Winklevoss twins lose Facebook appeal ;).

A US appeals court ruled on Monday that Tyler and Cameron Winklevoss can’t back out of the settlement deal they made in a lawsuit charging that Mark Zuckerberg stole their idea for Facebook.

“The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace,” the 9th US Circuit Court of Appeals said.

“At some point, litigation must come to an end,” the court said. “That point has now been reached.”

Twin brothers Tyler and Cameron Winklevoss claim they enlisted Zuckerberg to finish software code for their ConnectU social-networking website while they were all students at Harvard University in 2003.

Zuckerberg, a second year student at the time, took their code and their idea and launched Facebook in February 2004 instead of holding up his end of the deal, according to the brothers. Facebook rejects that account.

Hollywood made the saga famous in the hit film “The Social Network.”

The twins inked a settlement two years ago that got them $20 million in cash and $45 million worth of stock valued at $36 per share.

The value of that yet-to-be-issued stock has skyrocketed along with Facebook’s estimated market value, which was placed at $50 billion early this year, the judges noted in their ruling.

“With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity,” the judges said.

“For whatever reason, they now want to back out,” they continued. “Like the district court, we see no basis for allowing them to do so.”

The brothers challenged the settlement, which was supposed to be confidential, on the grounds that Zuckerberg suckered them during settlement talks by not revealing Facebook internally valued the stock at $9.

The lower figure would have resulted in the Winklevoss twins getting many more shares.

Facebook welcomed the ruling.

“We appreciate the 9th Circuit’s careful consideration of this case and are pleased the court has ruled in Facebook’s favor,” Facebook general counsel Colin Stretch said in a statement.

Attorney Jerome Falk, who represents the twins, said his legal team will file a petition within 15 days for a “rehearing en banc” at which the ruling would be reconsidered by a panel of 11 appeals court judges.

“I respectfully disagree with the 9th Circuit’s conclusions,” Falk said in an emailed statement.

“In my judgment, the opinion raises extremely significant questions of federal law that merit review by the entire 9th Circuit Court of Appeals.”

Members of the three-judge panel bore holes in the argument pitched by Falk during a January hearing in San Francisco.

The Winklevoss brothers based the value of Facebook stock on news that months earlier technology giant Microsoft had bought a small piece of the social networking star in a deal that valued the stock at just shy of $36 and the company at $15 billion, Falk said at the time.

He argued that Facebook violated US securities law by not disclosing that it had valued the stock at closer to $9 for stock options issued to employees at that time.

“This case is about whether sophisticated parties surrounded by a platoon of world-class lawyers can cancel a deal that is binding,” Facebook attorney Joshua Rosenkranz countered in his time before the judges.

“No one was misled here,” he said. “The ConnectU founders struck a deal that made them very rich and is making them richer by the day. No one made them sign it.”

Rosenkranz argued that Facebook was under no obligation to volunteer the stock option information during settlement negotiations and that the information was not intentionally withheld.

Who said? Glenn Chapman said ;).

Report: Google, Facebook consider buying Twitter ;).

NEW YORK – Google Inc. and Facebook Inc. have both held low-level talks with Twitter Inc. about purchasing the privately held social networking service, according to a report published Thursday.

The talks have valued Twitter at $8 billion to $10 billion, The Wall Street Journal said, citing unnamed people familiar with the matter. The Journal said the company had 2010 revenue of $45 million but lost money as it hired and invested in data centers.

Investors have shown keen interest in social networking services in recent months. Last month, daily coupon website Groupon raised $950 million in financing after reportedly turning down Google’s offer to purchase it for $6 billion. Facebook, which is privately held, is also said to have received $500 million in new funding last month, including $450 million from wealthy Goldman Sachs clients living outside the U.S., and $50 million from a Russian investor.

Also last month, LinkedIn, a social networking site geared toward professionals, filed to go public in an initial public offering worth up to $175 million.

Twitter and Facebook declined to comment. Google did not immediately respond to a message seeking comment.

Google’s stock fell $3.08 to $613.42 in afternoon trading.

Who said? AFP said ;).

Yahoo Decides to Friend Facebook ;).

Yahoo Inc. watched as social-networking website Facebook Inc. stole the attention of users and grabbed a major share of the online-advertising market.

Now the Internet pioneer is following an old mantra: If you can’t beat ’em, join ’em.

After struggling for years to develop services that compete with the social network, Yahoo in recent months has installed tools such as Facebook’s “Like” and “Share” buttons on its news and sports websites in order to help Yahoo users share articles with their contacts on Facebook, among other things.

Yahoo, like other content providers, is seeking to leverage Facebook’s huge user base to draw more traffic back to Yahoo after readers click on the sharing buttons. The moves also are aimed at ensuring that links to Yahoo content appear in the search feature on Facebook’s site. Yahoo is using similar approaches with Twitter Inc., the Internet messaging service, and Zynga Game Network Inc., which offers online social games.

Yahoo hopes the moves will solve one of its biggest problems—a 10% slide in the time users collectively spent per month on Yahoo sites last year, according to research firm comScore. Yahoo’s internal research shows the main culprit for the slide is Facebook, people familiar with the matter said.

 

“‘Frenemy’—part friend, part enemy—is where Yahoo finds itself with Facebook,” said David Karnstedt, a former senior vice president of North American sales at Yahoo and currently chief executive of online marketing firm Efficient Frontier.

The enemy part, Mr. Karnstedt said, is that Facebook’s ad business is big and growing fast, sometimes at Yahoo’s expense. “The friend part is that Yahoo has stopped trying to get people not to go to Facebook and decided it was better off enabling that, largely because it didn’t have a real choice,” he added.

“I think ‘frenemy’ is not the right word. That implies more enemy than friend,” said Dan Rose, Facebook’s vice president of partnerships and platform marketing.

Yahoo Chief Executive Carol Bartz recently called Facebook her company’s top competitor. That is certainly true in U.S. display ads, a market that reached nearly $9 billion in 2010. Yahoo was No. 1 with 16.2% of the market, down from 16.5% in 2009, according to research firm eMarketer. Second-place Facebook saw its market share rise to 13.6% from 7.3% the prior year, eMarketer said.

“They’re a hot site, but there’s room for more than one of anything,” Ms. Bartz said at an event in December.

Some others at Yahoo stress recent collaboration with Facebook. “They’re a partner, and a good one at that,” said Mike Kerns, Yahoo’s vice president of social, games and personalization, in an interview. “We view them and their platform as a great opportunity to both distribute Yahoo and its partners’ content” and “to enhance user experience” on Yahoo.

Mr. Rose, Facebook’s vice president of partnerships, said the company doesn’t think of Yahoo as a competitor. “We’ve had a strong partnership in place with Yahoo for over a year, and we anticipate partnering with them even more deeply in the future,” he said. “Our interests are aligned to help people connect and share content with their friends from wherever they are on the web.”

By contrast, search giant Google Inc., which rose past Yahoo in the Web-search market during the last decade, has recently invested in developing a social-networking-type experience that could rival Facebook’s, people familiar with the matter have said.

So far, Yahoo’s partnership with Facebook hasn’t reversed negative trends. Last year it began letting users of its email service to access Facebook without leaving Yahoo, hoping to keep users there longer. Blake Irving, Yahoo’s chief product officer, said in an interview late last year that the feature “has not been seeing mind-blowing use.”

But he added that social networking is “an open playing field” and the company was developing new ways to help users stay connected with the “small groups of people that actually matter to you,” rather than a vast network of hundreds of people—including work colleagues and casual acquaintances—that many people now include as “friends” on Facebook.

As Facebook becomes a key place where people discover content such as news articles, Yahoo also sees an opening to provide technology to online content providers such as newspapers so they can better control of how users find and interact with their content, rather than leaving it up to Facebook and others.

