO told him he should take Breyer's deal, even though it meant Graham couldn't invest. So Zuckerberg did. Graham still speaks to Zuckerberg frequently and last year asked him to address top managers at the Post. "Success has not spoiled Mark Zuckerberg," says Graham. "He has never once talked to me about the money he can make from Facebook. He just talks all the time about making it better."
Zuckerberg has an unwavering certainty that what Facebook is building is important, even historic. He was the one who was most adamant about Facebook's long-term value over the past year, when there were big offers on the table, reportedly both from Viacom (Charts) and Yahoo (Charts, Fortune 500), which is said to have offered close to a billion dollars. Says Peter Thiel, a board member: "For better or worse the company's not going to be sold any time soon. It will remain a standalone business for a while, because the gap is enormous between what Mark and now the rest of the board thinks the company is worth, and what the outside world thinks."
Last fall, Facebook announced two changes that are critical to its new strategy. First, it introduced News Feed, an automated flow of information into your Facebook home page that told you which friends had new friends and what groups they joined, among other things.
Days later, Facebook made an even bigger announcement. Henceforth, membership would be open to everyone. New members of any age could join regional networks solely based on where they lived. (High school members had been allowed since 2005. Today there are three million.) There was grumbling among the college kids that Facebook would no longer be cool. Similarly, my 14-year-old daughter is appalled that I am a member of Facebook, and refuses to let me friend her, lest her other friends find out via News Feed. No matter, says Matt Cohler, the vice president for strategy who joined the company as employee number five in June 2004: "One of the first things I ever heard Mark say is 'We don't strive to keep it cool. We strive to keep it useful.'"
Opening up the rolls gave an immediate boost to membership. Facebook is growing spectacularly in places like Canada, the U.K., Australia, South Africa, Norway, Lebanon, and Egypt. Work networks are exploding, with 14,000 at IBM (Charts, Fortune 500), 10,000 at Ernst & Young, 8,100 at the BBC, and 6,300 at General Electric (Charts, Fortune 500). The U.S. Army network has 43,000 members.
But it is News Feed that gives Facebook its viral power. "News Feed brought interesting things to people's attention quicker, so they looked at more content," Zuckerberg says. Now, as businesses build applications and users install them, their friends will automatically be notified.
The early applications appearing on Facebook suggest that many companies see the huge potential of such a system. Prosper.com, a site that enables people to lend each other money at negotiated interest rates, launched a Facebook version. Max Levchin, who co-founded PayPal, is CEO of Slide, which is putting its slide-show service on the new platform. "These guys are creating the opportunity to build Adobes and Electronic Arts and Intuits that live within Facebook," he says.
Levchin says Facebook has dramatically simplified the process of starting certain kinds of companies. For instance, it's often said that no-one can compete with eBay (Charts, Fortune 500) because the hurdle of matching its existing community of buyers and sellers is too great. So why not, he asks, create the next eBay on top of Facebook?
The Washington Post Co. started working on its own Facebook application in late April, the morning after Don Graham took Zuckerberg as his guest to the White House Correspondents' Dinner. "It's a strategic issue for us to reach out to the very webby younger audience," says Caroline Little, CEO of Washingtonpost.Newsweek Interactive. Product development boss Rob Curley worried at first that the Post on Facebook might seem like "Pat Boone rapping," but found that almost all his developers are huge Facebook users, so they summoned up the right spirit. At F8 The Post launched a "political compass," which asks you to answer a set of questions so it can exactly locate you on the political spectrum. Then you can compare that result with your friends, people in the Washington network or the people at your office.
Before F8 Facebook hosted six applications of its own, which appeared on the left of a member's screen - Photos, Notes, Groups, Events, Posted Items, and Markeplace (a new classifieds service). It intends to continue developing its own applications even as it welcomes those from others, though executives insist their own will get no special treatment. At F8 the big news is the introduction of Facebook video. The impressive application will provide higher-quality video than YouTube, but will be used mostly for communicating among friends. Among other features, it will enable you to upload video from your camera phone and have it automatically placed on your profile.
Breyer says Facebook is profitable. Reports put total projected company revenue for 2007 at about $150 million. Strategy boss Cohler explains how the company will benefit from the platform: "First, we get additional usage and page views, and we can put ads towards that. But in addition, users will be telling us more about themselves by using a richer site, and we can use that information to serve them a more relevant experience, both in advertising and other ways." As for the developers themselves, Facebook will impose no limitations on how they make money. Says Zuckerberg: "They can sell sponsorships, they can have ads, they can sell things, they can link off to another site - we are just agnostic."
