A software industry @ Facebook
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 developers.
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 technology.
“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 Facebook.
“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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Apps in abundance
More than 3,000 programs have popped up on Facebook since it became an open platform, or one for which anyone can develop applications. Many enable users to customize their “walls,” or Facebook message boards. Here are some of the most popular programs:
* Top Friends by Slide Inc., 2.4 million daily active users. List your BFFs (best friends forever) on your Facebook wall.
* FunWall by Daniel C. Silverstein and Bobby Joe, 740,000 daily active users. Soup up your wall with customized photos and videos.
* ILike by ILike Inc., 597,000 daily active users. Add music to your wall and list concert information.
* Graffiti by Mark Kantor, Tim Suzman and Ted Suzman, 536,000 daily active users. Draw on your friends’ walls.
* Super Poke by Nikil Gandhy, William Liu and Jonathan Hsu, 533,000 daily active users. Virtually hug, pinch and head-butt your friends -- even throw virtual sheep at them.
Source: Facebook, companies