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Facebook Initiatives Could Challenge Net Heavyweights

Posted on: Sunday, 16 August 2009, 07:05 CDT

Social networking site Facebook could be gearing up to challenge the Web’s leading companies as it moves towards becoming a “utility” that offers users various activities to keep them online for hours.

The five-year-old company recently revamped its search engine, acquired a start-up firm that some say is a Twitter rival, began testing a scaled-down version of its service to expand into international markets and is developing a new electronic payments system that might compete with Paypal.

These moves represent a new phase in Facebook's evolution as the company combines the viral power of social networks with its vast 250 million member base to expand into new markets.

"When you become the site that people spend enough hours on everyday it's very natural to take advantage of that and to become the site that tries to provide all the services that portals provide," said Haim Mendelson, a professor at Stanford University's Graduate School of Business, in an interview with Reuters.

Co-founded by 25-year-old Mark Zuckerberg in a Harvard University dorm room, Facebook could ultimately challenge Web giants such as Yahoo and Google in content and communications, said Brigantine Advisors analyst Colin Gillis.

Facebook’s service, which Zuckerberg calls a "social utility," could also find itself taking on eBay Inc.'s PayPal online payment system and maybe even Apple Inc.'s iTunes for digital downloads, Gillis told Reuters.

"People only do so many things on the Web," said Jeffrey Rayport, founder of the digital media consultancy Marketspace.

"There are a lot of companies that would like to own that set of activities,” he told Reuters.

Facebook was the world's fourth most visited Web site in June, according to figures from comScore.  The company expects to generate more than half a billion dollars in revenue this year, mainly from advertising sales.

The new initiatives are a natural evolution of Facebook, said Facebook’s Vice President of Product Christopher Cox.

However, Cox downplayed the growing overlap between the company’s new search engine and Twitter's search engine, or that of Google.

Facebook's previous search engine mainly sought to help users find other people on the site, but the new version lets users search what others are saying about a wide variety of topics.

The search results are relevant to each person, Cox told Reuters.

"When you're trying to figure out what to eat, or what shoes to buy, or who to vote for, you don't go ask thousands of strangers," he said.

"The Web should reflect that."

The company’s recent acquisition of FriendFeed, which lets users conduct and share searches for content in real time across social networks, gives Facebook another vital asset to expand its search capabilities beyond the site's boundaries.

Google also unveiled a new search engine prototype recently, known as Caffeine, which aims to provide faster, more relevant searches.

"We have many competitors, and we take them all seriously. But what we take more seriously is innovation and making search better,” said a Google spokesman responding to a question about Facebook's search initiatives.

Mendelson said Facebook is not likely interested in a direct challenge to Google’s dominant search capabilities.

But the areas of overlap are increasing, and by boosting its search functionality Facebook could become more competitive with Google, he said.

In addition to its search initiatives, Facebook could challenge PayPal with the new online payments system it is developing.  Indeed, companies like 1-800-Flowers have already established a presence within Facebook, and e-commerce could become more popular on the site.

Cox said software developers who sell applications on Facebook are testing the payments system, but it is unclear whether the company will manage e-commerce transactions across the Web.

"We're really just trying to get our bearings on what the right product is here with a handful of people at this point," Cox said.

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On the Net:

• Facebook

Source: redOrbit Staff & Wire Reports

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