The Week in Geek – Oct. 5, 2007

Facebook vs. MySpace: As Facebook Takes Off, MySpace Strikes Back
MySpace now has over 200 million members. Facebook has 43 million users, but is growing five times faster and is bigger in the UK. While most articles compare MySpace and Facebook, there is far less overlap than the press suggests, and the evolution of the firms seem to be more along the lines of Yahoo vs. Google, with MySpace claiming it’s a media company (the Yahoo role), while Googly Facebook positions itself as a technology provider. MySpace is the most trafficked website in the U.S. It registered 45 billion page views in July and Compete.com, calculates that Americans spend about 12% of all their Internet time there. NewsCorp bought MySpace in 2005 when it had just $23 million in revenues; but Murdoch says he expects $800 million in MySpace revenues this fiscal year, with profit margins north of 20%. MySpace ad revenues represent nearly 60% of all ad sales on social-networking sites. Facebook’s ad take is $125 million, but the estimates vary widely – Microsoft alone (Facebook’s ad partner) guarantees the site $100 million a year through 2011. There is a MySpace record label, and MySpaceTV is second only to YouTube in web video. The site has deals with the NBA, NBC, and recently the creators of Thirtysomething announced plans to debut a series on MySpace before it hits TV (although I’m not sure this is as cool as the press makes this sound – I mean most of the actors in that show are fast approaching sixtysomething while most regular Facebook/MySpace users were minus-something – e.g. nonexistent – when Thirtysomething first aired).

Comscore says 65% of Facebook users have MySpace accounts, but I haven’t seen the overlap suggested by the data. In the four classes of 50 students each that I’ve taught this semester, MySpace users numbered three or less in each section – at best a 6% active-user hit rate among the Facebook core demographic (albeit an unscientific study). Facebook users look at the site as a utility to manage and nurture existing relationships, while MySpace is the realm of discovering friends, being discovered (musicians rank among my MySpacer students), or declaring your allegiance to products, firms, candidates (Barak beats Hillary in friend count), bands, celebrities (Dane Cook: over two million friends) or ‘other’ (you can ‘friend’ the GEICO caveman). Facebook’s biggest move so far has been opening the platform to third-party developers. Since the Facebook-as-Platform F8 launch in May, the firm has snared over 4,000 applications, many of which mimic the most popular features in MySpace. Most are fun, rather than practical (I’ve yet to see a real killer-app), but the pace is startling. Facebook’s “feed” feature shows you updates of your friends (e.g. who’s posted new pics, updated their profile, or most significantly, added an application), so information flows freely and virally, but only to those you’ve deemed trustworthy.

This growth pace, in both users & applications, makes Facebook the net’s current rock-star. Several reports suggest Microsoft and Google are in the hunt for a stake. The most-quoted figures of $500 million for 5 percent of Facebook would value Zuckerberg’s dorm project at $10 billion. Whether the firm can nail profits to justify these numbers is unclear. Facebook users are rock-solid glued to the service – these kids are barnacles, not butterflies. This is where the service differs most significantly from MySpace. For heavy users, Facebook is more important to them than e-mail & most in their prime age/social-economic demographic spend over 30 minutes a day in the service. That’s an audience any prime-time network would covet (the figure is 3 hrs/month for all users – less than 1/2 of Facebook users are undergrads, and the newbies are much less active). But turning eyeballs into profits ain’t easy. And while Facebook may be the utility that links parents with teachers and soccer coaches, or unites family members in photo-sharing & snappy “what I’m up to” status updates you’ll actually care about, pulling off the transition will be tough. Facebook ‘smells’ undergraduate, with relentless dating-status heavy questions about relationships, and features like the ‘poke’ that seem repellently creepy (even if not meant to be) to most in the 30+ set who regularly hear about these sites through NBC predator shows. But the Valley is about taking risks & the money is showing up. Facebook has announced a $10 million fbFund to support coders writing apps for the site, and VCs Bay Partners has also set aside millions of dollars to fund Facebook developers.