For example, last week Yahoo made a public pitch to magazines and newspapers to use its software to reach users of tablets such as Apple Inc.’s iPad with features such as flashy, interactive graphics and photos. Yahoo didn’t name any partners.

Shifting Course

Yahoo launched or bought several social-networking-type services before ultimately forging partnerships with Facebook:

YEAR	EVENTS
2005	Launches Yahoo 360 social network; buys Flickr photo-sharing site
2006	Tries to buy Facebook; deal falls apart
2007	Stops developing Yahoo 360; starts Yahoo Mash
2008	Yahoo Mash abandoned; launches Yahoo Updates
2009	Talks to Facebook about possible partnerships
2010	Lets users access Facebook and Twitter content while on Yahoo; adds Facebook “Like” and “Share” buttons to more pages; launches Yahoo Pulse
2011	Allows users to “log in” to Yahoo using Facebook, Google credentials.

Source: The company; WSJ research

Who said? Amir Efrati said ;).

Facebook’s Web of Frenemies ;).

Facebook Inc.’s growing ambitions are redrawing battle lines in Silicon Valley.

As the seven-year-old company ramps up its hiring and adds new features to its social network, it is disrupting the businesses of established companies like Yahoo Inc. and Google Inc. and putting even more Internet firms on notice.

Facebook, which has more than 600 million users and was valued at $50 billion in a recent funding round, is grabbing online-advertising from Yahoo, Myspace and others. The social network is a potential rival in electronic payments to eBay Inc.’s PayPal, while partnerships Facebook is cementing with smartphone makers set the stage for competition with Apple Inc. and Google in mobile services.

Meanwhile, Facebook is tussling with Google and Microsoft Corp. for top engineers.

As a result, many Silicon Valley companies increasingly have to decide whether to treat Facebook like a friend whose reach and user data can help propel their own growth, or a foe that can become a destructive force.

“Facebook is both a great competitor and a benefactor here in Silicon Valley,” said David Cowan, a venture capitalist at Bessemer Venture Partners in Menlo Park, Calif. “Anyone who’s trying to get the attention of the young Internet user now has to compete with the dominant position that Facebook has there. On the other hand, they have opened up a lot of opportunities.”

Facebook executives aren’t shy about their aspirations. “We think every industry is going to be rebuilt around social engagement,” Chief Operating Officer Sheryl Sandberg said.

Facebook already helped spur a new crop of videogame companies designed around interacting with friends, Ms. Sandberg said, adding, “News, health, finance, shopping and commerce—we think similarly, all of these things will be rebuilt by companies that work with us to put social at the core.”

So far, Facebook’s key battleground has been in online marketing.

In just two years, Facebook’s share of online display ads has surged to 13.6% from 2.9% of the U.S. market, which reached $8.88 billion in 2010, according to research firm eMarketer.

Facebook’s growth comes at the expense of companies such as Yahoo and AOL Inc., and the site is also likely taking ad money away from traditional media like newspapers and TV.

Yahoo has stopped trying to compete directly with the social network and instead integrated Facebook features into its sites, hoping to halt a slide in the time its users spend on Yahoo each month.

Myspace, which like Yahoo has struck some partnerships with Facebook, declined to comment. Myspace and The Wall Street Journal are owned by News Corp.

Jeff Levick, the president of AOL advertising, said he viewed the rise of Facebook as “complementary” because the companies are “running two very very different businesses.”

AOL, he said, focuses on monetizing the content that Facebook users share. “The more high quality content we produce and is shared, the traffic comes back to us,” Mr. Levick said. The top advertisers who are working with both companies are spending more with AOL each quarter, he said.

Facebook likely had revenue of $1.9 billion to $2 billion last year, mostly in advertising, one person familiar with the company has said.

Facebook has recently introduced ad formats that incorporate users’ networks of friends—even their names, photos and postings—into the ads.

And Facebook has also turned its attention to the local advertising market, launching its own location check-in and deals services that bring together elements of sites such as coupon site Groupon Inc. and business reviews service Yelp Inc.

Groupon and Yelp declined to comment.

Facebook is likely to tread on more toes as it builds out what’s known as a platform for the Internet, which other websites, cellphones and now even cars can use to build their own offerings to allow people to take their friends and preferences with them.

Some 2.5 million websites have so far tapped the platform, which lets them populate blog posts, news articles, product listings and other pages with Facebook’s “Like” button.

With its platform play, Facebook is positioning itself as a partner to other tech companies—even Google, which allows YouTube users to share videos with their Facebook friends.

“The foundation of a platform is one where people want to build on top because there is equal value exchange,” said Dan Rose, Facebook’s vice president of partnerships and platform marketing.

Still, Mr. Rose said Facebook intends to participate in new businesses that emerge from the use of its platform.

One case in point: Game developers such as Zynga Game Network Inc., among the first to find massive growth on Facebook’s platform, now have to pay a kind of tax.

Last month, Facebook said it would require all game developers on its platform to use its in-house Credits, a virtual currency for buying things in games. Facebook takes a 30% cut from all Credit sales. Zynga declined to comment.

Facebook could later extend its Credits system to other areas of commerce, including physical goods, potentially making it a competitor to PayPal and Amazon.com Inc.

Mr. Rose didn’t rule that out, but said the company had no current plans to do so and was focused on virtual goods for now.

PayPal President Scott Thompson plays down any rivalry with Facebook.

He said his company partners with Facebook, which lets people pay for Facebook Credits with PayPal. Even if Facebook gets deeper into payments, he said PayPal will be well-protected. “Payments is really, really hard to do,” he said.

Yet many Silicon Valley firms are wary of Facebook’s control over its platform and have turned elsewhere.

Online-dating service Zoosk Inc. launched in 2007 as an application on Facebook, where it experienced fast user growth. But in mid-2008, co-founder Shayan Zadeh decided Zoosk needed to expand to other platforms such as Myspace and its own website. It began to ask its Facebook users for their real email addresses, instead of just relying on Facebook as a means of communication.

Mr. Zadeh said he was concerned that some shift in Facebook’s business model or platform strategy could destabilize Zoosk. “If you want to be a long-term established business, you have to establish a direct communication line,” he said. Today, Zoosk has about 15 million to 20 million active monthly users; only about 20% of new users come through Facebook.

Facebook executives also have their sights set on smartphones, where they hope to become more integrated in the software on the handsets. Last week, INQ Mobile, owned by Hutchison Whampoa Ltd., unveiled a handset for the U.K. that prominently features contacts, photos and other data from users’ Facebook accounts. More such arrangements are expected soon.

Such activity increasingly puts Facebook on a collision course with Google, Apple and others in mobile advertising. Mr. Rose said Facebook could eventually make money off its mobile efforts through ads and Credits, but doesn’t have any plans for it at the moment.

Google declined to comment on Facebook, but in an interview last, year Chief Executive Eric Schmidt said the two companies compete for talent but not for ad dollars and that Facebook users use more Google services than any other users. He also said that “you’re assuming that if they do well we do poorly,” but “winners tend to all do well.”

Who said? Geoffrey A. Fowler said ;).

10 Ways Google is the New Microsoft ;).

February 11, 2011

Google (GOOG) is the new Microsoft (MSFT). Something tells me you’ve heard that one before. By my count, people have been saying that since 2005. But the question remains: Is it really a fair comparison?

Slideshow: 10 Cool Things You Didn’t Know About Google

Microsoft dominated the desktop computer industry for the past 15 years with purported ruthlessness and cunning business savvy. These days? Don’t look now, but the role of the tech industry’s biggest bully and most dominant force is increasingly played by Google.

If you compete with Google, you’d better be looking over your shoulder. Its search engine algorithm alone can make or break a business.

