Developers Unsure Of Facebook’s Enterprise Push

By Stacy Cowley
September 27, 2007    4:53 PM ET

This week’s swirling rumors that Microsoft (NSDQ:MSFT) and Google (NSDQ:GOOG) are battling it out to buy a minority stake in Facebook have pushed the social networking site’s profile up even further into its stratosphere, and its potential financial worth nearly as high: any investment in Facebook is likely to value the company in the billions. But solutions providers who have kicked Facebook’s tires say its value to businesses, as either a networking venue or an application development platform, remains speculative and unproven.

Facebook tries to stand out in the crowded “Web 2.0″ social media field by playing to both enterprise and consumer audiences. Created in 2004 by and for students at Harvard, Facebook opened to the public in 2006 and now claims 43 million active users. Web traffic measurement service ComScore put Facebook at #14 on its August list of the most-visited Web destinations by U.S. users.

The company’s boldest bid to differentiate itself for business users came in May, when it held a kickoff developer event in San Francisco to formally launch the Facebook Platform, a custom markup language and a set of open APIs (application programming interfaces). The platform push’s goal is to position Facebook as the best foundation for incorporating social features into a wide variety of applications, including those aimed at business users.

So far, though, Facebook’s enterprise campaign is off to a slow start. Four months later, Facebook’s application roster is still comprised almost entirely of consumer toys and widgets. Of the site’s current top-25 most active applications, the closest thing on the list to a business application is a tool for integrating Windows Live Messenger with Facebook.

Facebook’s value as a business tool for networking and recruiting is also uncertain. Many channel executives grumble about it being yet another profile to manage. Between LinkedIn, Friendster, MySpace, Twitter and smaller competitors like Tribe, Orkut and Ryze, it’s easy to succumb to networking fatigue.

Tim Huckaby, CEO of Microsoft services firm InterKnowlogy in Carlsbad, Calif., said he fends off a steady stream of Facebook friending requests. “It just kills me because it’s so simplistic and looks so much like a chat room for pre-teens,” he said. Still, he can’t ignore the building buzz. At a meeting in Redmond last week, a Microsoft friend passed on the rumor that Bill Gates, Steve Ballmer and Ray Ozzie all use Facebook.

Microsoft’s primary reason for eying a Facebook investment or acquisition is to boost its presence in the consumer-facing, ad-revenue generating Web 2.0 field, where it lags behind early movers like Google and Yahoo. Last year, Microsoft struck a deal (financial terms undisclosed) to be the exclusive seller of Facebook banner ads and sponsored links, a coup for its efforts to rival Google’s powerhouse online-advertising business.

But Microsoft partners also see potential upside in Facebook for accelerating adoption of Microsoft’s Web technologies, a key developer battleground over the next few years.

“Java vs .Net is over. Silverlight is where the next battle is going to be fought,” said Scott Stanfield, CEO of Vertigo Software, a Microsoft Gold partner in Point Richmond, Calif. “Microsoft has a stated goal of getting the Silverlight runtime everywhere. Adobe has a 10-year head start with Flash. Microsoft can buy their way into a better position with an acquisition of Facebook. Being a developer, that would bode well for us, even if we have nothing to do with Facebook development.”

Microsoft (NSDQ:MSFT) is unlikely to directly acquire Facebook; the closely held, private company is working toward an IPO and reportedly not interested in selling out. But even a small stake would be a significant investment. The Wall Street Journal reported this week that Microsoft is in discussions to buy up to 5 percent of Facebook for $300 million to $500 million, valuing the hot Web property at $10 billion — more than 5 times as much as the $1.65 billion in stock Google shelled out for YouTube last year and nearly twenty times the $580 million in cash News Corp. paid in 2005 to buy MySpace’s parent company.

Would such a pricey investment pay off? Right now, Facebook has a huge audience and high visibility — but the Web is littered with the bodies of once-hot, now-dead community networking sites. The graveyard’s poster child is TheGlobe.com, a dot-com that rocked Wall Street in 1998 with a record-setting first-day IPO gain that left the never-profitable company with a valuation of more than $800 million. But TheGlobe.com’s fortunes, and its audience, disappeared in the bust. Within two years, the community was gone and the Web site abandoned.

Developers and business marketers using Facebook say it’s hard to tell at this point whether the site’s popularity will endure. Narinder Singh, co-founder of on-demand software services firm Appirio in San Francisco, created a Facebook profile several months ago and began eying the site as a development platform, but hasn’t yet done any work with it for clients.

“You sound cool and interesting if you’re aware of things like Facebook when you’re talking to enterprises that want to stay on the cutting edge, but it’s more style than substance at this point,” Singh said. While Facebook talks up the enterprise, nothing in the platform is yet a must-have killer app for businesses, in his view.

Still, it could get there. The compelling, frustrating thing about Facebook is that everyone senses potential they’re not quite sure how to exploit, solutions providers say.

