The Web’s big players poke Facebook

Since May, when Facebook began allowing outside software developers to create applications for use on the site, some have begun speculating that Facebook will ultimately become a kind of operating system, providing users a wide range of tools, such as search, now found on computer desktops. Facebook currently has more than 4,000 "applications"—sharable software programs, or widgets, built to run on pages within another platform such as on social network profile pages. "If you think about all the dollars of effort that is going to build all those applications … that is a lot of user experience being built for the platform," says Lance Tokuda, CEO of RockYou!, a leading provider of programs for social networks, including Facebook. "That will only increase as far as we can tell."

As Tokuda sees it, all those programs built for Facebook make it more powerful, or at least more engrossing, than the average desktop that runs programs via Microsoft operating systems. Outlandish? Consider how much time people—especially the young—spend on the Web, rather than, say, reading print publications. While online, many younger people spend much of their time on social networks sharing photos, chatting with friends, and posting messages about themselves. If Facebook becomes the operating system that powers such interaction, it will "own a majority of users' time online," says Tokuda. And the company that controls the time, controls the ad dollars.

If Microsoft doesn't succeed in owning part of Facebook, the likes of Yahoo and Google would probably welcome the chance — at least in part as a way to better compete with the world's biggest maker of software. An ownership stake could potentially deny Microsoft a profitable venue for placing ads and testing its marketing muscle. It could also give Google or Yahoo a bigger share of the Web advertising market. Most threatening of all, a competitor-influenced Facebook could focus more aggressively on stealing the market for business software by encouraging developers to create ad-supported programs to run off Facebook and make the social network a more attractive destination for businesspeople. Instead of "friends," Facebook could develop special categories for business associates that include additional privacy features, for example.

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Could a bidding war ensue? Microsoft was outbid by Google in the battle for ad network DoubleClick. But cash-rich Microsoft is willing to pay a premium for the right deal, as evidenced by its $6 billion acquisition of ad network aQuantive.

And there are some who believe Facebook is worth well north of $10 billion. Lee Lorenzen, CEO of Altura Ventures, a Monterey (Calif.) fund that invests only in Facebook applications, says Facebook could soon have 200 million users—all of whom advertisers would value highly because they can easily recommend products and services to their friends on Facebook. With so many advertiser-coveted users, Facebook could command higher advertising rates than search ads and other forms of advertising command now. "The social-operating-system idea is as big as the graphical operating system," says Lorenzen, who was involved with the latter in the early days at Digital Research, which ultimately lost out to Microsoft. "And Facebook is the first social operating system."

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