From privacy issues to market dominance to passion among fans and detractors to government scrutiny, Google and Microsoft share more similarities than you may realize.

In 2005, Microsoft cofounder and CEO Bill Gates had this to say about Google: “They are more like us than anyone else we have ever competed with.” Far be it from me to argue with Bill Gates. Let’s take a look at just how similar these two technology megacompanies are.

1. Core Dominance

The most obvious similarity between Microsoft and Google involves each company’s ability to dominate its core industry. Microsoft has had well over 90 percent of the desktop operating system market since the days of Windows 95 and Windows XP. There are signs that Microsoft’s dominance may drop significantly in the next few years due to the proliferation of devices running mobile operating systems, but Windows is still the king of the desktop.

Google doesn’t have more than 90 percent of the search market, but there’s no question that the company rules the search world. Google had nearly 67 percent of the search market in December, according to Comscore; the closest competitor was Yahoo (YHOO), at just 16 percent of U.S. searches.

The biggest source of Google’s online dominance is Web-based advertising. Google owned 83 percent of the highly lucrative online search advertising market worldwide in 2010 and 81 percent in 2009, according to metrics firm IHS Screen Digest. The search giant is making big gains in other areas of digital advertising, too: Google grabbed 59 percent of the U.S. mobile advertising market in 2010, up from 48.6 percent the previous year, according to IDC. (PCWorld and IDC are both owned by International Data Group.) That’s a rise of nearly 11 percent in just 12 months. Google’s acquisition of mobile ad network AdMob in May contributed to the company’s massive leap in mobile advertising.

2. Monopoly Mania

The downside of dominating an industry is that you’re an immediate target for antitrust allegations. Microsoft experienced this during the late 90s and early 2000s, with accusations of unfair business practices against competitors such as IBM (IBM), Real Networks, Gateway, Netscape, and Apple (AAPL).

(See: “Microsoft Declared a Monopoly“)

Google’s antitrust headaches have just started, with European legislators looking into how it treats itssearch and online ad competitors. The company is also meeting fierce opposition from the online travel industry following its announcement of its intention to buy ITA Software, a flight-data aggregation company.

3. It’s the Platform, Stupid

The core strategy for both Microsoft and Google has been to create a platform that keeps the user in each company’s ecosystem. Microsoft led the way in the 1990s by distributing the most popular desktop operating system ever and offering tools that played nice with Windows, such as Microsoft Office, Internet Explorer, and early online “cloud-based” services like Hotmail.

Google has tried to emulate that success by building an array of Web-based tools that encourage users to stay in the Googleverse, such as Gmail, Google Docs, Google search, and Google Maps.

In addition, it’s making a big push to popularize Web apps through its Chrome Web store and the forthcoming Web-focused Google Chrome OS. Google also recently stepped up its game in encouraging third-party development for its Android mobile operating system, with new features such as a Web-based store for browsing apps and an in-app payment system.

Microsoft faced little challenge to its ecosystem in the 1990s, while Google faces formidable challenges from Apple’s iOS platform for mobile devices and Facebook’s continuing push to become the dominant platform on the Web.

4. Apple Rivalry

Microsoft is the new IBM, Google is the new Microsoft, and Apple is the new…Apple?

After the release of Windows 95, Microsoft ate away at Apple’s business, driving the Macintosh maker into a niche market. Microsoft’s strategy of distributing Windows on as many platforms as possible was a huge success, a contrast to Apple’s distributing of the Mac OS only on its own computers.

Fast-forward to 2011, and Google is trying to beat Apple’s iPhone and iPad using a similar strategy: Although you will find iOS only on the iPhone and iPad, Android is on pretty much everything else, including devices from HTC, Motorola (MOT), Samsung, and Sony. Android’s smartphone market share is steadily overtaking that of iOS.

The most recent numbers from Nielsen say that new smartphone users are choosing Android devices over iPhones by nearly 15 percentage points, while the iPhone platform maintains an overall lead of about 3 percent. It hasn’t happened yet, but Android is threatening to push iOS devices into a niche market much as Microsoft shoved aside Apple’s Macintosh.

5. From Rebel to Lumbering Giant

Microsoft started out as the plucky disruptor that popularized the PC graphical user interface through wide distribution and lower pricing compared with Apple’s Macintosh OS. In a similar vein, Google was able to dominate search thanks to its amazingly relevant search results and its bare-bones homepage that featured the search box and nothing else.

Google’s uncluttered front door and its eerie ability to deliver highly relevant results distinguished it from competitors such as Ask, MSN, and Yahoo, all of which sported incredibly busy home pages, provided less-relevant results, and failed to make a clear distinction between sponsored ads and regular search results.

But as each company has dominated its respective industry, each has had to deal with the transition from fast-moving startup to technology behemoth.

Microsoft was supposed to produce a slew of updates to its Windows Phone 7 devices in early 2011, but at the time of this writing it had yet to release even one update since introducing Windows Phone 7 in October. Google is trying to escape Microsoft’s fate by reinjecting a startup mentality into the company. Many observers believe that this is part of the reason Google is shaking up its management structure by removing Eric Schmidt as CEO in favor of Google cofounder Larry Page.

6. Trust Us

Believe it or not, Microsoft, not Google, was once seen as the big, scary technology company trying to steal your data. In 1999, Microsoft had to address suspicions that the National Security Agency had a backdoor into Windows that allowed the NSA to peek at users’ encrypted data. Then, in 2001, Microsoft revealed a big plan for its Passport universal sign-in feature, which would store each user’s name, password, address, e-mail address, and credit card credentials online to encourage people to shop on the Web. The Passport plan was met with fierce opposition, however, because no one wanted to trust Microsoft with their data.

Today, Google is dealing with all kinds of privacy concerns over Google Street View‘s taking pictures of people’s homes, Google’s recent Wi-Fi sniffing snafu, the company’s saving of search histories, theGoogle Buzz privacy breach, and on and on. And, oh yeah: Google has also had its fair share ofaccusations about dealings with the NSA.

7. Hooked on Googlesoft

Want to get people to use your stuff and forget about going with the competition? Just pile some basic tools into your platform that are handy and free. Microsoft first bundled Internet Explorer with Windows to battle Netscape. Other tools packed into Windows include MSN Messenger, WordPad, and integration with Hotmail–and who can forget MSN Explorer for that AOL-like experience? Google has taken Microsoft’s free-software strategy to the extreme with Google Docs, Gmail, Google Translate, Google Voice, Calendar, and Google Maps turn-by-turn navigation in Android. Google has also been accused of favoring its own products–such as Google Maps and YouTube–in its search results.

8. Competition Crusher

A tweak in Google’s algorithm can send online businesses reeling from a significant drop in Web traffic. This is part of the reason the European Commission is looking into Google’s search practices following antitrust complaints from sites such as price-comparison service Foundem and French law-related search tool eJustice. Microsoft’s tactics, in its heyday, were far more aggressive: For example, the software giant was accused by RealNetworks of pressuring PC makers not to install RealNetworks software on Windows PCs by default. And IBM said Microsoft pressured manufacturers not to offer computers running IBM’s OS/2 system.

9. Me-Too Products

Despite each company’s dominance, both Microsoft and Google have tried to insert themselves into business areas that have never quite worked out for them. After TiVo was introduced, Microsoft attempted to break into the DVR market with its own version called Ultimate TV. Microsoft’s Virtual Earth mapping program followed Google Earth, and the Zune MP3 player followed Apple’s iPod.

Google, meanwhile, has been desperate to get into the social networking game, with products such as Orkut and Google Buzz. Both have managed to grab only a niche audience. Whether it can compete against Apple’s Apple TV or Roku’s set-top box with its own Google TV remains to be seen.

