23-Year-Old Mark Zuckerberg Has Google Sweating

Idealist Entrepreneur's Facebook Offers Something Search Doesn't--Distribution

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NEW YORK (AdAge.com) -- What's the only company that scares Google? Facebook.

Just as Google has become what some people call the operating system for search, Facebook is turning itself into the operating system for social networking. While Google knows what millions of people are searching for, Facebook has something the search giant hasn't been able to grow: a network of connections between people that creates a viral distribution platform unrivaled by any portal or search engine.
In late May, Facebook CEO Mark Zuckerberg announced the social network was opening up its platform to outside application developers.
In late May, Facebook CEO Mark Zuckerberg announced the social network was opening up its platform to outside application developers. Credit: Robyn Twomey

Don't think this point hasn't made its way to Mountain View. It has certainly made it into the New York offices of News Corp., parent of Facebook's chief competition. When asked recently by the Wall Street Journal whether newspaper readers were going to MySpace, News Corp. CEO Rupert Murdoch, who shelled out in 2005 what now appears to be a bargain sum of $580 million for MySpace, didn't mince words: "I wish they were. They're all going to Facebook at the moment." (Actually, although Facebook's audience growth is outpacing that of MySpace, its total audience numbers are still less than half the 69 million unique visitors scored by Mr. Murdoch's social network in May.)

"Today we're going to start a revolution," Facebook CEO Mark Zuckerberg boasted in late May to a crowd of 800 developers at the San Francisco Design Center. The 23-year-old was announcing that Facebook would open up its platform to allow them to create -- and monetize -- applications on the site. It was an ambitious announcement that ran counter to the direction MySpace appeared to be heading after spending millions to buy its own application-development companies.

Mr. Zuckerberg has shunned acquisition approaches (including a $1 billion bid from Yahoo) and counts Microsoft's Ray Ozzie and the Washington Post's Don Graham as friends and mentors. Many believe the future of Facebook could include an IPO and that remaining independent was key to Mr. Zuckerberg's ability to execute his vision.

At the core of Mr. Zuckerberg's message is what he calls the "social graph," or the connections people create on the site. Those connections can be used to improve typical web services such as shopping or searching for product recommendations.

Owen Van Natta, Facebook's chief operating officer, said a visit to Amazon.com will uncover all the product recommendations one might want but the value can be limited in the anonymity of the people posting the reviews. On the other hand, if you take your online activities and put them through the filter of the people you know well, those actions take on greater meaning.

Life meets web
All of this works, Mr. Van Natta said, because Facebook inhabits the intersection of the web and real life, and its connections are between real people who know each other.

"There's not a lot of utility for it outside of using it to connect with real friends," he said, an obvious dig at MySpace.com, where users can collect friends such as Pokeman cards. "If you put up a fake profile on Facebook, people won't connect to it."

Of course, few above the age of 25 can truly get just how compelling that social graph is because, well, they lack one. While a Facebook user can pimp out his own profile and perhaps find value in that itself, Facebook doesn't truly become powerful until all of one's friends are on it, connecting.

Which isn't as hard as it sounds. One recent college grad living in the Midwest (full disclosure: the source is this reporter's sister) estimated that 99.5% of her classmates were on Facebook. When pressed to name friends who weren't on the platform, she could name only one.

High growth
May web-traffic numbers from ComScore back that up. There are now 4 million 12- to 17-year-old unique visitors and 3.1 million in the 25-to-34 demo. The over-35 crowd has grown by 98% to 10.4 million monthly uniques. The 38% growth in the 18- to 24-year-old demo (which boasts 7.8 million unique visitors) is the slowest growth of all the demos on Facebook over the past year. Facebook has a total of 29 million users.

Mr. Zuckerberg understood Facebook had these connections, but what it didn't have were unlimited resources of developers to create applications using them.

"It became quickly obvious we weren't going to be able to build all these things ourselves," Mr. Van Natta said. The approach was a market-based one: no developer, including Facebook's own, would have any advantage. That meant no pre-installed applications; the popularity of each application would be determined democratically by users. And to encourage developers to devote time to Facebook's platform, the site is allowing them to monetize their applications through advertising, subscription or e-commerce.

When asked about the internal debates that must have occurred before this announcement and the potential for channel conflict -- why should a marketer buy directly from Facebook when it can sneak in through the backdoor by sponsoring an application? -- the executives admit they are perhaps forgoing some near-term monetization but say that's necessary to execute the long-term vision.

"You have to decide, what kind of company are we? The strong statement is we're a technology company, not a media company," said Mr. Van Natta.

Plenty of inventory
Adds Mike Murphy, senior VP-sales: "In order to get great applications built, we needed to make sure developers could be rewarded and have a business model around it." He said with 29 million users, there's plenty of inventory for him to sell and that he envisions the better the applications are, the more time people will spend on the site and the more he can sell to marketers.

Few marketers have launched applications within Facebook, mostly because Facebook isn't encouraging that -- "unless they really understand how to build something useful for users, not just put up a brand," said a spokesman.

In the 30 days since Facebook opened up its platform to developers on May 24, more than 10 applications had at least 1 million users and more than 400 had 1,000 users.

To be sure, it's early -- five weeks in. And for all the blustering, there are doubters. Some developers have questioned Facebook's commitment to keeping its APIs free and open and others suggest the instant success can be enough to topple all but the most well-funded developers since Facebook places the burden of serving traffic on the developers. The music application iLike, for example, was almost done in by its success when it logged more than 50,000 users within hours of launch.

"There's always a little tension and arbitrage between the platform owner and application developers," said Max Levchin, a co-founder of PayPal and CEO at Slide, a major widget company that is devoting part of its team of developers exclusively to making applications for Facebook. But like many other longtime web watchers, he doesn't underplay Facebook's influence, even when stacked up with the reigning king of the Valley, Google.

"There's no network effect [on Google]. The fact that I use Google and you use Google doesn't make us any closer to each other," he said.

Your guide to the Facebook lingo

Ad Age's Facebook addict Andrew Hampp decodes the native tongue.

Poke: The most nonsensical of all FaceBook functions, the "poke" feature allows you to essentially do just what it implies: "poke" your friend's profile, giving him or her the option to poke back. It's the social-networking equivalent to passing someone a note in algebra class.

The Wall: Think of it as a yearbook you can sign 24/7. Friends can use it to recap the previous night's events ("OMG! I still have your keys from Amanda's party! LOL!"), schedule get-togethers ("Lunch with the crew on Saturday? Hit me up!") or carry on entire conversations that would normally be conducted through phones, e-mail or, at the very least, text messages.

Tag: A feature that allows you to identify friends in photos. Can become a college grad's worst nightmare when it comes time for the ever-crucial job search. "You totally detagged that picture of me bonging that box of Franzia last summer, right? I don't want my future boss to think I'm a total wino!"

Minifeed: It's like any other RSS feed, only instead of breaking updates on the war in Iraq, it's streaming bulletins about your friends' latest likes and dislikes. Sample minifeed: "8:41 p.m. -- Ashley added Fall Out Boy to her Favorite Music. 10:01 p.m. -- Dave removed 'Old School' from his Favorite Movies." It can also serve as a passive-aggressive kiss-off to an ex-flame. "2:41 a.m. -- John and Sarah are no longer in a relationship."
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