The Facebook Platform and Its Impact

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. 

Comments

[Turker]

Thanks for this great analysis. When you look at it this way, it is somewhat scary. Do we need another MS? I am not sure.

Also, I am kinda surprised that you think they are going to be bought. Now that they have bought Parakey as well, they behave like a company who wants to make big on its own and change the game.

[Confused]

Social graph, applictation, features...hmmm

I think you are saying that they have many users and can now enable others to create apps for these users and that makes them powerful and valuable - makes lots of sense.

What about demographics that are not interested or happen not to be on facebook or myspace ? Can there be only one aggegation site for users for a specific segment or should we assume one aggregation site period (no segments which would be a first for any market).

I think the picture is a lot more complex and to be frank maybe too early in its lifecycle for such sweeping predictions.

[Jason Vu]

I do not think Facebook could become a Microsoft of sorts. Windows OS could be used anywhere in the world, but FB is US focused with some from abroad. Many users out there from China, Japan, India, who uses Windows but not the FB, they would pick other SNS/platforms

[Baris Karadogan]

Confused,
Don't be :-) There may or may not be one aggregation point, but all players, myspace, facebook etc. want their network to be the aggregation point, at least the biggest. My thesis is that facebook leapfrogged all others in setting up f8.

For more info take a look at Kevin's blog http://kevindewalt.com/blog/2007/07/29/facebook/

[Syven]

Baris you may have missed an important nutrient of Facebook. Where's MySpace IMHO was about the body, Facebook comes from the "brain", so it is important to recognize the nature of the social graph rather than simply the aggregation of users.

By taking account of Facebooks origin as being centers of learning, coupled with the "name recognition" of the term "FACE BOOK" - it becomes about becoming the private space leader, just as MY SPACE to me denotes the public space leader. I totally agree with the aggregation analysis which you refer to as a social graph.

What drove MY SPACE was what came to the body and they set up shop to serve the MySpace crowd, that includes those who came to service that body, which is both musicians and tools providers, whether or not they actually wanted to come or not - its given the nature of the Myspace economy - it is a virtual nation.

I think that Facebook because it was born in the universities, is a different animal to Myspace because it is centered around a totally different attitude. Zuckerman found this out during the privacy fumble, which he quickly recognized and which got him back on his gameplan.

In my regard that is what makes Facebook a lot more valuable than MySpace - it is not simply the social graph that is important, but the birthright of that social graph and that birthright which is entreched in intelligencia rather than simply the hoi polloi of MySpace.

As Facebook evolves into a larger concentric further out than the original college crowd, its fortunes are going to be governed by how it looks after its core identity in my opinion, which is the cache and association value of that original nucleus.

MySpace therefore in my IMHO is the body personified but Facebook personifies the the face not the space and that face contains an association with the headspace not simply the body.

Just my thoughts on this for what they are worth. It was a great piece you wrote, thoroughly enjoyed reviewing it.

M.

[Baris Karadogan]

Jason,
In a flurry of comment spam I had typepad has somehow mistakely removed my response to your good question. Here it is again.

Yes, FB is in the US, but I believe that's how Microsoft started as well. There is no reason to assume fb won't go international. If they don't, or somehow fail to do so, then you are right, it would seriously hinder their abiltiy to be a strong player in the long-term.

[Emre Ersahin]

"The killer apps of today are the platforms of tomorrow." That quotation deserves APPlaud on its own. Inch by inch traveling the road to the inevitable SOS, that is social operating system.

[Naa Traveler]

"Also, I am kinda surprised that you think they are going to be bought. Now that they have bought Parakey as well, they behave like a company who wants to make big on its own and change the game."

I'm not so sure I think they're ready to change the game on their own but if they were publicly traded I'd buy the stock.