It's not all rosy for business, though. You think we've had transparency on the Internet so far? The ramifications for marketers could be frightening if someone builds tools that enable Facebook users to get more efficient at communicating among themselves about products and services they use. It could become just as easy to learn if someone you know was overcharged by a credit card as to find out what concerts they are attending. Up until now most online sources of product information have been unreliable. But if it's your friend telling you not to buy that shampoo, you're likely to listen. And the most revolutionary Facebook applications could very likely emerge not from the company's carefully picked launch partners but from some dorm room - like the one where it all began.
There's no certainty the strategy will work. Users could be turned off by a sense of increased commercialism inside Facebook. The viral processes the company expects will promote new applications could break down if users are receiving too many messages about the activities of their friends. The service itself may not be able to handle the increased traffic. Competing social network platforms could emerge from any number of companies including Google (Charts, Fortune 500), Microsoft, MySpace, or an even more fleet-footed startup. However, executives at several Internet service companies I spoke to, including Levchin of Slide and CEO Kevin Rose of Digg, said that MySpace seems to have neither a welcoming attitude towards partners nor the technology chops to mimick Facebook anytime soon.
At Facebook, the sky seems very blue. Says investor Thiel: "Everything we see from the inside tells us this could be an extraordinarily valuable business, on the scale of a Yahoo or eBay or even a Google." Adds co-founder and VP of Engineering Dustin Moskovitz: "I have a note on my account that says Facebook will saturate the world population by 2010. It's not a joke." And Zuckerberg: "We're on a trajectory to be pretty universal soon if we can keep our growth going."
OK, maybe instead they'll just sell to Microsoft. But in the meantime, you may very well start using Facebook yourself.
Dawn of the web potato
Web video isn't just for stupid pet tricks. It's driving the Internet's
future, says Fortune's Brent Schlender.
FORTUNE Magazine
By Brent Schlender, Fortune editor-at-large
September 18 2007: 11:36 AM EDT
(Fortune Magazine) -- It's time to retire "surfing the Web" from the Dictionary of Internet Jargon. You hardly ever hear it nowadays because that's not what most of us do when we go online anymore. We don't surf; we do specific things - e-mailing, instant messaging, shopping, Googling.
And according to two recent studies from Cisco and the Online
Publishing Association (OPA), what people do more than anything
online is consume "content": look at videos and photographs,
read the news, and get the lowdown on friends and celebrities
at MySpace or Facebook. In other words, we've become Web potatoes.
This is a big deal. For one thing, the more time people spend online, the more attractive the media become to advertisers. That's why Google (Charts, Fortune 500) recently started experimenting with overlay ads on YouTube videos. Get used to it.
But there are other consequences. When a politician's gaffe
or a waterskiing squirrel or whatever gets hot on YouTube, the
sudden surge of petabytes or even exabytes of digital data can
tax the Internet infrastructure. (To give you an idea, one petabyte
is one million gigabytes, or the numeral one followed by 15 zeroes;
an exabyte is one billion gigabytes, or the numeral one followed
by 18 zeroes.)
Chronic Subscription Fatigue Syndrome
When you add in all the new stuff that's moving online - telephones, videoconferencing, high-definition TV, as well as much of the computing interactions of business and government - some even predict digital brownouts.
The OPA study measures how Internet users spend their time, while Cisco's white paper tracks how and where the bits we consume come and go. So they are counting different things. But they arrive at pretty much the same conclusion: that consumer usage of the Internet now is growing much faster than - and is about to outstrip - business and government traffic. Consumer content, especially video, will drive the Internet for the foreseeable future.
Both studies are full of interesting, if debatable, statistics, observations, and predictions. The OPA's Internet activity index contends that a typical Internet user spends 47% of his time online looking at content, 33% communicating, 15% shopping, and 5% Googling or using other search engines.
The definitions of those categories, however, are a little fuzzy, and the search figure seems strikingly low, although the OPA emphasizes that search activities have grown as a proportion of Internet time by 35% since 2003, when they accounted for merely 3%. (To me, however, that statistic implies that search engines might be getting worse.)
Cisco's white paper, called "The Exabyte Era," strenuously asserts that the Internet is in no danger of "collapsing under YouTube traffic, nor is it likely to," despite the fact that in North America online video transmission has swelled to 18% of all Internet traffic in 2007, from 7% in 2005, and will grow tenfold by 2011. Cisco (Charts, Fortune 500) also estimates that consumer traffic, which is expanding at a 57% annual clip, compared with 37% for all Internet use, is on the verge of blowing past business as the biggest user segment of Internet activity.