Give One Get One
The OLPC is holding a “Give 1, Get 1” sale. From Nov. 12 through Nov. 26. If you’re in the U.S. or Canada you can order two of the green & white, solar powered, open source, super-bright color screen bookreader/laptops for a tax-deductible $399. The catch? You get to keep one, but the other is given to a less economically advantaged child. The hope is that enough orders come in to allow the project to seed the developing world with thousands of laptops to demonstrate the benefits and create a market for the million units a month that the assembly line will be able to crank out by January.

Amazon Offers Digital Music Downloads
Amazon likely presents the most credible challenge to iTunes yet, but breaking the latter’s stranglehold will be tough, particularly when Apple products are both drop-dead elegant and the first thing introduced to iPod users, the overwhelming market leader. Music label discontent stems largely over concerns that Apple has too much power and has become the Wal-Mart of online music. But labels are wary of trading Apple power for Microsoft or ceding control to another label (although Sony just dropped it’s dreadfully bad Connect service). Amazon is already in the business of working with major media firms and knows the ins-and-outs of keeping suppliers happy. 69 million Amazon customers show up at the site to buy mostly media (although nearly all of it distributed on paper or plastic discs). Amazon MP3 starts out with about 2 million DRM-free songs (about 1/3 of iTunes’ inventory), mostly from independent labels, EMI, and Universal Music Group. Amazon’s tunes are mostly encoded at the high-quality 256kbps rate and are priced from 89 to 99 cents. Most albums sell for $5.99 to $9.99. While CD shipments to US retailers fell 13 percent last year, downloaded singles surged 60 percent. In another show of in-flux music models, British rockers Radiohead are offering their latest album free online.

Bain & Huawei to Take 3Com Private
The two firms will invest some $2.2 billion in taking the never-profitable-this-century networking firm off the punishing quarterly results treadmill. Huawei is expanding aggressively overseas, but has struggled in the US, while rival ZTE has signed deals with Cisco & Sprint Nextel. Huawei’s head is Ren Zhengfei, a former officer in the People’s Liberation Army, which along with the nasty code-theft IP squabble with Cisco a few years back, doesn’t much help the firm’s image in the US. Still, Huawei snagged a major chunk of a British Telecom project last year, ahead of Alcatel & Cisco.

Skype Worth $1.4 Billion Less
It’s got over 200 million users worldwide, it’s huge globally, and it has put world telcos in knots, but a big user base doesn’t always equal big profits. EBay announced that in the quarter just ended, it will take $1.4 billion in write-offs and charges related to the Skype acquisition. About $530 million will go to former Skype shareholders to help them forget about those additional performance-based payouts. And eBay will write off about $900 million in Skype-related “goodwill” to more accurately reflect the acquisition’s value. Skype co-founder Niklas Zennstrom has traded the CEO chair at Skype for a non-executive chairman’s seat on the Skype board. Perhaps timing was good for Nik, too, as his new effort, Joost, is ready to go live. Skype has a future, but whether it’s best long-term with eBay remains uncertain.

Sermo & PatientsLikeMe Video
I recently attended the eye-opening Health2.0 conference in San Francisco. The two brightest stars of the event were the physician-focused Sermo, and the patient-focused PatientsLikeMe. The former allows docs to share information wisdom-of-the-crowd style, with a revenue model supported by hedgies and other finance folks who want a peek at what docs say. PatientsLikeMe was named ‘audience favorite’ by the majority of Health2.0 voters, was recently named a “Disruptor” by Business 2.0, and allows ALS, Parkinson’s, and MS patients (more conditions to be added soon) to share their progress and plot treatment regimes – potentially a treasure trove of post-clinical trial data. We’ll be doing research on “Web 2.0” technologies in healthcare, and I’d welcome any experiences, input, or thoughts on these or other firms from our WiG readers.