Outside the Lines

Guest post: Frédéric Filloux, editor of Monday Note, which covers media, tech and business models, explains why death reports of paid-for models on the Internet have been greatly exaggerated and how Facebook might need subscription fees to survive in the current economic climate.

Death reports of paid-for models on the Internet have been greatly exaggerated. Granted: the network's genome carries the "free" nucleotide. As in both freedom and free goods and services. Like it or not, its publicly funded origins (universities and the Pentagon) led to the emergence of widely adopted services such as search engines or Wikipedia. In turn, these have sealed the fate of the paid-for model as the dominant one. Right. I intentionally emphasize dominant. Because like everywhere else, hybrid forms are likely to emerge.

In the news media sector, we've seen many attempts to make readers pay for Internet content. From Slate to The New York Times, almost every publisher tested its own recipe. They all came back to free. Truth is: the fully paid-for model doesn't work online, unless it is: a) highly specialized (financial information and services, for instance), or b) provides unarguable value added (e.g. premium dating, tax or accounting services). Now the free model is facing a new hurdle: with this recession, advertising is suffering way more than expected. Further, alarming trends preceded the recession: click-through rates were falling, and the display ad system was labeled as a no-future thing. Now, the stream of ads is drying up quickly: double-digit drops are not uncommon. All business models built on advertising are now in grave peril.

Take Facebook. The tip of the iceberg is shines brightly: 100 million users, most of them active, a trillion page views per year, about two hours spent per month and per user. (Write down "engagement", a new word, soon to be the de rigueur metric.) As it turns out, this assiduous crowd loves photography: 300,000 images are uploaded every second, creating by far the biggest photo library in the world with more than 10 billion images, four times Flickr's.

Under the surface (the huge part of the iceberg, expenses), numbers are equally staggering:
• 13,000 servers were running few months ago, and analysts say the company will need 50,000 machines next year (no wonder why Rackable Systems, the leading provider of datacenter equipment enjoys a 44 percent growth for Q2 08 vs. Q3 07 -- it draws 17 percent of its revenue from Facebook)
• a $1m monthly electricity bill
• another half-million per month for bandwidth
• the 2 terabytes of data (mostly photos) uploaded every day require the purchase of one NetApp 3070 (a mammoth storage systems) each week
• maintaining this infrastructure, dealing with the output of a half-million developers, requires a big staff. For this activity only, Facebook 's headcount is between 700 and 800, costing about $80m a year.

In other words, Facebook is burning cash like a furnace.

What about the coal, you might ask? Good question. Advertising was supposed to feed the beast. Which leads us back to this note's item #2: a shrinking supply of ads, a superb ignorance of the target group (just look at your kids -- or yourself -- how often do you click on a banner?) As a result, the financial community keeps raising questions. Emarketer estimates the 2008 revenue of Facebook to be about $265m. Unlikely to be enough to cover expenses. According to Techcrunch, most of the $500m raised by Facebook is already gone, and the company would turn to Dubai investors to get a cash infusion.

Facebook is learning the hard way that eyeballs, once they are counted by millions, are expensive to serve. What's the solution?

The online magazine Slate came up with an interesting idea: charging people. In fact, a small fraction of them. Introducing another flavor of the hybrid model: a tiny proportion of users paying a fee that will subsidize the vast majority of non-paid ones. This is the idea outlined in the story "A Radical Business Plan for Facebook":

"Judging from some of the folks in my social network," wrote Farhad Manjoo, "a sizable minority of Facebook users have hundreds of 'friends' and check in to the site multiple times a day--call them superactive users. Let's imagine that Facebook became a tiered service. A free plan would limit you to 200 friends, one status update per day, or some other non-Draconian combination of restrictions. But for $5 a month, the limits would be lifted. Certainly, many users would balk; tens of thousands would join Facebook groups to protest the new pay model. Let's assume that 95 percent of users will refuse to pay a dime. That still leaves 5 percent, or 5 million people, to pay $60 a year. That's $300 million in the bank."

Farjoo confesses to be inspired by David Heinemeier Hansson, a developer for 37signals, and advocate of the paid-for model.

Nothing quite new, in fact. In China, the software industry has been working that way for long: 80 percent is bootlegged versus 20 percent generating license fees, but the market is so huge that even a tiny monetized slice is sufficient to insure a sizable revenue stream for software makers (that goes also for entertainment products).