Of course, you also have to consider where these numbers are coming from. The OPA is an industry association whose primary mission is "to advance the interests of high-quality online publishers before the advertising community," and obviously it's in Cisco's interest to portray its own growth potential as unlimited.
But in a general sense they're right because, as the wild popularity of YouTube has shown, video and the Web were made for each other. It's only a matter of time before most video - even plain old TV - will be delivered to the living room via the Web.
So here we are. The Internet is on the threshold of becoming synonymous with all media and communications. Fifty years ago it was military largesse that fostered the origin of the semiconductor chip, the computer, and the Internet. The needs of business took information technology to the next level as corporations retooled chips and computers and software and networks to automate much of their operations.
And now, not so long after the turn of the 21st century, the most exciting things emerging from IT are a result of consumers' unquenchable thirst for something to watch. Surf's up.
August 27, 2007
Facebook dilemma: To friend or not to friend?
For August’s question, a desperate plea from a good thirtysomething friend who’s running into a somewhat twentysomething-induced situation:
“I’ve had this problem lately about what to do when someone who wants me to add them to my Facebook contacts and I don’t like them/respect the/want to be associated with them,” she writes. “I ignore their plea, but it could get awkward. I don’t really want to decline outright… Not as big of a deal on Facebook, which I don’t use anyway (okay, I don’t really use any social networking), but what about for LinkedIn, which is more of a professional network site. I don’t want to recommend or be linked to someone who might bring my whole professional reputation down a notch.”
I had to laugh when I received this because I’d been having the same issue recently myself and was starting to worry that I was either 1) an insufferable snob, or 2) not cut out for social networking. So I called on some people I thought might know how to solve our problem — namely, my 22-year-old sister, Lisa, and her recent-grad, extremely Facebook-savvy friends.
Evidently, our reader’s instinct — ignore, ignore, ignore — is right. According to my little Facebook focus group, the rule with most of these social networks is that a pending friend-request, even a prolonged one, can mean any number of things. True, it may mean that the other person just doesn’t like you and would rather chew gravel than be your “friend.” But it could also mean that he or she simply isn’t much of a social networker. Whereas, an outright denial leaves no such room for interpretation.
And while it might be awkward to run into someone who’s still “pending” on your friend list — Lisa, my own sister, actually called not long ago to ask why I hadn’t confirmed her as my Facebook friend yet — you can always say you just don’t really go in for the whole social networking thing. (In my case, it’s true; I didn’t even know Lisa was — horror of horrors — pending, but thankfully, she forgave me and a grave family crisis was averted.) Most normal people will get the hint, and if one or two pending people don’t and pester you about it, well, then at least you know you made the right call.
Because, as our reader rightly points out, befriending the wrong person — on Facebook, LinkedIn, or MySpace, as in life — can have dire consequences. Not only do you suffer when you open this sort of direct line of personal and semi-friendly communication with a — let’s just say it — wack person, but all your other friends suffer because you’ve made them even more vulnerable to friend requests and communiques from said person. And again, in social networking as in life, you often are who you hang with, virtually or otherwise. The point of these networks is, after all, to keep existing friendships and associations current and bring new ones — between people with shared personal or professional interests — together, not to force you to be friends with people you don’t like, respect, or want to be associated with. (Or for that matter, people who want to steal your identity, like this Sophos release points out.)
That said, I’d be remiss if I didn’t say a small something about those people many of us don’t want to be associated with. Often, I’ve found, it’s the people we don’t want to befriend in real life who — unable to overcome this condition — try to push for a friendship online. These are also usually the same people who, if the Facebook newsfeed is any indication, seem to have more vibrant lives there than most of us do in reality. This doesn’t make them bad people, just in many cases, people who haven’t been as socially successful as they might’ve liked, and have found in these social networks a chance to finally change that.
So help them (offline) if you can, and if you think you might be one of them, try putting some of the energy you spend Facebooking and whatnot into building some good, strong, face-to-face interpersonal relationships. We’re getting older, and while, as my brilliant colleague David Kirkpatrick says here and all the time, Facebook and its ilk can be wonderful tools, they’re just that, tools, not ways of serious adult life. So use them, don’t stress them. And no matter what kind of social networker you are, don’t bet they’ll be replacing old-fashioned people skills any time soon!
Cashing in on blog bling
San Francisco startup Slide has a plan to make big money off tiny
free software programs now populating the Web, writes Fortune's
Jessi Hempel.
