Prediction: Facebook will be the largest social network in the world

I saw history in the making today.

For some reason, I was lucky enough to be in San Francisco for the Facebook f8 Platform launch event. This announcement was at least an 8.0 on the Richter scale. It was a whopper.

In fact, I haven’t come away from an event so excited since September 21, 1995, after attending the Online Developers II conference, also in San Francisco, when it hit me that my CD ROM publishing days were ending, and that I would soon become an internet entrepreneur. In the next five years, our team quickly shifted from publishing to online, launched Ancestry.com and MyFamily.com, and then went on to raise $90 million, acquire Rootsweb (and later Family Tree Maker / Genealogy.com) starting what has since become the largest genealogy company in the world. (Note: I left the company in Feb 2002 and have recently started a competing firm, with two properties: WorldVitalRecords.com and FamilyLink.com)

For me, that journey all started at Online Developers II.

That story doesn’t necessarily have a happy ending for any of the company’s founders or even its early employees or investors. Like Ray Noorda used to say, “Finders Keepers, Founders Weepers.” Crossing The Chasm by Geoffrey Moore explains why pioneers (company founders and innovators) don’t often do well in the end, while settlers (who are usually better are operations) do. I’m actually fine with that, and reading that in Moore’s book was one of a dozen things that helped me move on emotionally.

Today felt just like September 1995 to me.

And it makes me wonder what the next 10 years might bring.

I sat on the third row and drank deeply of the kool-aid as Mark Zuckerberg, who turned 23 years old just 11 days ago, presented what may be the best business opportunity for internet entrepreneurs in the past ten years.

A huge new opportunity was presented to the few hundred people in the room, including 65 companies that have spent the last few weeks developing applications for the launch of Facebook Platform.

Facebook is inviting anyone to develop applications for their users on top of what Mark calls their “social graph”–the core of their service which basically keeps track of real people and their real connections to each other.

Facebook has 24 million active users (meaning they’ve used the site in the last 30 days–I like how they aren’t overstating numbers like SecondLife) and 50% of them login each day. Mark says the next most active social network is not more than 15%.

Last fall as I taught Internet Marketing at BYU we learned that a UCLA survey showed that 50% of college age females said Facebook was their #1 most important web site (even more than Google, Wikipedia, or anything else) and that 1/3 of college age males said it was their #1.

Look how many “addicts” Facebook has, according to Quantcast. 63% of visits are from addicts. eBay is only 56%.

Facebook is adding 100,000 new users per day. That’s 3% growth per month. And the fastest growing segment is over age 25. At this rate, they’ll have 50 million users by the end of this year, and 75% of them will be out of college. I read just on paidcontent.org that Facebook is the fastest growing social network in the UK, and today Mark said that 10% of Canada’s population is using it.

With 40 billion pages view per month, Facebook has passed eBay in page views, and is now in 6th place, just behind Google.

So this is no small thing for a 3 year old web site. Facebook is absolutely for real. I like Facebook a lot; while I can’t stand MySpace. Facebook is clean and nicely designed and architected. MySpace in my opinion is messy and mostly full of garbage. Facebook is a real social network for real people. And it is really, really popular.

And it’s growth will be dramatically accelerated by the Platform announcement. If Facebook is adding 100,000 new users per day with its own few simple applications (like its photo sharing, a very simple service that has given Facebook twice as many photos as all other photo sharing sites combined), what will happen when thousands or tens of thousands of developers start building apps in Facebook and marketing them to more users?

Facebook will reach 50 million, then 100 million, then 200 million users, and beyond.

Rather than continue to try to develop features within its own proprietary, closed network, basically keeping all of its users to itself (and kicking out widgets they don’t like, like MySpace does), Facebook intuitively gets the concepts that are so brilliantly discussed in Wikinomics (which are so non-intuitive to old school business types), and has chosen to open up its network for all to participate in. Because they embrace the winning philosophy, they will win.

Application developers can now have access to core Facebook features, such as user profiles and user connections, and even publishing to the News Feed, all with the control and permission of Facebook users. So if a Facebook user chooses your app, it will show up on their profile for all their friends to see, and they can enable that app with a single click, and so your application can spread virally to the 24 million other users.

When Facebook has 100 million users, in the not too distant future, having the ability to develop an App in their system will almost be like being able to get a link on Google’s own home page.

Can you imagine Google ever doing that? No way. They have too much at stake. Their $147 billion market cap couldn’t take it. Google’s philosophy was to not be evil. But I think Facebook’s philosophy is a decade fresher and even more in line with where things need to go than even Google–a company that I admire more than any other.

When Clayton Christenson spoke at the first Open Source Business Conference (again in San Francisco) about three years ago, he spoke about how the LAMP stack has provided a powerful low-cost platform for companies to develop applications on top of. Linux, Apache, MySQL, and PHP enable companies to develop applications that used to cost millions, but by building on top of all these projects, companies could move “up the stack” and focus on providing unique value that wasn’t in the stack already.

