Thursday, October 25, 2007

Facebook: My Take

Since Microsoft paid $240 million for 1.6% of Facebook, I thought I'd make a comment.

Open wins.

Facebook opened its platform for developers to make apps for it; their efforts which were zero cost to Facebook made it more valuable for users. Now everyone is opening their network through APIs and trying to be a "platform" even MySpace -- but it's too little too late.

Palm made Palm OS something that developers could develop apps for and thus make the product more valuable at no cost to Palm.

But ...

It is not necessarily sustainable forever. Palm had its day in the sun, but it too failed to innovate along with user trends -- it's heyday was before phones became PDAs, cameras, and MP3 players.

In mid 90's Yahoo solved a particular large need as the web was starting to get unwieldy -- a directory of sites curated by humans which helped organize the info into a yellow-pages like directory. It had its day in the sun.

Then as the amount of information continued to skyrocket, a more efficient way was needed so help users get to what they wanted. Google came along with a better search algorithm, and also did a nice thing for users -- made the homepage so simple it contained only 1 textbox (what a concept!). It quickly took the crown from Yahoo and users switched since there was little to zero switching costs (even the Yahoo personalized homepage which I invested time into was not enough to keep me on Yahoo). Google is having its day in the sun -- but what's next?

The next "pair" of "contestants" is MySpace and Facebook. As users spent more and more time online, their real-life social interactions were also desperate to have an outlet online. MySpace was one of the earliest to solve it, specifically for the younger set of users who practically grew up online. They had their day in the sun, but also failed to innovate along with user trends. MySpace was the "web 2" version of GeoCities but lacked better social functions.

Then Facebook came along (after they opened membership to the public, rather than just alums) and the killer feature was the sharing of apps and the open platform. The sharing helped amplify the reach and speed of the social interactions. Facebook is having its day in the sun -- but what's next? Microsoft is desperate and definitely paying a premium to play catchup. Facebook has a shot at building sustainability but as it moves towards an advertising revenue model it risks offending and alienating the very users it seeks to serve.

It will be interesting to see whether Facebook can avoid the same fate of Yahoo and Palm (and MySpace) despite being such a huge success thus far.