These are not the only examples where the free model can be a powerful commercial engine. Last week, at the Monaco Media Forum, Avinash Kaushik, Google Analytics' chief evangelist, mentioned the example of TurboTax, an American tax filing software and service company. For a limited period of time, TurboTax decided to give away its basic application. It has two effects: of course, taxpayers rushed to download the free version -- a zero-cost massive promotion campaign, since the production and delivery costs of the software are close to zero -- but more surprisingly, at the same time, the sales of the Deluxe version ($59.95) rose significantly. That was the free model as a sales engine.

To what extent the examples mentioned above could inspire the media industry is a complicated question. A part of the answers lies in the publishers' ability to conceive not only great news services but also clever applications and services that could draw an audience willing to pay for it, that will, in turn, subsidize the bulk of the readers/users enjoying free basic (and bait) content.

Frédéric Filloux is currently editor for the international division of the Norwegian media group Schibsted ASA and of Monday Note. In 2002, he was part of the team that launched the free daily 20 Minutes, which is now the most read newspaper in France with 2.5 million readers (the online version, 20minutes.fr, has about 200,000 visitors per day). Prior to that, he spent 12 years at Liberation, successively as a business reporter, New York correspondent, editor of the multimedia section, manager of online operations, and, finally, editor of the paper. He also has an experience in the advertising business after a one year stop at the Paris group BDDP agency (now TBWA). He is a graduate from the Bordeaux school of journalism. He lives in Paris.

OpenSocial is growing up fast. What started out as Google's effort to create a common application programming interface for developing small applications that can tap into multiple social-networking services is becoming a full-fledged development platform.

(Credit: Ben Metcalfe)

According to the OpenSocial Foundation, it has garnered a potential audience of 600 million users, with 7,500 compliant applications developed so far and 20 containers (hosts for social applications) supporting the APIs within the last 12 months. The Google spin-off incorporated itself as a nonprofit foundation to ensure support from a broad range of social-networking competitors, including Yahoo, MySpace, Hi5, LinkedIn, Ning, and Xiaonei, China's largest social network.

Giants Facebook and Microsoft, however, have so far not jumped on the OpenSocial bandwagon. Facebook has 125 million active users around the world, but CEO Mark Zuckerberg is seeking to establish Facebook as an "open" application platform and so far is holding off on endorsing OpenSocial. Facebook investor Microsoft, which last week introduced a social dimension to its Windows Live platform, is in the midst of rolling out a cloud services development platform.

David Glazer, director of engineering at Google

(Credit: Rafe Needleman / CNET News )

The large OpenSocial contingent, plus Facebook and Microsoft, are all advocates of open Web standards, but they are in a competition for developers. "Everyone doing social stuff is interoperable at some level of the stack," said David Glazer, director of engineering at Google. "Facebook and Microsoft are using a big chunk of the open stack. Open architectures are all converging. It's moving fast--last year, there was no such thing as a social platform."

He pointed to collaborative efforts on OpenID, OAuth, and Portable Contacts as examples of open Web standards that are in various stages of adoption. But the OpenSocial notion of "write once, run anywhere" doesn't fly without Facebook and Microsoft joining in, or the three major platforms providing a level of interoperability and compatibility beyond common Web standards.

OpenSocial is also being positioned as more than a platform for basic widgets (gadgets in Google parlance). "We are going to see application-to-application hooks, which will blur the difference between things in the box (container) and lots of different surfaces working together," Glazer said. "We will definitely see enterprise applications."

There might come a day when Microsoft Office or Google Docs & Spreadsheets are among the top OpenSocial applications, said Alan Hurff, senior vice president of engineering at MySpace and president of the Board of OpenSocial. However, enterprises more slowly adopt new technologies, such as social networks and mashups, and must have a return-on-investment justification to fund deployments.

Some of the future improvements to the OpenSocial platform will include better development tools (Visual Studio-like tool to speed development), payment platforms, analytics, cross-container portability, and mobile-application support. "We need to make it easier for developers to build applications, reach users, and make money. From where we started, the platform has gone a long way in the right direction," Glazer said.

In regards the OpenSocial code, version 0.9 is due out at the beginning of next year. Glazer was asked to speculate on when version 1.0 would be released. "The functionality of 0.9 feels 1.0-worthy. But we don't want to stretch beyond what we know," he said.

