Why Facebook is smarter than the rest of the Web

May 25, 2007, 9:02 AM UTC

Founder Mark Zuckerberg and the other executives at Facebook changed social networking forever on Thursday, with the announcement that their site would no longer be just a place for people to link up with friends, join interest groups and share multimedia content. Instead, Facebook will be more like a new sort of desktop where members can find and launch programs, and merchants can gain an audience and make money. The new Facebook functions now exist on top of the basic social structure of the site.

This move is both gutsy and brilliant.

Facebook now has more than 22 million members who generate 40 billion pageviews a month, making it the sixth largest site in the U.S. More important, its members thus far are loyal; half of them come back every day.

With this powerful user base, Facebook could have decided to be like MySpace (NWS) and tightly guard its audience, its most valuable asset (a strategy I’ve said will be MySpace’s undoing). Instead, Facebook has decided to go in the opposite direction and open up to any company that wants to tap into it.

If Facebook’s gambit works, it will soon become the most vibrant Web 2.0 playground on the Web, where companies can launch apps, get feedback, and build a user base before launching more broadly on the broader Internet. And Facebook will be the king of social networks, boasting not only the most members, but also the most engaged members.

What Facebook understands that few others do: on the Web today, trust, engagement and identity are the new currency. Because Facebook owns a database of information about who people are and who knows them, it can become the starting point for all sorts of interesting commerce.

MySpace is in no position to compete. Not only are its pages an undisciplined mess, its structure has encouraged people to abuse the “friend” system by taking on fake identities and linking up with people they actually don’t know at all. (It’s possible to do this on Facebook too, but it’s harder; because the site started with a base of real users connected to official e-mail addresses who uploaded real pictures, the community has more authenticity.)

Though Facebook’s platform strategy is a master stroke, big questions remain. Chief among them: How will Facebook make money in the long term? The company might try to introduce its own money-making applications on the platform, but because it has promised not to favor its own apps over others, it will have to compete with the likes of eBay (EBAY) and Amazon (AMZN) for a share of users’ online dollars. (There’s always advertising too, but that’s more of a media model than a technology model, and Facebook claims to be a technology company.) In a way, these are similar questions to the ones Google faces as it seeks to develop businesses outside its core business of online ads.

Which makes me think part of this may be about Zuckerberg proving to the world that his social network really is worth more than the $1 billion buyout he reportedly turned down last year from the likes of Yahoo (YHOO) and Microsoft (MSFT), and possibly more than the $1.65 billion Google (GOOG) paid for YouTube. If this Facebook Platform thing works out, I wouldn’t be surprised if the 23-year-old founder ends up walking away with considerably more than that.