(See: “Top 10 Google Flubs, Flops, and Failures“)

10. Brain Drain

Once upon a time, every software engineer wanted a job at Microsoft. It was the “it” place to work, thanks to the company’s healthy compensation packages and exciting projects. Google eventually overtook Microsoft as a desirable place to work, offering perks such as free laundry rooms, dry cleaning, snacks galore, recreation rooms, bouncy balls for work stations instead of chairs, and the much-ballyhooed 20 percent time for working on experimental projects.

(See: “Visual Tour: Visiting the Googleplex“)

Change is in the air now, though, and Google is steadily losing employees to the new “it” place to work: Facebook. Google Wave creator Lars Rasumussen and former Google exec turned Facebook COO Sheryl Sandberg are just two high-profile examples of people leaving Google for Facebook. Things have reportedly become so bad that Google is trying to retain its employees with bonuses and pay raises.

The tide appears to be turning in favor of Facebook. And that prompts one question: If Google is the new Microsoft, is Facebook the new Google?

Who said? Ian Paul, PC World said ;).

Assessing the fate of the ‘Facebook Way’ ;).

Facebook CEO Mark Zuckerberg’s strategy of maintaining a start-up attitude has persisted even as his company becomes massive.

(Credit: James Martin/CNET)

We didn’t always want to admit it, but in 2010 the world accepted that Facebook–the company that introduced us all to such mundane pursuits as photo tagging, virtual farmsteads, and the voyeuristic tracking of the lives of people we only half-knew in high school–has changed the world.

Yet Facebook has also begun to pioneer something different: a corporate structure and philosophy intimately tied to the mind of its young CEO, Mark Zuckerberg, and the company’s roots as a tiny cadre of coders in a college dorm. We’ll call this “the Facebook Way.” And in 2011 as Facebook continues to grow bigger (it kicked off the year with a $500 million investment from Goldman Sachs and Digital Sky Technologies, after all), we may get an answer to the question: Will the Facebook Way continue to work? Will this turn out to be one of the great business philosophies that other companies emulate, or will it prove to be a consequence of a still-young company’s own naivete?

Rooted in a belief that there is something almost magically advantageous about the earliest and most difficult days of a company’s history, Facebook has fought to maintain the feel of a small start-up, combating the potential for corporate sprawl and carefully constructing an environment that embraces minimalism to the point of forced scarcity. The Facebook way has meant that the company has staved off thus far what many predicted would be an inevitable transformation into a corporate behemoth–out with the beer pong, in with the suits.

“It really doesn’t feel like it’s a large organization at all,” said Facebook product manager Justin Shaffer, who joined the company when it acquired a start-up he founded, Hot Potato. “It really runs like a start-up. From the outside, looking in, I couldn’t full appreciate it until I got here.”

In November, when a Reuters report detailed a Google “hiring spree” of 2,076 job openings, Facebook representatives were quick to point out in conversation that this was a higher count than the total number of employees at Facebook. And the company, according to a chat late last year with Chief Technology Officer Bret Taylor–who joined Facebook when it acquired his company FriendFeed, which he’d left Google to found–plans to keep its engineers in Silicon Valley rather than opening an extensive network of satellite offices because Facebook likes to house its coding resources in one place. An engineering center in Seattle that Facebook opened in the middle of last year is dedicated to operations other than central product development, Taylor explained.

Plus, as has been famously documented over the past few months, CEO Mark Zuckerberg’s strategy for hand-picking ace developers and product managers hasn’t been turning to the ranks of a Google or Microsoft, but rather to purchase small start-ups specifically for the talent of a few engineers there. Many of the heads of those start-ups had previously bailed on big companies, making their return to a big company seem puzzling at first. None of these companies–Hot Potato, FriendFeed, Drop.io, Divvyshot–had experienced rocketing success, but none of them were old enough to pronounce dead in the water. Unlike Google, which has been known to turn acquisitions into products (Writely became Google Docs, GrandCentral became Google Voice, Android became…Android) these purchases were for the people behind them, not the products. All of them have since been shut down, with the exception of the larger FriendFeed, which Bret Taylor said had just enough loyal users to make it worth keeping around (though with development halted).

This led to some serious criticism of the Facebook Way. Was Zuckerberg’s strategy effectively snuffing out innovation before it happened, giving talented but challenged entrepreneurs a “get out of jail free” card and some sweet pre-IPO stock options?

Facebook employees who have experienced both massive dot-com environments and tiny start-ups hint that the Facebook experience is more similar to the latter. “When I started at Google, Google was about the same size that Facebook is now, and I was there as it grew to, I don’t know, 25,000,” said Carl Sjogreen, a former Google employee and member of Facebook’s platform product management team. He’d been at the helm of a start-up called NextStop in between the two; Facebook acquired it, shut it down, and brought Sjogreen, his co-founder, and a third engineer on board.

“One of the things that’s been really striking for me is that Facebook feels much more like a ‘large start-up’ than a ‘small big company,’ which makes the transition much easier from running something on my own.” 

— Carl Sjogreen, Facebook, member of platform product management team

“I saw that transition, and then went to the other extreme of a six-person start-up, and am now kind of back to a larger company,” Sjogreen continued. “But one of the things that’s been really striking for me is that Facebook feels much more like a ‘large start-up’ than a ‘small big company’ which makes the transition much easier from running something on my own.”

Two years ago, pundits were wringing their hands over Facebook, looking at the then-unprofitable company’s finances and the tumultuous financial climate, with many suggesting that it was time for Zuckerberg to step aside in favor of a more seasoned CEO. There appeared, too, to be friction at the company as some of its experienced leaders–former Amazon exec Owen Van Natta (who had thought that Facebook should sell early), ex-YouTuber Gideon Yu–departed after suspiciously short tenures. But had Zuckerberg listened to any of these critics and stepped aside, the Facebook Way likely never would have taken root as a stable, post-start-up corporate culture, and the company quite likely couldn’t have experienced the success that it can now boast.

While Zuckerberg has filled the business operations ranks of Facebook with more big-company veterans, like Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman, he’s filled Facebook’s engineering team with like-minded people, those who struck out on their own and persisted even when they could have enjoyed a more comfortable, predictable lifestyle inside a massive technology company. He needed to repopulate his inner circle. Partially because of second-market trading that let early employees cash out rather than stick it out because of an IPO on the horizon, some of the CEO’s closest confidants resigned; Zuckerberg’s original co-founders, for the most part, had already departed. Luckily, he found plenty of takers.

“I think it’s just culture. It’s sort of obvious, not that it wouldn’t be, but if you look at how Mark grew up, his hacker culture and lifestyle is deeply embedded, born right out of a dorm room at Harvard,” Justin Shaffer said. “I’d pretty naturally stay up until 5 a.m. writing code if I didn’t have other obligations…(working at Facebook) really just feels like an extension of that. I had been here for probably about a month before we had a hackathon.”

Ah, the hackathon, the official sport of the Facebook Way, that company cultural institution in which engineers crack open the Red Bulls, order Chinese food in bulk, and engage in a sort of mindset that mimics Zuckerberg himself in Facebook’s early days. They devote an entire all-nighter to the art of the “hack”–a word emblazoned on Facebook headquarters’ front doors, a mantra intended to connote the Facebook developer’s devotion to coding forcefully and competitively so as to produce real change with limited resources. The hackathon has become part of Facebook’s public persona, too: A bigger, fancier version of the event was how Facebook chose to initially debut its third-party developer platform in the spring of 2007.

In hackathons, the input of the individual Facebooker is emphasized. “I was like, ‘I think we need Groups on the iPhone now,’ so literally in one night we wrote the whole Groups interface,” Shaffer, who had been tasked with the Facebook Groups revamp upon arriving at the company, said of his first hackathon.