FORTUNE Magazine
By Jessi Hempel, Fortune writer
August 20 2007: 12:08 PM EDT
(Fortune Magazine) -- Spend any time online these days and you'll see and hear a lot about widgets. On the web, these are tiny free software programs that can be dragged, dropped, and embedded into web pages, offering everything from weather reports to sports scores.
Call them bling for your blog. They're all over the Internet
-- some 220 million people used widgets in May alone, according
to ComScore -- and their viral-like success has set off a frenzy
over how to make money from them.
Max Levchin, who at 23 co-founded online pay-processing firm PayPal, which was sold to eBay (Charts, Fortune 500) in 2002 for $1.5 billion, thinks he's found a way.
Now 32, Levchin has a new startup, Slide.com, a site that lets
users post snapshots of friends, say, or vacations in slide-show
format. Slide has fast become the most trafficked widget maker
on the web; Levchin's plan to embed advertising around slide shows
could help transform widgets from a web gimmick into a profitable
business.
25 hot startups to watch
What's so special about these software snippets? Consider basketball fans, who spend game time toggling between the NBA website and their work.
They can now embed the scoreboard in their Google home page. It's a page-within-a-page, a small piece of the NBA site that lives inside a larger site. The tools are particularly popular with bloggers and MySpace users, but as Facebook and other social networks open their platforms to developers, their popularity is mushrooming.
More important, widgets are shifting the dynamics of the web. Once, people surfed from site to site to do virtual errands. With widgets, they can bring those sites to one central landing page, exercising more control.
This has grand implications for the $20 billion online-advertising industry, which doesn't work very well. Web surfers don't really pay much attention to banner ads from, say, car brands or liquor companies, and they block disruptive pop-ups.
Levchin's pitch? Do-it-yourself product placement -- let users embed ads inside their widgets. Slide users have always been able to jazz up their slide shows with flowers, stars, and the like. But Levchin's newly signed deals with several big companies -- including Paramount Pictures (Charts), AT&T Wireless (Charts, Fortune 500), and Discovery Channel -- let Slide users decorate their slide shows with logos, props, and other branded elements.
A fan of Discovery's new survival show, for example, could
add a sword with the show's logo to his photos. Discovery pays
only if the Slide user opts to use the bling.
It's a Web, Web, Web 2.0 world
Will the strategy work? There's no proof Slide users will choose to brand their photos, though Levchin insists they will. "There are definitely brands that have proven to be extremely successful at connecting with their users," he says.
Another challenge: The bigger websites that host widgets will probably demand a cut of advertising revenue. Right now Facebook lets widget developers keep any revenue they generate. At some point, however, it is likely to request a percentage of the take.
Then there's competition. Levchin has the biggest widget site, but close on his heels is RockYou.com, a startup testing its own ad strategy.
But Levchin has massive aspirations. He thinks Slide's model could ultimately be as significant as PayPal's. "Our valuation will be comparable to hosts [like Facebook] themselves," he says.
One way or another, all that bling has to be worth some cash.
The Facebook economy
The No. 2 social network is fast evolving into a new kind of software
platform - and the race is on to figure out how to turn users'
every move into dollars for enterprising developers.
Business 2.0 Magazine
By Lindsay Blakely and Michael V. Copeland, Business 2.0 Magazine
August 23 2007: 7:31 AM EDT
(Business 2.0 Magazine) -- Talk about a killer app. Two years ago Jia Shen and Lance Tokuda wrote, just for fun, a goofy Web application for MySpace that could turn anyone's photos into live-action slide shows. It succeeded - horribly. Within days of its launch, hordes of users at the then-superhot social network discovered the app, added it to their profiles, and communicated it to their friends. It spread like a case of Ebola at the Super Bowl. Within a month Shen and Tokuda had 100,000 users, and traffic was doubling every 24 hours.
The servers - those digital canaries in the mine shaft - crashed,
and crashed again. "It was crazy," Shen says. "We
were down 17 of the first 30 days." Then it got worse. With
traffic peaking at 1.5 million users, server costs topped $20,000
a month. And there was no way to monetize their creation.
Still, they soldiered on for more than a year, keeping afloat with tens of thousands of dollars in loans while hoping to figure out a way to turn their enormous fan base into a brilliant business. It never happened - at least not on MySpace.
This spring, however, Shen and Tokuda spent a few days porting their MySpace hit over to Facebook. The upstart social network began as a hangout for high school and college students and last September allowed anyone to join.
Eight months later, Facebook did something MySpace still hasn't done: It opened up its network to developers and made it easy for them to make money from their applications. Which is exactly what Shen and Tokuda did when they rewrote their app and let it loose on Facebook.
