Without a doubt, the facebook platform is the most impactful event that happened in the internet in 2007. A lot has been written about it, from Marc Andreessen's great post on how it works, to Dave McClure's colorful and passionate (the blogosphere needs more of both) descriptions of how to make it work, to a plethora of articles on why it won't work. But what is the big picture? What does this move mean to VCs investing in social networks and entrepreneurs running them?
To start let's define two things that make a social network; the app and the underlying social graph. On a site like dogster, the application is "dogs" and the social graphs are the groups, the messages, the profiles, friends and comments. Features are added to the app by the company, and users add to the social graph. "Dog of the week", "dog blogs", "dog videos", "local dogs" are all features of the app, and how the users interact with each other what friends they make are the social graph. Sometimes the apps grow a lot bigger than the social graph, sometimes the social graph grows a lot bigger than the app. In the case of myspace the application started as voyeurism and music, but the social graph grew so big and spawned many other applications. In the case of youtube, the application of sharing videos got so big that the comments and profiles, the social graph got dwarfed even though those features were there.
What's important is that regardless of the outcome, a lot of companies got funded as "social networking for X" where X could be fantasy sports, trendspotting, dogs, cats, vampires etc. The formula that got VC funding was, "take an application that people know, and build a social graph around it." The hard part wasn't building the application but getting the users. It was all about getting users, building the social graph.
What facebook did was turn this upside down. They said, "we have a social graph, why don't you build an app on it". In their platform you start with the social graph and build the app on it. Since the hardest part of building a social network is getting the social graph, facebook effectively gives this to an application. This is what's so impactful about the platform.
It's because of this paradigm shift, there are apps with 9M users in under 2 months. Facebook gives the app maker a social graph to work on the app maker grows fast, adds back to the social graph, grows it a little bigger, benefiting the next app and most importantly facebook that owns the social network. They own the most important, hard to do, defensible, valuable piece of any social network, their users.
By owning the social graph they are controlling what makes the network work, they control the operating system. As networking guys will realize instantly, facebook becomes the "IOS of social networking". Hopefully, the application developer learns to monetize their apps (haven't seen a good example yet, doesn't mean I won't) and everybody wins.
Facebook took a good killer app, your desire to know what your friends are doing, aka, your social graph, and turned it into a platform. The killer apps of today are the platforms of tomorrow.
So what does this mean for a social networking site? The days of starting a site to build a user base on your own is over. You will have to do it on facebook, otherwise your competition will and they will grow faster. For those sites big enough to have a decent social graph, they still have to have a facebook presence, not to be left out, and will their current user base remain relevant if the facebook user base grows fast. It's the old Microsoft adage "no need to build this, the operating system gives it free". Over the years Microsoft took the top applications on windows and made it part of the OS. This is the same story happening here and there is no stopping it. Every independent social network has to keep a good eye for what's going on at facebook, and if I were them go straight there and stay there. Yes, Microsoft got the lion's share of the market, but app developers on windows did well if they wrote the right apps. But one thing is for sure, no app vendor made it big if they were not supporting windows.
Becoming the operating system of social networking is why the facebook platform is the most relevant thing that happened to the Internet this year. They are on their way to become a Microsoft of sorts.
So what are they worth? I don't think it's $1B, I don't think it's $2B, I don't think it's $3B. I think it is more. Who will buy them? My bet is that it won't be any of Yahoo, Google, Microsoft. They all have products that touch this, and they all have the capability to do this. I think the buyer will be one that who is much less obvious, one for whom this move is way more disruptive and game changing.
The next big question is, will they take a $10B offer? I am not sure that they will.