“Hack” also implies a sense of control and manipulation over something much bigger than the individual doing the hacking, the both humbling and prideful idea that he or she is wrestling with a significantly larger problem or concept, and a triumph of the small and innovative over the established and stodgy.

“I think the No. 1 challenge in a start-up is building the best possible thing you can build with almost everything stacked against you. You have less money, less people, less clout, less marketing resources,” Carl Sjogreen said. “There’s a sort of honesty in making tough prioritization decisions. I think it’s a very healthy attitude even inside a larger company. I think it’s rare, the examples are rare, where more people working on stuff has in and of itself led to a better outcome or product. There’s just a clarity of purpose in not having enough people to do the job.”

New year could bring new challenges
It’s a valiant mission statement. But in 2011, the Facebook Way will invariably face new challenges and Zuckerberg’s team will have to work much harder to make their philosophy work, not just their product.

For one, even with Facebook’s billion-dollar valuation and rising ad revenues, the “acqui-hire” model that’s brought Zuckerberg so many fellow hacker-entrepreneurs can’t keep pace with the rest of the company.

“It’s not sustainable, long-term,” said Alan Chung, the founder of a software start-up called Zenbe, pointing to the financial premium that comes with paying millions of dollars to effectively hire a few engineers. Under Chung’s auspices, Zenbe sold the intellectual property from its Zenbe Mail product to Facebook last summer along with three engineers, and saw some of the talent worked into the Facebook Messages overhaul that was launched in November.

Current Facebookers insist that the company will find a way. “I do know Mark (Zuckerberg) has talked about this publicly as a part of our recruiting process, as bringing entrepreneurial folks inside the company, and I don’t see any reason why that wouldn’t continue,” Carl Sjogreen said.

Further complications may stem from the fact that while the Facebook Way may work for Facebook’s engineering core, minimalist resources don’t translate to other areas of the company particularly well–especially those where tight relationships with third parties are involved. You can’t really use “hack” as a mantra for advertising sales or, heaven forbid, the legal team. Thus far, Facebook has kept this at bay through the use of satellite offices: A New York sales office that could house as many as 600 employees is expected to open soon, and Facebook’s public relations and marketing teams in its Palo Alto, Calif. headquarters are housed in a separate building from engineers.

But, invariably, more and more engineers will need to be hired, and Facebook will find it more difficult to maintain a start-up atmosphere. A Time magazine profile of Zuckerberg when he was named 2010’s Person of the Year revealed that Facebook is already looking to a bigger office space, a campus rather than a single building. It may be very soon: “We are exploring options for a long-term location to fit our growing business needs,” spokesman Larry Yu explained to CNET via e-mail last month. “We are in the due diligence phase on one potential site, but it would be premature to offer any specifics.”

And Facebook, to attract the best engineers, has to remain talked-about as the best place to work, particularly as stock option packages grow thinner. Though it’s adopted many of the industry perks that Google made famous–free meals for all employees, for example–Facebook’s rise has marked a shift in Silicon Valley engineer culture from its predecessor in all things digitally innovative. At the matured Google, prospective engineers are presented with a company with a scattered suite of products and endless resources. They’re faced with a culture that has always emphasized wheatgrass smoothies over Red Bull, even in its younger and more “hack”-worthy days, where pet projects outside of the Google behemoth are encouraged, and where being an engineer means being a tiny, intricate part of a sprawling complex that, bit by bit, is indexing the entire world. (It should be pointed out that Google’s most public attempt to build an “in-house start-up,” Google Wave, flopped after several months. Its lead developer has jumped ship to Facebook.)

In a decade, or half a decade, the engineer attitude in Silicon Valley may shift again. It may shift away from Facebook’s caffeine-induced, harder-better-faster-stronger pulse and back to a more intellectual developer culture in which Ph.D.’s are preferred over brilliant young renegades. Or it may do something totally different. And the Facebook Way as we know it may reach the end of its path.

Or Zuckerberg may persevere in his belief of hacker-above-all, and his team may find a way of continuing the excitement and change-the-world attitude of the Facebook Way even if it reaches a point where it seems like there is nothing left to conquer. Should this be the case, a young CEO who has consistently bested expectations will have “hacked” yet another problem that few thought he could.

Who said? Caroline McCarthy said ;).

Diaspora: First Peek At Facebook’s Challenger ;).

When word began to circulate aboutDiaspora, the hype about it being a potentialFacebook killer took on a life of its own before a single line of code had been released. Now the first developer’s alpha version of Diaspora is out in the wild, and the hype is being replaced with scrutiny and well-deserved skepticism.

 

Facebook Bible: Everything You Need to Know About Facebook

Its creators claim Diaspora to be a “privacy aware, personally controlled, do-it-all distributed open source social network” — and maybe someday it will be. But there are more pieces missing than in place, and Diaspora has a long and rocky road ahead if it wants to achieve even half of its stated goals.

To be charitable, this is still a very early version of the software, and here and there it does offer insights into how Diaspora is meant to work.

The concept behind Diaspora is simple. Instead of interacting with a single, centrally controlled social networking service like Facebook or Twitter, you set up and work with a “seed” — a copy of the Diaspora code running on a server you control yourself. It’s like hosting a copy of WordPress on your Web space to run your blog, instead of using Blogger or another third-party service.

Users on different seeds can friend each other, automatically exchange data (messages, status updates, pictures, etc.) and enjoy automatic end-to-end encryption of message traffic. They will also have rigorous control over how much information they share with others.

It sounds great in theory, but right now very little of this has been implemented in practice.

Diaspora’s building blocks

Diaspora is written in Ruby and uses a few non-Ruby pieces — the MongoDB database and theImageMagick image processing library, for instance. The setup instructions favor Ubuntu Linux and Mac OS X, so rather than wrestle with my hosting provider (which doesn’t support MongoDB), I installed a clean copy of Ubuntu 10.04 on a virtual machine and set things up there.

The entire process, including downloading the Diaspora source and the needed support files, took about half an hour. Trying to set up an instance of Diaspora will be rough going unless you’re comfortable working with the command line in Linux and you know your way around Ruby and the Git source codeversion control system.

Once I got my own seed running I created a few local users and experimented with the user interface. Every user can create and manage multiple “aspects,” which are a little like Facebook’s friend groups. When you assign a friend to one of your aspects, they see only what you post to that aspect. (It’s also possible to post to all aspects at once.) The message streams and conversation threads are blatantly Facebook-like, but that’s not a bad idea: Why reinvent a perfectly good, familiar wheel?

I also ran into a few bugs, which was expected. Some were innocuous, like the error message that you see when you click on your own user profile image. Others were a little more problematic, like the way users on the same node can’t see each other’s updates even when friended to each other.

Right now it’s not possible to do a whole lot with a Diaspora seed. You can post status messages and pictures to aspects, upload images to a gallery, write replies to other people’s messages, manage your own aspects and profile, and make friend requests from other Diaspora seeds.

And that’s about it, since most of the work at this stage is about infrastructure and not end-user features. Some of that laps over into user features, though, like the forthcoming ability to scrape or republish streams from Facebook, Twitter, Flickr and so on. But it’s clearly going to be a long time before the bulk of features added to Diaspora are of direct interest to regular users.

Problems to be solved

Right away, I can see several major problems with Diaspora that need to be addressed before its own creators can even think about promoting it as a social networking solution. The first, and in my opinion biggest, is the lack of useful documentation. Diaspora’s behaviors and internal protocols need to be documented apart from the source code itself, so that others can create their own implementations –their own clients, their own Android apps, even their own Diaspora-integrated Facebook widgets — without relying wholly on Diaspora’s own code. If the docs are out there somewhere, I can’t find them. (I had the same problem with Google’s VP8 video codec earlier in the year: the spec consisted ofGoogle‘s reference implementation code, which is never a good idea.)