Two months later, the duo had generated more than $200,000 in ad revenue. By late July they had 14 other apps up and running, with more than 22 million users. "When we started, we had no idea what we were doing," Shen says. "Now we have a whole suite of applications, and that's where our power is."
It's an increasingly common tale as the Facebook economy picks up steam. In just 10 weeks, hundreds of developers launched more than 2,500 new applications, triggering 139 million downloads. While a possible Facebook IPO or acquisition could change things overnight, for the moment it's a free-for-all.
The apps have names like FoodFight, Zombies, (fluff)Friends, and Fortune Cookie, and they let users indulge in everything from scrawling graffiti and sending virtual cocktails to buying music, brokering loans, and joining charitable causes - usually without leaving their Facebook homepages. Some apps have attracted hundreds of thousands of users, and a select few have pulled in millions.
One venture capital firm, Sand Hill Road-based Bay Partners,
has set aside more than $12 million to bootstrap 50 new Facebook
applications. "The current apps only scratch the surface
of what is possible," says Salil Deshpande, a partner at
the firm. "We're looking for much more sophisticated applications
that can make money."
MySpace testing targeted ads: money time for social media?
Developers like Shen have already proven how to use Facebook - and other social networks - to pull in a mass audience. But figuring out how to profit from those viral applications is another matter. So far, most of the revenue from Facebook apps comes from fairly primitive forms of advertising, such as Google (Charts, Fortune 500) AdSense. Yet a few developers are building applications to sell real and virtual goods. And others think they'll be able to charge major brands for access to the highly targeted Facebook crowds they've started to assemble. "We intend to build a giant company on top of these social operating systems," says Slide CEO Max Levchin, who's already made one fortune as a co-founder of PayPal. His startup specializes in photo slide shows that pull in more than 129 million users a month. "It's an opportunity for all of us to build the next Electronic Arts, Intuit, or Adobe."
The Facebook economy was born one afternoon in May, when the insouciant boy hero of social networking, Facebook CEO Mark Zuckerberg, told a crowd of developers in San Francisco what they had been dying to hear: that hackers deserve a real piece of the action in a market with ad revenue alone approaching $1 billion.
"Right now, social networks are closed platforms," Zuckerberg told the assembled entrepreneurs. "Today we are going to end that." That day Facebook began allowing programmers like Shen to build as many apps for Facebook's 32 million users as they could dream up - and to pocket whatever money they made doing it, with Facebook providing access to both the audience and the programming tools needed to draw them in.
Programmers talk about Zuckerberg and Facebook in the same terms they once used to describe Bill Gates and Microsoft (Charts, Fortune 500), so great are the power that social networks wield and the perceived stranglehold Facebook has on its growing audience. MySpace, by far the largest of these networks, with more than 100 million users, was the first to see them as software platforms, allowing users to customize their profiles by adding simple apps. But when it came to sharing revenue, MySpace held its cards close to its chest: it would quietly permit developers to make money only when their users left the MySpace network.
Zuckerberg has turned the MySpace business model upside down: Not only is he giving developers their own real estate within Facebook - both inside users' profile pages and on piggybacked application pages - but he's allowing them to make money from their apps any way they can, from ad sales to direct purchases of services and merchandise. For example, download iLike, an app that lets you sample and purchase music, and the developer gets a 5 percent kickback if you end up buying songs from iTunes or Amazon.com (Charts, Fortune 500).
To incentivize developers, Facebook is also breaking ranks with rivals by sharing crucial data - such as a user's age, interests, and friends - that enables more sophisticated applications. Zuckerberg also set up a speedy approval process that allows most programmers to load their apps into the network in a matter of days.
Josh Kopelman, a Philadelphia-based venture capitalist and
investor in such startups as LinkedIn and Yapta, sees more users
coming Facebook's way (ComScore reports Facebook grew 270 percent
last year, while MySpace grew 72 percent) - and even more developers.
"If you were a venture-backed Web startup," Kopelman
says, "and had to decide whether to focus on a site that
welcomed you in and let you keep 100 percent of the revenue you
generate, vs. a site with a vague policy that doesn't let you
generate any revenue, it's not even a decision. It's an IQ test."
What's next for the Internet
The real IQ test, of course, is figuring out how to create an app that takes off and makes money. So what defines a killer Facebook app? Senior platform manager Dave Morin says the stickiest applications are those that tap into the "social graph." That's Zuckerberg's oft-quoted term for the web of connections between users and their friends. "Most apps are only interesting if there is much more content below that widget," Morin says. "It needs to take you someplace different, do something more."
