Facebook's plan to hook up the world (pg. 3)

By David Kirkpatrick, Fortune senior editor

Last fall, Facebook announced two changes that are critical to its new strategy. First, it introduced News Feed, an automated flow of information into your Facebook home page that told you which friends had new friends and what groups they joined, among other things.

Days later, Facebook made an even bigger announcement. Henceforth, membership would be open to everyone. New members of any age could join regional networks solely based on where they lived. (High school members had been allowed since 2005. Today there are three million.) There was grumbling among the college kids that Facebook would no longer be cool. Similarly, my 14-year-old daughter is appalled that I am a member of Facebook, and refuses to let me friend her, lest her other friends find out via News Feed. No matter, says Matt Cohler, the vice president for strategy who joined the company as employee number five in June 2004: "One of the first things I ever heard Mark say is 'We don't strive to keep it cool. We strive to keep it useful.'"

Opening up the rolls gave an immediate boost to membership. Facebook is growing spectacularly in places like Canada, the U.K., Australia, South Africa, Norway, Lebanon, and Egypt. Work networks are exploding, with 14,000 at IBM (Charts, Fortune 500), 10,000 at Ernst & Young, 8,100 at the BBC, and 6,300 at General Electric (Charts, Fortune 500). The U.S. Army network has 43,000 members.

But it is News Feed that gives Facebook its viral power. "News Feed brought interesting things to people's attention quicker, so they looked at more content," Zuckerberg says. Now, as businesses build applications and users install them, their friends will automatically be notified.

The early applications appearing on Facebook suggest that many companies see the huge potential of such a system. Prosper.com, a site that enables people to lend each other money at negotiated interest rates, launched a Facebook version. Max Levchin, who co-founded PayPal, is CEO of Slide, which is putting its slide-show service on the new platform. "These guys are creating the opportunity to build Adobes and Electronic Arts and Intuits that live within Facebook," he says.

Levchin says Facebook has dramatically simplified the process of starting certain kinds of companies. For instance, it's often said that no-one can compete with eBay (Charts, Fortune 500) because the hurdle of matching its existing community of buyers and sellers is too great. So why not, he asks, create the next eBay on top of Facebook?

The Washington Post Co. started working on its own Facebook application in late April, the morning after Don Graham took Zuckerberg as his guest to the White House Correspondents' Dinner. "It's a strategic issue for us to reach out to the very webby younger audience," says Caroline Little, CEO of Washingtonpost.Newsweek Interactive. Product development boss Rob Curley worried at first that the Post on Facebook might seem like "Pat Boone rapping," but found that almost all his developers are huge Facebook users, so they summoned up the right spirit. At F8 The Post launched a "political compass," which asks you to answer a set of questions so it can exactly locate you on the political spectrum. Then you can compare that result with your friends, people in the Washington network or the people at your office.

Before F8 Facebook hosted six applications of its own, which appeared on the left of a member's screen - Photos, Notes, Groups, Events, Posted Items, and Markeplace (a new classifieds service). It intends to continue developing its own applications even as it welcomes those from others, though executives insist their own will get no special treatment. At F8 the big news is the introduction of Facebook video. The impressive application will provide higher-quality video than YouTube, but will be used mostly for communicating among friends. Among other features, it will enable you to upload video from your camera phone and have it automatically placed on your profile.

Breyer says Facebook is profitable. Reports put total projected company revenue for 2007 at about $150 million. Strategy boss Cohler explains how the company will benefit from the platform: "First, we get additional usage and page views, and we can put ads towards that. But in addition, users will be telling us more about themselves by using a richer site, and we can use that information to serve them a more relevant experience, both in advertising and other ways." As for the developers themselves, Facebook will impose no limitations on how they make money. Says Zuckerberg: "They can sell sponsorships, they can have ads, they can sell things, they can link off to another site - we are just agnostic."

It's not all rosy for business, though. You think we've had transparency on the Internet so far? The ramifications for marketers could be frightening if someone builds tools that enable Facebook users to get more efficient at communicating among themselves about products and services they use. It could become just as easy to learn if someone you know was overcharged by a credit card as to find out what concerts they are attending. Up until now most online sources of product information have been unreliable. But if it's your friend telling you not to buy that shampoo, you're likely to listen. And the most revolutionary Facebook applications could very likely emerge not from the company's carefully picked launch partners but from some dorm room - like the one where it all began.

There's no certainty the strategy will work. Users could be turned off by a sense of increased commercialism inside Facebook. The viral processes the company expects will promote new applications could break down if users are receiving too many messages about the activities of their friends. The service itself may not be able to handle the increased traffic. Competing social network platforms could emerge from any number of companies including Google (Charts, Fortune 500), Microsoft, MySpace, or an even more fleet-footed startup. However, executives at several Internet service companies I spoke to, including Levchin of Slide and CEO Kevin Rose of Digg, said that MySpace seems to have neither a welcoming attitude towards partners nor the technology chops to mimick Facebook anytime soon.

At Facebook, the sky seems very blue. Says investor Thiel: "Everything we see from the inside tells us this could be an extraordinarily valuable business, on the scale of a Yahoo or eBay or even a Google." Adds co-founder and VP of Engineering Dustin Moskovitz: "I have a note on my account that says Facebook will saturate the world population by 2010. It's not a joke." And Zuckerberg: "We're on a trajectory to be pretty universal soon if we can keep our growth going."

OK, maybe instead they'll just sell to Microsoft. But in the meantime, you may very well start using Facebook yourself. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.