Another potential problem is Diaspora’s component stack. Many hosting providers do support Ruby but few support MongoDB, which would make setting up a public Diaspora instance a lot tougher for your average Web host.

A third issue is that open-source social networking has been around in one form or another for a while now, even if its previous implementations haven’t been getting the same degree of attention as Diaspora. Some examples include BuddyPress (which has been out since May 2009 and which works with WordPress, GNU Social and StatusNet (which is the basis for the micro-blogging site identi.ca.

So although Diaspora is starting from a clean slate and with a slightly different set of goals in mind, it means less re-use of existing work already accomplished by others.

Conclusions

Let’s face it: there’s a romance to the idea of a gang of upstarts sticking it to Facebook by creating a competing platform that’s inherently open, private and decentralized. There’s little argument that Facebook could use competition from different directions, if for no other reason than to pressure it into being less monolithic and cavalier.

But Diaspora won’t make that happen automatically. It already has some degree of competition from elsewhere in the open source world, too. And it’s a long way towards being anything the average user can try out, let alone rely on.

Still, it’s quite early in the development process. The finished product might not resemble this early version in the slightest, either in its architecture or its deployment method. And, again, it’s exciting to see people trying something this radical with nothing more than their own enthusiasm to power them.

You can download Diaspora’s code at its Web site joindiaspora.com.

Who said? Serdar Yegulalp said ;).

Facebook Bible: Everything You Need to Know About Facebook ;).

Facebook How-Tos and Tips

Facebook Quick Tip: Clean Up Your News Feed

Your Facebook News Feed can get littered with a lot of junk: annoying FarmVille updates, friend confirmations and inane fan page announcements. Here’s how to take control and see only what you want.

 

Facebook Tips: How to Stay Safe While Using Games and Apps

The maker of the popular FarmVille game has agreed to change its practices that subjected Facebook users to some scammy offers. But the more games and apps that you use on Facebook, the higher your risk for malware, phishing scams and hacking. Here are four tips for staying secure.

 

The New Facebook: Three Easy Tips for Sorting Through the Noise

Thanks to Facebook’s recent redesign, a massive amount of content continually flows down the middle of your Facebook homepage. How can you keep up with it, never mind find the bits you really want? From Friend Lists to RSS feeds, here are three great ways to ignore what you don’t want and find what you do.

 

How to Improve Your Facebook Profile: Play it Smart With Friends and Potential Employers

Think LinkedIn is the only social network that potential employers use to find and judge you? Wrong. Here’s how to improve your Facebook profile to be more considerate to your friends, plus play it safe and smart with present and future work colleagues.

 

Facebook Etiquette: Five Dos and Don’ts

Facebook and other social networking sites can create an uncomfortable overlap between your personal and professional life. We show how to manage your Facebook profile so it can work for both business and pleasure.

 

Facebook How-To Tip: Do Damage Control on Unwanted Photos

While it’s easy to control what information ends up on your Facebook profile, you can’t control someone from posting a photo of you (even the not so flattering ones). In this Facebook tip of the week, we look at how you can minimize the damage.

 

Facebook How-To Tip: Manage Applications on the New Facebook

Confused by all those new tabs in Facebook? In this Facebook tip of the week, learn how to manage Facebook applications wisely and ditch apps that you no longer want.

 

Facebook How-To Tip: Manage E-mail Notifications

In this Facebook tip of the week, learn about e-mail notifications, how to set them, and the important option that can help you stop damage from photos before it starts.

 

How to Move Photos from Picasa to Facebook

If you have Google’s (GOOG) free photo-editing software Picasa, and you also use Facebook, it’s easy to connect the two. In this Facebook tip of the week, we show you how to upload photos to your Facebook account from Picasa and share them with friends.

 

Facebook’s New Search Engine: What You Need To Know

Facebook just made changes to its search tool that take clear aim at making the social network an alternative to Twitter for real-time conversations. But the best news is more the ability to search for content in your Facebook network of immediate friends.

Facebook Analysis

 

Facebook Preps 2-D Bar Codes That Work With Cell Phones

QR codes, or 2-D bar codes that work with cell phone cameras, could change the way we use Facebook. But would you use the tech?

 

Facebook’s New Delete Account Option: When You Need Out

Facebook has made many privacy changes to appease users, the newest of which makes deleting your account easy. Is it enough?

 

Facebook Privacy Flap: It Takes Two to Make This Right

Facebook users want communication. Facebook execs act without thinking. Grow up: Both sides must work to fix the relationship.

 

Facebook’s 4 Big Rivals in Location-Based Technology

Facebook is jumping into the location-based services game, but who else looms large on the radar? Here’s how Foursquare, Gowalla, Whrrl and MyTown stack up.

 

Facebook Unveils New Batch of Updates, Features

Forget the summertime lull. From new mobile privacy settings to revamped photos, Facebook has been busy rolling out updates and even releasing a few new features. Here’s what you need to know.

 

Why CIOs Should Be On Facebook

When it comes to Facebook and LinkedIn, don’t pick one or the other. CIOs and other business leaders should be on both.

 

Facebook and Twitter: Making Money Takes Back Seat to Growth Even in Economic Recession

Executives from Facebook and Twitter told Web 2.0 Summit attendees they were focused on growth and helping their users–rather than making money–despite the faltering economy.

 

LinkedIn vs. Facebook: Is the “Boring” Underdog Poised to Beat Its Flashy Competitor?

Despite the spotlight on Facebook and its massive user base, the social network’s more professional competitor, LinkedIn, is poised for profitability and more immediate financial success. Analysts also say investors see revenue potential for LinkedIn that extends beyond advertising.

 

The Fragile Facebook Economy: Developers Struggle As Rules Change

Among the more than 650,000 developers who make a living in the ecosystem around Facebook, resentment is brewing. A redesign to the service several months ago has made it tougher to recruit new app users and make money. But Facebook says third-party developers will play a big role in the future.

 

Facebook Redesign: May Earn Thumbs Down from Ordinary Users

Facebook’s new redesign, which rolls out to users in the coming weeks, will probably please social media evangelists and power users. But Joe Facebook? He may not like the new look as much.

 

Facebook Connect: What’s Next for Your Facebook Info?

As more third-party websites sign onto Facebook’s Connect program, early data shows those sites are reaping traffic and registration spikes. While Facebook has proceeded carefully with the handling of Connect users’ personal data, analysts say the social network would have greater business opportunities if it could gain access to more data at partner sites.

Facebook Privacy

 

Facebook Privacy Settings: Recommended vs. Custom

Facebook’s latest privacy revamp streamlined and simplified settings by introducing a new one — “recommended settings” — but it’s not for everyone. Here’s what you need to know about it and how to decide if it’s right for you.

 

Facebook Privacy Fixes: Your Guide to the Newest Changes

After weeks of feeling the heat from disgruntled users, Facebook founder Mark Zuckerberg announced three new privacy settings that will roll out gradually to the public. Here’s what you need to know.

 

Facebook Privacy Fix: New Tool Finds Trouble Spots

If Facebook’s ever-more-complex privacy settings leave you scratching your head, try this new tool that simplifies it with one click.

 

Facebook Privacy Changes:5 Can’t-Miss Facts

Keeping track of Facebook’s updates — and what they mean to your privacy — can be daunting. We’ve demystified this week’s changes and created step-by-step instructions for tweaking five privacy settings that need updating now.

 

Facebook Tips: How to Stay Safe While Using Games and Apps

The maker of the popular FarmVille game has agreed to change its practices that subjected Facebook users to some scammy offers. But the more games and apps that you use on Facebook, the higher your risk for malware, phishing scams and hacking. Here are four tips for staying secure.