There are more and more free layers being added to the stack all the time, powerful services that can be embedded in your own new applications, like Skype, Maps from Google or Microsoft, storage and utility computing from Amazon, and video layers like YouTube and Google Video.

When anyone develops an application on top of the LAMP stack, like a CRM system for example, they always risk being disrupted by someone who provides that for free on top of the already existing stack.

Any new open source application or creative commons layer can be added to the stack, which might commoditize that application and put some companies out of business, but then that enables everyone else to again add more value on top of the stack.

This process continues, and all the while the consumer benefits greatly, and developers can continue developing innovative and valuable services on top of the ever-growing application stack.

The way I view the Facebook Platform announcement is this: the LAMP stack has just been extended by the huge and growing “social graph” that Facebook is opening up to the world. (It’s not completely open, because you have to develop apps within Facebook, but it’s a start in the right direction.)

Now, instead of application developers having to each build their own web site and try to get people to find it and use it and share it, the viral marketing of any good application site will come right from the Facebook interface itself. As users adopt new apps, they will spread quickly through the network.

Mark made three big announcements. 1) Applications can be deeply integrated with Facebook 2) Distribution of the applications will occur through the network, and 3) The business opportunity Facebook is providing will give 100% of advertising revenue (for third party applications) and 100% of transaction revenue to the application developers.

Now that is the true spirit of Wikinomics.

VPs from Microsoft and Amazon were present to express their support for the Facebook Platform. Microsoft will enable application develop with Silverlight and Popfly, and Amazon discussed how its web services enable Facebook Platform apps.

The CEO of Slide mentioned that the Platform developer wins big, but that applications developers also have a huge business opportunity here.

Microsoft’s market cap is $280 billion. But the top three application developers on Microsoft’s platform have a combined market cap of $40 billion.

I don’t think Facebook’s market cap vs it’s application developers will be nearly that lopsided. In fact, the way they are treating their own applications versus Platform applications makes it a pretty level playing field. Facebook users can deselect apps they don’t want to use–even Facebook’s own apps–and sign up to any other.

The core asset Facebook wants to own, extend, and leverage, is the social graph–who is connected to whom.

It is even possible that some future Facebook app developers could end up with a greater market cap than Facebook–if they permanently maintain the 100% of revenue going to the partner model. For example, a MMORP game built into Facebook might someday have 10 million users paying $10 per month, or $1 billion in revenue, when Facebook might at that point have $500 million in advertising revenue. (Reportedly it will make $150 million this year.)

Okay, not likely, but maybe possible.

The cool thing is that the marketing costs for these application developers will be basically nothing. All viral. All courtesy of Facebook’s users.

One of the self-serving reasons why companies like Google and Amazon create so many APIs and web services is to get a vast community of developers doing R&D for them and prototyping applications to see what works best. Then, they acquire the ones the like best.

Facebook will certainly be in a strong position, once it has a liquid currency, to acquire some of the most interesting application developers using its Platform.

If you haven’t read it recently, read Chapter 7 of Wikinomics, “Platforms for Participation” in the context of today’s announcement.

Here are a couple quotes.

“The winners in this evolution will be companies that can create the most comprehensive incentive frameworks to adequately reward all stakeholders.” (p. 207)

How about letting them keep 100% of their ad and transaction revenue? That’s quite an incentive.

“Winning in a world of cocreation and combinatorial innovation is all about building a loyal base of innovators that make your ecosystem stronger.” (p. 210)

Like I said at the beginning, I felt very lucky to be invited to this event. I got the invitation because we invested in YackPack last year, which is one of the companies that is launching its application within Facebook.

I didn’t see anyone else from Utah there, partly because every internet entrepreneur and marketer in the state was probably attending Seth Godin’s speech in Salt Lake City, which was probably very good.

If you are from Utah and went to the Facebook f8 event, please comment here or email me. I really want to connect. I think we need a Facebook Platform Developer Community here in Utah.

I searched LinkedIn tonight and found 140 Facebook employees, board members, etc, on LinkedIn. I’m 2 degrees away from many of them. But then I searched for “facebook api” to see how many people in my 2 million + network have any experience developing for Facebook and only 1 person came up.

Hopefully there will be some developer forums that emerge quickly so that more people can get guidance on how to proceed.

So here is my final thought. I’ve been pretty fortunate in my career to kind of see the big waves and trends coming and to get positioned to take advantage of them. I think I have pretty good instincts, because my brother Curt taught me to read everything (and he buys me new books from Amazon almost every month) and to go to conferences all the time. I already mentioned the transition from CD ROM publisher to Internet Publisher. After reading Net.Gain in 1998, we created Ancestry.com’s user generated content strategy (it became our most popular database) and launched MyFamily.com which was really an early social network for families. At our peak we were adding 20-30,000 new users per day. Unfortunately, our investors stopped supporting that free site because it wasn’t making money. Doh.