Morin's favorite example is (fluff)Friends, which lets the user place a cartoon image of a penguin, pig, squirrel, radish, or other cute object on his or her profile page. People can pet it, buy a habitat for it (with fake dollars), even buy a real T-shirt (with real dollars) bearing the virtual pet's image. That's all pretty standard stuff these days.
But this app's clever twist, Morin says, is the way it gets you to reach out to your friends. First you adopt a pet and invite your friends to pet or feed it. Then you pet their pets, or see all the pets that your friends have adopted within Facebook - all while racking up virtual currency to engage in more (fluff)Friend silliness. "I call it interaction capital," Morin says. "The more users interact with the application, the more virtual credit they get." And if they sell a lot of T-shirts or advertising, that's more cash in the (fluff)Friends creators' pockets. The app cleared 1 million downloads after just seven weeks and now adds more than 10,000 new users a day.
There's a science to achieving perfect viral alchemy, and it's getting more sophisticated by the day. One place every Facebook developer frequents is Appaholic.com. Created by San Francisco-based programmer Jesse Farmer, Appaholic breaks down Facebook applications by popularity, growth rate, and even "virality," as measured by growth in a single day. On a recent day, Farmer ticked off the leading app in each category: Top Friends, a Slide application that lets you rank your friends; Griddle, a word game; and What's My Chinese Name?
Appaholic has developers glued to the site's analytic tools, looking for secrets that reveal what makes one app soar and another tank. When a new feature suddenly boosts an application's number of users, "you quickly see other developers rolling out similar features," says Paul McKellar, the San Francisco-based programmer behind the hit app SocialMoth, with more than 400,000 users. "You have to, if you want to keep up."
In the short time since the new Facebook platform went live, Farmer has already spotted a few telltale patterns. One attribute that's death to an app, he says, is complexity. Facebook and all its homegrown applications are relatively simple; those who create something that requires too much thought or explanation quickly run into trouble.
Farmer learned the hard way: Bookshelf, an application he helped develop, lets you list, share, and search your books, movies, music, and games. It went nowhere. "We were decimated by applications that didn't do nearly as much, that were far simpler, like iRead," Farmer says. "Within a week they were 10 times our size. Any application that is more complicated than the most complicated feature in the core of Facebook will be penalized."
Applications that augment or mimic existing features on Facebook
- such as the wall (a space for writing messages) or a poke (a
way for friends to say a quick hello) - are also more likely to
take off. And those that stumble on even the smallest bug are
likely to become roadkill. Matches, a flirting application, fell
into a hole when a time-out bug, a Facebook glitch, stopped the
app in its tracks. In the week it took to fix it, Matches lost
about 100,000 users and ceded the category to a rival called Crushes.
The lesson, Farmer says, is "users don't care why it doesn't
work or whose fault it is. They will leave and probably not come
back."
20 of a kind
Armed with those sorts of insights, some startups are positioning themselves as Facebook app factories. "Netscape browsed the Web, Yahoo organized it, Google searched it, and now Facebook has made it social," says Seth Goldstein, co-founder of SocialMedia, a small shop in Mill Valley, Calif., that's already turned out such Facebook hits as FoodFight (throw a virtual lobster at your buddy) and Happyhour (send that buddy a cocktail). How does he plan to cash in on all those widgets?
At the moment, advertising opportunities are unproven - which is why Goldstein is leaning toward sponsorship as a simpler path to profits. FoodFight, Goldstein says, is an ideal mechanism for food companies to market themselves. Instead of throwing a chicken drumstick at a friend, a user could throw, say, a drumstick sponsored by Tyson Foods. "I had an ad agency representing a buffalo wings chain approach us with an $80,000 ad buy," Goldstein says. "It's starting to happen."
Shen and Tokuda's outfit, meanwhile, has become a lot more than a slide show. The company, now called RockYou, has more than $10 million in venture funding, more than a dozen developers, and one of the largest portfolios of applications. Its 15 apps include Horoscopes, Emote (icons for your status box), and Glitter Text (sparkly fonts). This time around, the revenue model is getting as much attention as the code. In late July the startup launched its own advertising network: RockYou is offering its user base and Facebook pages as a way for advertisers and other developers to reach more users. "We don't know which approach is going to work best yet," Shen says, "so we're trying them all."
So is San Francisco-based Slide, which has 12 Facebook apps and a growing audience to offer advertisers. Slide is also launching an ad network that will let advertisers brand its apps. CEO Levchin thinks that because users volunteer their ages, interests, locations, and other specific personal information, Facebook has the potential to be the best ad platform on the Web. "Until recently, Facebook had all of this ad inventory to itself," Levchin says. "Now it's saying, 'Go nuts. Sell it any way you want.'"
