A software industry @ Facebook

A software industry @ Facebook

By Jessica Guynn, Los Angeles Times Staff Writer

September 10, 2007

Mark Pincus may hold a winning hand with his latest Internet venture.

More than 130,000 Facebook users a day play an online version of Texas
Hold ‘Em that the San Francisco entrepreneur created at his kitchen
table while his American bulldog, Zinga, slept at his feet.

This is not the poker of smoky backrooms or illicit gambling sites but
a free, friendly game at one of the Internet’s hottest hangouts,
Facebook. Chips serve as social currency: The more you win, the bigger
the swagger. Run low and you can earn more by inviting chums to join.

Welcome to the emerging Facebook economy.

Software developers have built more than 3,000 programs to run on the
social networking site in the last three months. The uses range from
the practical, such as buying music or scouting vacation spots, to the
quirky, including sending virtual gifts or biting your friends to turn
them into zombies.

About 80% of Facebook’s 40 million users have added at least one
feature to their profiles. The most successful applications claim
millions of users.

"Facebook is God’s gift to developers," said Lee Lorenzen, founder of
Altura Ventures, a Monterey, Calif., investment firm that started
betting exclusively on companies creating Facebook programs in July.
"Never has the path from a good idea to millions of users been shorter."

The Facebook free-for-all began in May, when the Palo Alto company
invited hundreds of software developers to build their own features for
the social-networking site and pocket the proceeds. The new strategy
triggered a digital land rush, with 80,000 developers signing up.

They all wanted a shot at the desirably youthful demographic of Facebook users, many of whom spend hours a day on the site.

Now entrepreneurs looking to start companies or expand existing ones
are building businesses on Facebook the way they used to build
businesses on the Web, but they are doing it faster and cheaper — and
with a built-in audience that provides instant feedback.

RockYou founders Jia Shen, 27, and Lance Tokudo, 41, run a veritable
Facebook factory, with more than two dozen applications such as
horoscopes and quizzes.

The San Mateo, Calif., start-up also formed an advertising network to
help marketers and other developers draw traffic by tapping into its
user base, which has reached 29 million in less than a year.

That kind of track record has attracted attention from Sand Hill Road.
Some venture capitalists are looking to invest in companies building
Facebook features.

"The potential is huge," said Salil Deshpande, whose Menlo Park firm, Bay Partners, is on the lookout for Facebook hits.

Traffic doesn’t guarantee big bucks. So far, entrepreneurs are making
modest money from ads, but they have high hopes of creating a thriving
Facebook marketplace where you can buy and sell goods and services and
land sponsorship deals.

Major corporations and advertising agencies have just begun to explore
the viral potential of Facebook applications. For example, Buffalo Wild
Wings, a Minneapolis-based restaurant chain, recently agreed to pay
Social Media Networks Inc. to sponsor the virtual wings Facebook users
hurl at their friends through the company’s Food Fight program, CEO
Seth Goldstein, 37, said.

Developers are paying bounties to other developers for sending Facebook traffic their way. That’s an easy way to generate cash.

"It’s a bit like Monopoly money," said Pincus, 41, who helped kick off
the social-networking movement in 2003 with Tribe.net. "But I am very
optimistic about the long-term potential of advertising on Facebook. I
think Madison Avenue is going to catch on."

Analysts are slightly more cautious. Facebook is growing crowded with applications that compete for users’ attention.

It may not be the paradise some envision it to be, Motley Fool senior
analyst Rick Munarriz said. "But companies that go about this the right
way are going to make a good chunk of money. Who wouldn’t want to reach
the Facebook public?"

Rival networks, such as MySpace, Bebo and LinkedIn, have said they
would follow in Facebook’s footsteps and open their platforms to

Max Levchin’s San Francisco Internet company, Slide, lays claim to some
of the top applications on Facebook. He credits the vision of Facebook
founder Mark Zuckerberg, who is capitalizing on interpersonal
connections in the real world.

"Essentially, Facebook is the next version of an operating system, and
developers are building and plugging in components," said Levchin, who
in the ’90s helped found PayPal, now part of EBay Inc.

In an effort to fill Facebook with features, Zuckerberg borrowed a
tactic from Microsoft Corp. In the 1980s, when Windows became the
dominant operating system for the personal computer, Microsoft allowed
others to build on its platform rather than whip up all of its own

"We want to bend over backward for . . . developers to build their
businesses off our platform," said Chamath Palihapitya, Facebook’s vice
president of product marketing and operations.

So far the strategy is a winner, analysts say. Facebook is second only
to News Corp.’s MySpace in social networking traffic and is signing up
about 1 million users a week.

Marketers want in. The social networking site is reportedly on track to
generate $30 million in profit this year on $150 million in revenue as
it commands higher advertising rates.

That’s good news for companies such as year-old ILike. The 25-employee
music-sharing service turned to Facebook for a boost. The results are
rave reviews — 7 million of ILike’s 11 million users hail from

"We were one of the first companies to realize that Facebook could not
only be a big addition to our business, it could become our entire
business," said Ali Partovi, who runs ILike out of Seattle and San
Francisco with twin brother Hadi.

Record labels and musicians have noticed.

Reflecting ILike’s growing influence, platinum-selling Scottish singer
KT Tunstall has been debuting two new tracks a day there in advance of
her forthcoming album, "Drastic Fantastic." And a private party at the
home of a board member featured a surprise appearance by rock band
Third Eye Blind.

Many start-ups say they too are generating unexpected traffic and revenue from Facebook.

At first, Joyce Park, 38, and Adam Rifkin, 37, founders of Renkoo, an
online service that helps friends plan real-world get-togethers,
couldn’t see the payoff in taking time out from their 10-employee
Redwood City company to gin up an application for Facebook users for
free. But they gave it a shot anyway.

They came up with the idea of enabling Facebook users to send drinks —
a cold beer, vodka martini or something fictional from "Harry Potter"
or "Star Trek" — to their friends. In two months, Booze Mail has
amassed 10 million users, served 50 million drinks and been installed
on 2 million Facebook user profiles, Rifkin said.

"We are doing 10 times more page views on Booze Mail than we are on Renkoo," Park said.

Beverage companies have taken note and are cold-calling the start-up.

No one has felt the force of the Facebook phenomenon more keenly than a trio of Microsoft engineers from Seattle.

Facebook lets users "poke" one another, which is digital shorthand for
reaching out and touching. So Nikil Gandhy, 24, William Liu, 26, and
Jonathan Hsu, 28, dreamed up the "Super Poke."

In less than two weeks, 1 million Facebook users were virtually
hugging, pinching and head-butting their friends, even throwing sheep
at them.

"We were astonished," Gandhy said. "I basically got no sleep trying to
keep the servers up. Suddenly we hear people around us talking about
Super Poke, our friends are calling us and asking if we made that
application and companies started contacting us."

In less than a month, Slide bought Super Poke and gave the three engineers new jobs in San Francisco.

Facebook, Gandhy said, "changed everything."


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