After reading an article in Industry Standard in 1998, I decided to attend the first ever affiliate summit held in New York City, where Commission Junction, Be Free, and LinkShare all presented. We chose Be Free, launched our affiliate program, and over the next few years, affiliate marketing was our #1 source of new customers at Ancestry.com.

In the last few years, I blogged before Google’s IPO that it would disrupt Microsoft by offering free software (including Office apps) and said it will one day pass Microsoft in market cap. And, more recently, in my latest example of prescience, I blogged about Lindsay Campbell of Wallstrip after her first day as anchor, and suggested that she might one day rank up there with Soledad O’Brian and Diana Sawyer, and now CBS paid $5 million for Wallstrip, and Lindsay’s career will soar. Way to go, Lindsay!

The only reason I’m reciting these past predictions is to try to lend a little weight to my next prediction: that Facebook will become the #1 social network worldwide (and the first to get 1 billion users–I love Facebook mobile, by the way) and that thousands of entrepreneurs will become extremely successful by developing to this new platform.

I hope that Facebook won’t be acquired. I hope it will go public and become the next major Internet company along with Google, Yahoo, Amazon and eBay. Another hugely profitable company that can potentially acquire lots of other great smaller companies.

I like Mark Zuckerberg a lot. I met him tonight as he was just visiting with lots of the individual companies supporting the launch event, and thanking them for their support. He was very genuine. I can see him in 10 years with the influence of the Google founders and in 20 years with the influence of Bill Gates. He is just getting started. At the recent Startup School, he advised startups to hire coders — even in the marketing department — and he talked about time he spends thinking about philosophies and how at this young age his life is not cluttered with things and family responsibilities.

Can you imagine in a couple years when Facebook has 200 million users worldwide, with half of them logging in every day, and a 25 year old will be CEO of this company? I can’t think of a parallel in world history where someone this young had this much influence. Oh wait. Alexander the Great.

Ok. I’ll stop now. It’s 2:40 am. And my post is going on and on and on, and all over the place.

But I’m serious about this Facebook Platform. Check it out. Mark’s philosophy of openness is an open invitation to co-create something remarkable with him and his 24 million users.

Shutterfly Files for IPO

A few highlights from the Shutterfly S-1:

  • $83.9 million in revenue last year with net income of $28.9 million (But $24 million was from a one-time tax benefit recognized in Q4 2005. The revenue growth is strong year over year.
  • They have stored more than 900 million customer photos in their archives.
  • They have sold 300 million prints in 11 million customer orders.
  • 84% of their customers are female.
  • This is a bit surprising to me.

  • 98% of the revenue comes from the U.S. Even more surprising. Who is doing online print processing internationally?
  • 4.1 million unique visitors in May 2006

Since I tend to focus on marketing strategies, here is the text from the S-1 about Marketing, Advertising and Promotion:

We use a variety of advertising, direct marketing technologies, channels, methods and strategic alliances to attract and retain our customers. These methods include direct marketing over the Internet, e-mail marketing to prospects and existing customers, search engine marketing, and traditional direct marketing mailings such as postcards and seasonal catalogs. In addition, because many of our products are either shared via the Internet or given as gifts, the appearance of our brand on the products and packaging provides ongoing distribution as well as viral advertising.

We place advertisements that cater to women and families on websites and in publications, contract for targeted e-mail marketing services and contract for advertising placement on leading search engines. We also maintain an affiliate program under which we pay program participants for referral sales generated from hyperlinks to our website from the affiliate

Shutterfly IPO?

While living in Silicon Valley in 1999-2000 and because MyFamily.com was in the photo-sharing space, I had the privilege of meeting with key people at most of the early photo-sharing sites. I remember one meeting in our Howard Street office with some folks from Shutterfly.com. Lots of companies wanted to partner with MyFamily.com because we had millions of photos (in private family websites) and they had ways of getting those photos into prints, calendars, mugs, and other products.)

Shutterfly had just launched. They didn’t really have a lot to talk about since they were brand new but I swear they used the name “Jim Clark” in our meeting at least a dozen times. (Not a bad strategy when your company founder/investor is the only person in history to have ever founded 3 companies that reached a $1 billion market cap.)

It’s interesting to fast forward to 2006. MyFamily.com is never even mentioned as a photo-sharing site, even though we probably one of the first sites to attract 10 million photos. (We did it by early 2001.)

Now Shutterfly is reportedly considering an IPO or potentially shopping for an acquisition deal in the $400-500 million range. Oh, how I wish MyFamily.com had stayed active in the photo sharing space!

If you want an interesting walk down internet memory lane, check out some of the site design changes at Shutterfly from 1999 to the present at archive.org. I well remember the 50 free prints offer for every new member. An expensive customer acquisition strategy (had to be funded by outside investment capital, of course.) But a very effective one. Today, the offer is 15 free prints for new members.

Note: I have not been involved with MyFamily.com as an employee since February 2002 or board member since December 2001. My blog simply contains personal opinions.