“Everyone knows there’s this huge, untapped market on Facebook and no one knows how to use it — so if you come in with an idea, clients will listen,” said RJ Owen, a senior developer with user-experience development firm EffectiveUI in Denver, Colo. EffectiveUI is one of the first services shops to incorporate Facebook into a client project. It’s working on “Discovery Earth Live,” an application for the Discovery Channel that will let users interactively explore global stories and issues. At EffectiveUI’s suggestion, the application (slated for release later this year) will offer a “wigitized” Facebook version allowing users to tout selected stories on their Facebook pages.

Facebook is a good fit for extending that particular application because of its user demographics: more than any of the other social networking sites with a mass audience, Facebook attracts the kind of young, plugged-in students and professionals that Discovery Earth Live is likely to appeal to, Owen said.

The problem — or, for marketers and the developers implementing their projects, the opportunity — is that those users are generally using Facebook to goof off. Stuart Crawford, director of business development for Canadian IT services firm IT Matters, is bullish on Facebook’s potential to help small businesses like his market themselves but admits that the only customer queries IT Matters fields about Facebook right now are “how can we block our employees from using it?”

Facebook is astonishingly sticky: more than half of its 43 million active users return daily. What they come back for, though, is chatter with friends and addictive, silly software toys. Some of Facebook’s most popular applications at the moment are “Blind Date,” “HoboWars” and “Rock Paper & Scissors,” which is exactly what it sounds like: “The classic game of Rock, Paper and Scissors, now with improved formula for extra fun!”

Owen sheepishly admits to being drawn into the entertaining frenzy. He plays in a Facebook fantasy game — “the interface is just horrible; it’s amazing how addicted to this game I was” — and spent two weeks checking back daily to see if he’d progressed up the ranks in a ninja ranking widget. His colleague Adam Flater, an EffectiveUI software architect, sees Facebook’s fluffiness as an essential part of its appeal.

“Users are adopting things for their sheer entertainment value right now. When a client wants adoption, these are the tools to do that with,” Flater said.

A handful of enterprise users are trailblazing the applications path, trusting that a user base will emerge of Facebook denizines more interested in business tools than HoboWars. Clara Shih, an AppExchange product manager at Salesforce.com, drew notice among bloggers and CRM users with “Faceforce,” a recently released application she developed that pulls Facebook data into Salesforce.com, offering users additional details on their customers, prospects and business partners.

While Shih has been an active Facebook user almost since the site’s inception, Faceforce’s catalyst was the f8 developer conference Facebook staged in May.

“After the f8 keynote, I realized that the lines are completely blurring between the consumer and enterprise worlds,” Shih said. “For many in my generation, work is play. … Five years from now, no enterprise app — CRM, HR, ERP — won’t be integrated with the social graph.”

For programmers and ISVs looking to leverage Facebook as a development platform, the most lucrative way to do it right now is by playing to the crowd: developing toys or tools that improve users’ experiences with Facebook and their other social networking resources. Facebook’s most-active application developer is Slide, a company whose entire business model is based on widgets — “blog bling,” as they’re colloquially dubbed.

Slide’s major hit is “Top Friends,” a Facebook tool for quick links to friends’ profiles that has 3 million active daily users. It also makes plug-ins for managing photos and videos, skins to customize UIs, and dozens of other catchy add-ons. While Slide’s applications are frivolous, its management firepower isn’t: the company’s founder and CEO is PayPal co-founder Max Levchin, and its backers include a number of Silicon Valley’s leading lights in venture capital. Those investors aren’t shy about talking up the company’s potential. If Slide eventually cashes out for the same figure Levchin’s PayPal took in its acquisition by eBay (NSDQ:EBAY), $1.5 billion, Levchin “would regard it as abject failure,” Slide investor David Weiden, a general partner at Khosla Ventures, recently told Business Week.

But like everyone else in the social media space — and in an eerie echo of the Web 1.0 boom’s Achilles heel — Slide hasn’t proven it can translate ubiquitous usage to cash and profits. Slide’s widgets are all free to users; right now, the company relies on advertising to make money. As a private company, it doesn’t have to report its financials, but it will take a lot of ad sales to meet Levchin’s lofty goals. (Slide representatives turned down requests for an interview, saying the company’s executives are too busy building the business to respond to media requests.)

Other Facebook ISVs, even those with a more enterprise focus, are also following the “get big first, worry about money later” model. One recently launched application, AppSmash, is the product of a brainstorming session between entrepreneur Tom Blue and his developer partners about ways to make Facebook more useful for business networking. The result: a searchable business directory in which people can list their skills, with a corresponding widget they can add to their profiles to tout their expertise and professional interests.

Though Blue and a colleague are now working nearly fulltime on AppSmash development, he isn’t yet sure what the business model for AppSmash will be. “For now, the thinking is ‘we’re going to fund it and grow it and get it as big as we possibly can,’” Blue said. “At that point we would like to put in some type of advertising.”

That strategy may pay off if Facebook continues its hypergrowth and evolves into a legitimate enterprise networking and collaboration tool. That destiny, however, is far from certain.

“I think it’ll be like a lot of other cultural networking tools that are available — it will be one of the tools in your chest,” said IT Matters’ Crawford. “But there may be something bigger on the horizon that will push Facebook into the ‘where are they now’ territory, like Plaxo and some of the other networking services of the past.”