Facebook Expands Into MySpace’s Territory

By Brad Stone

SAN FRANCISCO – May 25, 2007 – With an ambitious strategy for expansion, Facebook is getting in MySpace’s face.

Facebook, the Internet’s second-largest social network, was originally popular on college campuses, but over the last year it has opened its dorm-room doors to all, and its membership rolls have exploded at triple-digit growth rates.

Now Facebook, based in Palo Alto, Calif., is inviting thousands of technology companies and programmers to contribute features to its service. They can even make money from the site’s users by doing so, and, at least for now, Facebook will not take a cut.

Some of the new features, demonstrated by software developers at a Facebook event here on Thursday, will allow members to recommend and listen to music, insert Amazon book reviews onto their pages, play games and join charity drives, all without leaving the site.

The result is expected to be a proliferation of new tools and activities for Facebook’s 24 million active users, who have largely been limited to making online connections, sharing photos and planning events.

The move could foster some of the chaotic creativity that is more closely associated with MySpace, its larger competitor. It could also open the door to hazards like spam, and make Facebook’s identity less clear.

But Facebook is thinking big. In the parlance of its 23-year-old chief executive, Mark Zuckerberg, the company is positioning itself as a “social operating system” for the Internet. It wants to sit at the center of its users’ online lives in the same way that Windows dominates their experience on a PC — while improving its own prospects for a lucrative acquisition or an eventual public offering.

“This may be the most important development since the company got started,” said Peter Thiel, a venture capitalist who was an early investor in Facebook and one of its three board members. “But the company is taking a massive gamble. There are lots of things that can go wrong with this.”

Facebook, which is largely supported by advertising, has gained significant momentum over the last year. Since the site opened up to nonstudents eight months ago, its membership has doubled to 24 million, according to the research firm ComScore. Users now spend an average of 14 minutes on the site every time they visit, up from eight minutes last September, according to Hitwise, a traffic measuring service.

MySpace remains nearly three times the size of Facebook, with 67 million active members — up from 48 million a year ago — who spend an average of 30 minutes on the site each time they visit. It has recently focused on entering new markets like Japan and China.

The two social networks have carved out contrasting, though shifting, reputations. MySpace, owned by the News Corporation, has fostered an anarchic aura with few restrictions on creativity, while allowing users to integrate tools from other companies into their pages, like slide show displays. Recently, however, the company has blocked the efforts of several companies to advertise to MySpace users or otherwise make money through those tools.

Facebook, on the other hand, has kept its members in something of a creative straitjacket. Users could not customize their pages or add tools created by other companies.

Those restrictions helped preserve Facebook’s clean, uniform appearance and reinforced its emphasis on offering practical ways to communicate online with friends.

It has also made Facebook appealing to some groups beyond its student base. For example, Facebook is in vogue in Silicon Valley tech circles. David Belden, a 32-year-old technology worker from San Francisco, says he checks Facebook several times a day but hardly touches his MySpace account. “MySpace is so messy and there’s so much spam. It’s not worth it,” he said.

Facebook wants to keep those faithful while turbocharging its growth by harnessing some of the magic of MySpace’s openness. It is also going one step further by allowing companies that contribute features to make money on Facebook through their own advertising or commissions on sales.

“You can build a real advertising business on Facebook,” Mr. Zuckerberg said on Thursday during his speech to more than 700 developers and journalists. “If you don’t want to run ads, you can sell something. We encourage you to do both.”

In its new effort, which was to be unveiled on the site Thursday night, Facebook will be relying on the work of entrepreneurs like Ali Partovi, the chief executive of iLike, a company in Seattle that gives users the opportunity to hear and buy the music their friends are listening to.

Facebook does not have a music feature, but iLike, which along with Amazon and Microsoft was one of 65 companies that appeared at Facebook’s event, is one of several that plans to make music-related tools available on the site.

If users choose to add iLike to their Facebook pages, the software will automatically see where they live and what bands and songs they say they enjoy. It will then recommend songs and local concerts.

ILike will get a commission if the user acts on either recommendation, and it will also show its own ads. “We are truly building an entire business within Facebook,” Mr. Partovi said.

The companies now working with Facebook assert that it is facilitating a deeper level of integration in the social network than MySpace currently allows.

PicksPal, another company that will work with Facebook, lets users predict the winners in sporting events and awards them points for being correct. The points can be cashed in for prizes. If Facebook users add PicksPal to their pages, their “bets” will be sent as a short message (“George has picked Cleveland over Pittsburgh”) to everyone in their network via Facebook’s news feed, which keeps users constantly updated on their friends’ activities.

“It’s exciting to build something that works so well in their world and to really engage in what was heretofore an off-limits, walled garden,” said PicksPal’s chief executive, Tom Jessiman.

Facebook hopes that thousands of outside companies will eventually build features for its site. One inevitable drawback is that Facebook pages will no longer all look the same. To preserve some of its uniformity, the company is asking developers to stay within certain lines — for example, preventing images from blinking or music from automatically playing on a Facebook page unless clicked on.

There are other potential pitfalls for Facebook as well. Spammers and other online miscreants might crack Facebook in the same way they have infiltrated MySpace, where many profiles do not represent real people and entreaties from attractive women mask advertisements for pornographic Web sites.

Facebook might also inadvertently turn itself into a launching pad for other companies that could eclipse it — in the same way that YouTube rose to prominence because MySpace users found it an easy way to add video to their MySpace pages.

MySpace continues to face that challenge and is now acquiring the photo-sharing site PhotoBucket for $300 million, according to two people familiar with the ongoing negotiations, because so many of its users have come to rely on it to store images for their MySpace pages.

When asked about Facebook’s plans, MySpace painted them as nothing new. “From MySpace’s first day, our members have had the freedom to create the experiences they want,” the company said in a statement. “We have always offered our users a blank canvas for their creativity and self-expression.”

Nevertheless, Facebook clearly has Silicon Valley-size ambitions that are pushing it to take big risks. Last year, according to published reports, Facebook turned down a $900 million acquisition offer from Yahoo.

“Although a lot of companies continue to approach us, we are not for sale,” said Jim Breyer, a venture capitalist who invested in Facebook and is a board member.