 

Facebook’s Upcoming Privacy Changes: What You Need to Know

Think you’ve already ensured privacy on your Facebook posts? The social networking service is changing the privacy rules again. Here’s a guide to the new settings and options.

 

Facebook Privacy: More Control for Users, Less Freedom for App Developers

Facebook recently announced that it will make more changes to its privacy settings and set tighter control over what pieces of data third-party applications can access.

 

Facebook’s Chief Privacy Officer: Balancing Needs of Users with the Business of Social Networks

Facebook has built out some of the most sophisticated privacy settings for any social network. But CIO asked Chris Kelly, Facebook’s chief privacy officer, are people actually using them? And if they are, what effect does that have on Facebook’s business model?

Facebook Apps

 

Facebook Tracks Gross National Happiness: How Content Are We?

What were the happiest days of the year? Facebook’s tool reveals highs and lows throughout the last two years.

 

7 of the Most Bizarre Facebook Apps

Facebook has been branded by many as a notorious waste of time, and welcoming these seven apps to its collection certainly hasn’t helped its reputation. From photo-altering apps to random name generators, Facebook’s Application Directory is chock full of absurd add-ons.

 

4 Facebook Productivity Apps — Yes, Productivity

Think Facebook and productivity don’t go together? Facebook time does not always equal wasted time. These four Facebook apps help you streamline and simplify your browsing, share documents with Facebook contacts and more.

 

4 Facebook Apps That Add Professionalism to Your Profile

Facebook doesn’t have to be all fun and games. Check out these business-focused applications that give your friends–and potential future employers–a glimpse into your on-the-clock life.

 

8 Must-Have Facebook and Twitter Add-Ons

You can solve several of your top gripes with Twitter and Facebook by using free, downloadable tools. For those days when you see the glass as half-empty, one tool tracks when people “unfriend” you.

 

Facebook Apps All Grown Up: Four to Watch

Down in Palo Alto this week, CIO.com’s C.G. Lynch examined a slew of start-ups that have built cool features into apps and services that allow people and businesses to utilize Facebook for more than just games. Here are his favorites.

 

Facebook How-To Tip: Manage Applications on the New Facebook

Confused by all those new tabs in Facebook? In this Facebook tip of the week, learn how to manage Facebook applications wisely and ditch apps that you no longer want.

 

Facebook How-To Tip: Manage Applications on the New Facebook

Confused by all those new tabs in Facebook? In this Facebook tip of the week, learn how to manage Facebook applications wisely and ditch apps that you no longer want.

 

Facebook Tips: How to Stay Safe While Using Games and Apps

The maker of the popular FarmVille game has agreed to change its practices that subjected Facebook users to some scammy offers. But the more games and apps that you use on Facebook, the higher your risk for malware, phishing scams and hacking. Here are four tips for staying secure.

Who said? Kristin Burnham said ;).

Why a Facebook Phone may not be nuts ;).

A Facebook-branded smartphone isn’t as crazy as it sounds.

Before you mock that conclusion (as our editor did at first), hear us out: a branded smartphone could be the social-networking king’s key to competing more aggressively with Apple and Google as the Internet heavyweights take turns competing, cooperating, and causing one another fits.

Of course, Facebook has been denying reports that it’s building its own branded cell phone. Facebook execs say it’s doing nothing more than working closely with handset partners, but CNET has confirmed that the social network has reached out to hardware manufacturers and carriers seeking input on a potential Facebook-branded phone.

Though it’s still unclear exactly what, if anything, Facebook is cooking up, the two big questions many people are asking are why would the company even consider such a move and what are its chances of being successful?

Answering the first question is easy. The mobile market is important for any company doing business on the Internet because that is where the eyeballs are. There are close to 5 billion cell phone subscribers worldwide, according to the International Telecommunications Union. About a billion of them will be using a device on a wireless broadband connection by the end of 2010. And that number is quickly growing.

For companies like Facebook and Google, which have based their businesses on Internet advertising, more eyeballs often translate into more money.

It makes sense that Facebook would be looking to tap the fast-growing U.S. mobile advertising market, in which both Apple and Google have recently made significant moves, according to eMarketer. Mobile advertising spending in the U.S. is expected to grow 42.5 percent to $593 million this year, up from $416 million in 2009 and $320 million in 2008. By 2013, the mobile ad market in the country is expected to reach an estimated $1.5 billion.

And so it’s easy to see that Facebook’s apparent interest in developing or sponsoring the distribution of mobile handsets may be tied closely to the company’s faith in the potential of mobile platforms. Facebook is already the most popular application on smartphones in the U.S., according to Nielsen.

More than 50 percent of all iPhone, BlackBerry, and Android phone subscribers use the Facebook application regularly, Nielsen recently reported.

According to internal Facebook statistics, more than 150 million out of Facebook’s 500 million active members access the social network on mobile devices, and Facebook mobile applications are “deployed and promoted” by more than 200 mobile operators in 60 countries. Most promisingly, Facebook has said that these mobile users are twice as active on Facebook as non mobile users.

But smartphone apps alone may no longer suffice. Facebook has had trouble deeply integrating the Facebook service and features into some mobile platforms. While Research In Motion and Palm have each embraced Facebook, others such as Apple and Google have not.

For example, Apple’s iPhone still has no deep Facebook integration. And Apple is actually launching its own social products, such as the Game Center and a music social network it calls Ping.

Google has also not fully embraced Facebook. Even though Android is an “open” platform, none of the manufacturers developing phones using the Android OS has released significant Facebook integration. Still, millions of people are downloading and using the application.

Meanwhile, RIM is including Facebook status updates in its messaging platform on the new BlackBerry Torch. And Palm natively integrated Facebook friends as part of its contact list.

It’s clear that deeper Facebook integration is not sending these devices off the shelves, but Palm has noted that its Facebook ties have gotten positive feedback from users and reviewers. And HP, which now owns Palm, will continue to keep the Facebook integration in the next iteration of software.

Still, Apple and Google are major players each with their own mobile ad networks and payment systems. And they’re not looking to share any of the spoils with Facebook. As a result, Facebook, the largest social-networking platform on the Internet, has been relegated to a developer role. And that may not be good enough for Facebook’s ambitions.

There have been other hints that Facebook is looking to take a greater stake in the mobile market. The revamped iPhone app that Facebook launched last year seemed structured to imitate a mobile operating system in itself, perhaps facilitating the addition of third-party applications. This summer, it added Facebook Places, a geotagged “check-in” service in the league of

Foursquare and Loopt, to its suite of smartphone app features.

“Google underestimated what it takes to market and support a hardware device.”

–Charles Golvin, Forrester Research analyst

Around the same time, the company purchased a start-up called Hot Potato, which brought the “check-in” craze beyond merely logging presence at physical venues and instead encouraged users to spread real-time information about events and activities. Upon completing the acquisition, Hot Potato announced that Facebook would be shutting it down. Founder Justin Shaffer, the real reason for the buy, has joined Facebook; sources suggested at the time that his focus would either be to help build out the Facebook Places geolocation service, which had just launched, or to revamp its Events product. Given his mobile expertise, it’s easy to imagine that his likely role as part of Facebook Events would be to retool the limited product for mobile use.

Another factor to consider is the still-expanding Facebook Credits, the virtual currency that the company finally began to roll out last year. Credits is now the standard currency in many of the biggest and most popular games on Facebook’s developer platform, and given sunny predictions about mobile commerce, bringing Credits to mobile is a likely forthcoming step.

But as with so many other Facebook projects, bringing the Credits system to Facebook’s mobile apps would be heavily limited by handset, carrier, and operating system restrictions. Launching its own mobile handset or operating system may be one strategy that the company has explored to combat these inevitable roadblocks.

