Facebook these days reminds me a lot of Microsoft of yore.
For one, they are taking a platform approach exactly like Microsoft – Facebook Connect is the most powerful and widely used identity platform on the Internet today – as enticing to developers and businesses as Windows was in its heydays. They have succeeded where Microsoft failed (Hailstorm, Passport) as well as the open source community (OpenId). Apparently, 10,000 websites integrate with Facebook everyday and people are even taking the Facebook experience offline! This means that as other companies innovative and create value, Facebook gets richer. Exactly like Windows. IIRC, one of the metrics at Microsoft used to be the ratio of ISV revenue to Windows revenue, the idea being that this ratio should keep going up. Facebook today is in a similar position and benefits similarly from their platform.
Second, they are changing the rules of the game, much like Microsoft did. The model before Microsoft was a single integrated stack and customers had to pay big money for the iron, the software and the services – all from the same vendor – IBM. Microsoft changed this by commoditizing software and opening up the vertically integrated stack. In a similar vein, Facebook changes the game by offering an alternative to Google Search, hitherto the de-facto gateway to the web. A lot of content discovery today happens thru the Facebook News-feed. This means that publishers once again need to target their audience and not just the search engine, which is biased for more frequently changing content and can be, and has been gamed by publishers. This helps the small, niche publisher who would otherwise be lost in the long-tail, never landing on the first page of a Google Search. This is not just about stuff you read, but also about what you buy. My wife’s latest acquisition – a DSLR camera – was entirely based on recommendations received from friends and family, mostly on Facebook. An year back, she would have been searching and going thru review sites. Not that we did not search or read reviews, but the decision was mostly based on recommendations.
Finally, they are using this tremendous leverage to move into markets they find interesting, and much like Microsoft when they decide to move into that market, the incumbents are under threat to becoming irrelevant. This is what happened when they announced the beta of their Q&A system, with Quora and Aardvark coming under threat. This is again happening with Facebook Places and this time Foursquare is under threat. Now one could argue that this is bound to happen anytime the 800 pound gorilla in any industry forays into a market, but this is different. This is about leverage. Google / Apple, despite being larger, would never create the kind of threat that Facebook creates simply because Facebook owns the user like no one else does. Exactly the same as Microsoft owning the PC like no one else. Of course Microsoft was prudent about it – they focussed only on the software bit (where the margins were highest) and deliberately kept away from the hardware and the services businesses to let the ecosystem thrive and drive the platform forward. Facebook would also need to figure out where they want to pursue opportunities and where they would not go.
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