Not everyone is drinking the Kool-Aid. Andrew Chen, an entrepreneur-in-residence at Mohr Davidow Ventures, thinks the revenue opportunity is still unproven. "The question is whether large-brand advertisers will feel like it's a good idea to buy space on still relatively small pieces of real estate," Chen says. "I would imagine they'd want to deal directly with Facebook." The company, after all, already generates an estimated $150 million in ad revenue on its own.
Developers face other risks: Should Facebook go public or get acquired - as has been widely rumored - new circumstances could force Zuckerberg to give up his share-the-love revenue model and keep more of it in-house. The company might also rip a page from the Gates playbook and launch its own versions of the most popular applications. Or Zuckerberg could kick everyone out and go home.
As a hedge, developers aren't limiting themselves to one platform. Bebo, LinkedIn, MySpace, and several other large social networks have signaled in recent months that they will likely follow Zuckerberg's footsteps. "They will all open up," says Charlene Li, a marketing analyst at Forrester Research. "It's inevitable." MySpace, for its part, is said to be working on substantial changes to its platform. While company officials declined to respond to specific questions about its plans, they did say their goal is to work more closely with outside developers.
Anticipating that day, Palo Alto-based Box.net, which sells online storage and sharing, recently created a Facebook app for its service and a subscription package for Facebook users. But that doesn't mean the startup won't be showing up on other networks when their doors open. While the networks all have different software protocols, the apps are small, and the time and effort required to retool one for, say, LinkedIn or MySpace doesn't scare developers. "Facebook has done the best job opening up," says Box.net CEO Aaron Levie. "But we are not about building a business on any particular platform."
For folks like McKellar, though, simply owning a few Facebook
apps is just fine. He has yet to make any real money from SocialMoth,
but he's willing to fork out $500 a month in server costs just
to hold on to his audience in the hope that he'll figure out a
revenue model soon enough. "I go where the users are, and
where they make it easy for me," McKellar says. "Right
now, that's Facebook."
Four ways to make money
1: Sell ads
The play
Just about any Facebook app can get into the ad game, but only those with the biggest audiences will earn serious money. Several easy-to-use ad networks are already delivering the ads for a cut of overall sales.(See "Tools," below.)
The front-runners
Graffiti (5.9 million users). This highly viral drawing tool spread quickly because of its simplicity and originality.
iLike (5.4 million users). Users can set up their music and video libraries in mere minutes.
The Simpsons Photos, Quotes, and Trivia (60,000 users). Pearls of wisdom from the first family of Springfield.
The payoff
Apps currently generate less than $1 for every 1,000 pageviews. But that amount will likely increase as demographic targeting becomes more refined and the ad models move from simply racking up pageviews to measuring users' engagement.
Tricks of the trade
1. Establish your base. Hold off on serving ads until you have at least 10,000 users. Bombarding users with too much advertising can scare them away and hurt your growth in the long run.
2. Test different ad networks. Putting up ads is a simple cut-and-paste operation, so you can afford to be choosy and pick the network that gives you the best deal.
3. Don't clutter up app pages. "This is definitely a challenge for developers," says Mark Kantor, one of three developers behind Graffiti. "The most important thing is to preserve user experience."
4. Renegotiate as you grow. Demand a bigger cut of the revenue share as your traffic jumps. Says Kantor, "It might be better to go with a small ad network if you think you'll stand out."
Tools
Dozens of ad networks are cropping up to serve the Facebook developers. Here are a few.
1. Lookery (lookery.com). This new Facebook-specific ad network aims to offer developers demographic profiles of their user bases. More targeted advertising could soon fetch a higher price.
2. Userplane (userplane.com). AOL-owned Userplane pays per minute of exposure rather than just per pageview, so it's good for applications like games that keep users highly engaged.
3. Google AdSense. Not new, but many developers consider it the best means of supplying relevant ads.
2: Attract sponsors
The play
Advertisers are already sponsoring apps. Besides being widely used, your application needs to offer companies a natural way to interact with their customers.
The front-runners
Likeness (2.9 million users). Offers quizzes that generate top-10 lists - an ideal branding vehicle - and matches them with those of friends with similar preferences.
FoodFight (2 million users). Virtual lunch money buys you food to throw at friends. Next up on its menu: chicken wings from a major food chain.
HotLists (1.6 million users). This app lets users define their personas by posting brands' logos, cleverly dubbed "stylepix," on their profiles.