Could a Facebook phone succeed?

Now on to the second big question about a Facebook phone: what are its

chances for success?

It’s hard to say, but it’s clear it wouldn’t be an easy road for Facebook. Other companies have tried and failed to build their own branded cell phones. Google’s Nexus One phone and Microsoft’s social-networking Kin phone, both of which launched earlier this year and lasted only a few months on the market, serve as cautionary tales for Facebook.

Google launched the Nexus One in January. But by summer, it abandoned hopes of making the device a mass market hit, and it stopped selling it. Google’s biggest mistake was that it didn’t work with carriers to distribute the device. The company expected customers to pay full retail price for the phone. And Google only offered the device online. But few customers bought the device, teaching Google and others the importance of carrier distribution.

“Google underestimated what it takes to market and support a hardware device,” said Charles Golvin, an analyst with Forrester Research.

As for Microsoft’s Kin, which more closely parallels a possible Facebook phone, Microsoft tried to build a social-networking brand out of thin air. The company had worked on the phone for years and decided to target the always-connected teen market with a high-end feature phone. But the phone was a huge disappointment from the start, and after having the device on the market only two months, Microsoft discontinued it in June.

The lesson with the Kin is that Microsoft went for the midrange market. The device was neither a cheap feature phone nor a full-fledged smartphone. Though this mid-tier market still exists, consumers are quickly bypassing advanced feature-phones and upgrading straight to smartphones, as wireless operators make data service plans more affordable.

The major advantage that a Facebook phone would have over the Kin is the fact that Facebook is already a hugely popular brand. As mentioned before, there are 500 million Facebook users and about 150 million already using the mobile Facebook application. And it is already the most popular application on many smartphones. For many consumers, Facebook is social networking.

Still, building a phone is no easy task, nor is it inexpensive. The most cost-effective path for Facebook if it builds its own phone would be to work with a handset maker, such as HTC, and use the Google Android OS as the basis for the device. This would allow Facebook to develop a phone quickly.

This could present challenges on a couple of different levels. First, Google may view Facebook as a competitive threat, which could make a relationship between the two companies sticky. Secondly, to get the level of integration that is necessary for Facebook to make its smartphone stand out against competitors using the same Google Android OS, the company would likely have to sacrifice some Google applications and standard Android features.

And this might mean that a possible Facebook phone wouldn’t be able to access apps in the Android Market.

Even though Facebook may be the most used mobile app on most smartphones, it is not the only application that consumers are interested in.

“Basically, Facebook would have to sacrifice a lot of the cool applications that come on an Android phone that many consumers want,” said Ross Rubin, an analyst with NPD Group. “And I’m not sure that the deeply integrated Facebook functionality would be enough to win over consumers if these other features are missing.”

Even if Facebook is able to build the new phone, Forrester’s Golvin said that’s only one piece of the bigger puzzle. Facebook would still need strong relationships with wireless carriers to distribute the device. And it would have to work out a retail strategy, likely offering the phone in places such as Best Buy.

“These are all things that Facebook knows nothing about today,” he said. “And getting all of this in place is not insignificant, and it’s expensive.”

“Google underestimated this when it went to market with the Nexus One,” he said. “And they got hammered. I think it’s fair to say that Facebook as a private company doesn’t have the same level of capitalization that Google has. So it just seems like an awfully big risk.”

Who said? Marguerite Reardon + Caroline McCarthy said ;).

Can you trust Facebook Places? ;).

How long will it be before Facebook’s new check-in service, Places, starts sharing your movements with the world?

Facebook, the company many people don’t trust to protect their status updates and personal information, is now in the business of collecting location information, thanks to the introduction of its Foursquare/Gowalla killer, Facebook Places.

Like those other services, Facebook Places will let you “check in” to various spots in the real world via cell phone (mostly iPhones, at first), tell your friends where you are, and see if any of them are there too.

[ Get the spin on key tech news that you’ll find nowhere else at InfoWorld’s Tech Watch blog. | For a humorous take on the tech industry’s shenanigans, subscribe to Robert X. Cringely’s Notes from the Underground newsletter. ]

So not only does Mark Zuckerberg know who you are, where you live, what school you went to, what religious and other affiliations you have, and what you think on a daily or even hourly basis, he also knows where you like to drink $4 double mocha frappuccinos and eat McFatty burgers.

Don’t look now, but some sweaty billionaire in a hoodie is following you.

Remember, Zuckerberg is the guy who once called other people “dumb fools” for sharing their email and photos with him (only he didn’t use the word “fools”). He also more recently opined:

People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people. That social norm is just something that has evolved over time.

Of course, just like Facebook itself, nobody is forcing you to use Facebook Places, just as you aren’t forced to use Foursquare, Gowalla, or any of the other location check-in services Places is about to crush.

And this time out, Facebook is being a little bit smarter about privacy. By default, location check-ins are limited to people in your friends list, though you can change the setting to “Everyone” if you feel like it. You can get more granular by using Facebook’s lists feature to create groups of friends who can — or can’t — view your check-ins. Your friends can “tag” you as also being at a location, but you’ll have to approve the tag before they can broadcast your location to anyone else. Once you say yes, though, they can tell the world where you are whenever they feel like it, until you opt out.

Everything’s copacetic, right? Well, not exactly. Facebook has a “Here Now” feature that tells you which other Places users are checked into the same location as you, regardless of whether they’re your friends, and vice versa. That option is enabled by default. Don’t like it? You can turn it off, but you can’t adjust it so that only your friends can find you Here Now.

As the ACLU points out, Facebook applications and third-party sites using Facebook Connect can also access your location info. You’ll have to dig into Facebook’s less-than-crystalline privacy settings again to shoo them away.

And then Gartner analyst Ray Valdes asks about this edge case:

What if a place changes ownership? What if there is a restaurant that users check into, that later becomes a strip club, without changing its name? (Your history of checkins would become a social liability.)

Honey, Miss Kitty’s House of Bondage and Domination used to be a burger joint, I swear. I only went there for the fries.

The answer from Facebook? We don’t know yet, we’ll figure it out later. Nice.

The Electronic Frontier Foundation’s Kurt Opsahl points out the obvious threats:

Like all location products, the new application publishes potentially sensitive information, since a stream of information on location can provide a detailed picture of your life. Some locations might appear cool at one moment, and yet become something you’d rather forget the next. Your Facebook friends may include prolific bloggers, business competitors, and former lovers. For business and personal reasons, you might need to keep your location private from them. And, as pleaserobme.com effectively illustrated, revealing your location can also reveal sensitive information about where you are not.

Remember also, that the phrase “Facebook security” has become a modern oxymoron. Over the past few months, a half dozen hacks and security flaws have been uncovered that reveal information Facebook assured us was private and protected. Will our location data really be any different?

Personally, I’ve never really understood why people use these location services or the sudden endorphin rush they seem to get when they’re proclaimed “mayor” of a site for checking in most often. I can totally understand why advertisers and merchants would want this information, though.

And what a boon for law enforcement. All they’d need is a warrant to get a detailed history of your movements, or a wiretap order for Facebook to feed them real-time location tracking. Why canvas the neighborhood for witnesses when you can slap a subpoena on Facebook and go out for doughnuts?

Let’s assume you don’t care about any of that and decide to use Facebook Places anyway. Answer me this:

• What assurances do you have that Facebook will be able to keep this information private and secure, if it wanted to?
• When does Facebook decide that “location sharing is the new social norm” and makes all your locations available to everyone by default?
• When does Facebook decide that it will share your location information with a few “carefully chosen third-party sites?”

In short, do you trust Facebook? Given its history, I can’t see why — unless, of course, you’re one of those “dumb fools” Mark Zuckerberg likes so much.

Who said? Robert X. Kringeley said ;).