The payoff
Building direct relationships with brands takes more time and effort, but it means higher-quality advertising and more control over how your users interact with it. Expect to earn multiple-dollar CPMs instead of the pocket change you'd get from the ad networks.
Tricks of the trade
1. Don't pitch big brands without big numbers. You'll need a large traffic base - at least a few million users - before top brands will pay attention.
2. Know who's looking at your pages and why. Analyze your user demographics so you can pitch your audience effectively to sponsors.(See "Tools," below.)
3. Let your users do the work. Incorporate brands that your users identify with, and they'll willingly spread the word.
4. Don't overdo it. Too much brand presence will scare away Facebook's sometimes advertising-averse audience.
Tools
Where to find help analyzing your traffic and users.
1. Google Analytics. Embedding Analytics into your apps is easy, and it churns out useful stats about where users are coming from.
2. Gigya (gigya.com). This startup tracks metrics like app stickiness and user adoption rates.
3. Appaholic (appaholic.com). This site tracks traffic growth by the hour, day, or week - critical when launching a new ad campaign.
3: Sell services
The play
As apps become more about utility and less about fun, opportunities will arise to sell digital services of lasting value to users. Eventually, they'll make purchases without leaving their profiles.
The front-runners
Files (43,000 users). Offered by Box.net, this online file-storage service turns a Facebook profile into a repository for members' digital media.
Picnik (206,000 users). A Facebook version of Photoshop.(Hello, Adobe?) Basic tools are free; advanced features are offered for an additional fee.
The payoff
If you're selling a real service, then you can have your cake and eat it too- try selling subscriptions and ads to double-dip on your traffic.
Tricks of the trade
1. Start with a free version. And make switching to a paid offering an easy process. Don't force users to leave Facebook to sign up.
2. Set logical limits. Decide carefully what you'll give for free and what you won't. And even the freebies must be valuable enough for customers to be willing to spend their time.
3. Research your price points. Box.net already had storage plans for businesses and professionals. But when it moved onto Facebook, the company rethought its pricing models and created a $25-per-year plan that's comparable to the cost of an external flash drive - the way most college students store important files.
4. Be tactful and timely. Box.net alerts its users when they're nearing their file or storage size limits, politely reminding them about its for-pay premium service.
Tools
Where to find a platform to process payments.
1. PayPal. A starter plan will cost you 2.9 percent plus 30 cents per transaction.
2. Google Checkout. The standard processing fee is 2 percent plus 20 cents per transaction.
3. Facebook. The company is rumored to be launching its own payment platform soon.
4: Sell products
The play
As Facebook increasingly becomes the center of people's digital lives, it's also becoming a venue for selling things - digital and otherwise - to its fast-growing audience.
The front-runners
Amazing Giftbox (127,000 users). Sends virtual Amazon merchandise.
Band Tracker (29,000 users). Searches upcoming concerts and links to ticket vendors.
Visual CD Rack (20,000 users). Lets users browse and buy music from a virtual CD rack.
The payoff
Most developers are going the affiliate route, offering product wish lists and then sending users to sites like Amazon.com or iTunes. Others, however, are directly selling such items as ringtones and T-shirts.
Tricks of the trade
1. Be a middleman. iLike makes its music-sampling apps simple and hands off sales to iTunes or Amazon via affiliate partnerships. Those directly selling hard goods need to prepare for the complexity of payment and delivery.
2. Keep it simple. Facebook has not yet become a place where people are likely to buy, say, a digital camera. But users are starting to purchase items that don't break the bank and extend Facebook's utility. XLR8 Mobile, for instance, is looking to sell ringtones and wallpaper on Facebook via custom storefront widgets. "We don't want to bring people to the store," says XLR8 Mobile CEO Perry Tell. "We prefer to bring the store to the people."
3. Give it away. Going viral is always the goal. One great way to get there is by offering free samples. Whether it's a digital download of a song or the image of an item, give your customers a taste of what they'll get before asking them to commit.
4. Don't rule out the odd. "Sometimes wacky, unusual, off-the-beaten-path stuff sells huge," Tell says. "Everyone is looking for the next Crazy Frog, so you must be willing to try lots of things."
Tools
1. Clearspring Technologies. This analytics service tracks exactly who's downloading an app and what they're buying through it. It also suggests when to double down on an item or sales approach that is working or, conversely, kill off those that aren't.
2. Garage Sale. Developers can use this Facebook shopping cart system run by Buy.com, which takes a 5 percent cut of sales.
3. Facebook Marketplace. The largest classified-ads community on the network, it's a good place to monitor buying trends.