OpenSocial is still an infant, but it has big ambitions to stretch out as a major application development platform for the cloud.

After less than a year, Radar Networks is going from beta to version 1.0 of its Twine "interest network" Web application based on Semantic Web technologies. "We are not spending four years in beta," said Radar Networks CEO Nova Spivack. "We have a minimal set of features ready for prime time."

The minimal set of interest network features allows Twine users to track and discover relevant organizations, products, people, places, tags, and items, such as photos, documents, and recipes, that match their interests. Twine has a social dimension in the way it leverages the wisdom of its members, via bookmarking, tagging, and shared connections. Underlying Semantic Web technologies provide concept mapping (such as interrelationships between topics or people) and more relevant and structured search results.

In the last six months of beta testing, 500,000 users visited Twine and 50,000 remain active, Spivack said. Half of the Twines created are public and members have added about one million items to the database. "The most interesting statistic is time spent--which has risen in the last month to 12 minutes per session and continues to trend up. This is more than tracking and discovery sites like delicious, Digg and StumbleUpon receive," he claimed.

In order to keep the 50,000 active users and grow its base, the key change from the beta in version 1.0 is a simplification of the user experience. "When we started beta, Twine was about collecting, organizing, discovering, and sharing, and all were equal. It turns out that tracking interests is the most important, so that is what we are emphasizing," Spivack said. Among the more consumer friendly enhancements, the site navigation is streamlined, site performance is faster, moderation features are improved, users can invite people from their e-mail address books, and the recommendation engine explains why an item was recommended and allows a user to opt out.

The Semantic Web aspect of Twine, which was touted when it first launched, has been relegated to the background.

"When we first launched, semantic technology was the story," Spivack said. "It was novel then, but now we have to show the value, and to do that we can't emphasize the semantic technologies in Twine. It's under the hood and that is where it belongs. We surface the value of semantic in lots of ways, such as with the recommendations. Next year users will be able to create their own data types and build an ontology without knowing it's an ontology."

In about three weeks, an update to Twine 1.0 will add a more advanced bookmarking tool and natural language crawling to improve relevancy. "Every page added to Twine will use natural language processing to determine what is the content versus ads, navigation, and other elements. We'll put the full text in our search index and generate tags and create a summary and then crawl every link in the text one hop out and bring that content in as well," Spivack said.

Next year Twine will unleash more of its semantic power, with richer support for structured data and a two-way API for getting data in and out of Twine that will attract application developers, Spivack said. In addition, Twine will introduce a new monetization scheme. "Twine will be to marketing what Google was to advertising," he boasted.

"Advertising is pull-based, passive, and on the side of pages. Marketing is sponsored and highly relevant content that is targeted and delivered to someone in their in interest feeds. It will be clearly marked and users have to option to accept or reject it." The concept is similar to what Facebook has attempted to do with its Beacon program. Spivack said that company has filed patents for its monetization concepts, including a way for users to market semantic objects. "We can provide interesting socio-economics around the content that people collect, share, and buy, and build a one-to-one channel between marketers and users."

Radar Networks is in good shape to weather the economic storm. The company raised $13 million in Series B funding from Velocity Interactive, Draper Fisher Jurvetson, and Vulcan Capital earlier this year.

Below is a video from Radar Networks outlined the new features of Twine 1.0:

Twine Overview from Twine Official on Vimeo

CAMBRIDGE, Mass.--Ning co-founder and CEO Gina Bianchini started off her keynote speech at the MIT Emerging Technology Conference by describing Ning as the social network you've never heard of.

Unlike Facebook, which is more of a beehive with 100 million members buzzing around, Ning allows individuals and groups to create their own social networks.

Bianchini said here Wednesday that Ning is gaining traction, minting a new social network every 30 seconds. That's more than 86,000 per month on top of the nearly 500,000 social networks (65 percent actively used) already on Ning. Among those half a million sites, 3 percent are paying for premium services ($19.95 per month), which allow people to run their own ads and have their own domain. The company reserves the right to run ads on pages of the free service. Ning is launching an iPhone application this week, and also plans to support Android phones.

In her speech, which was devoted to showing off Ning, Bianchini compared her company's social networks to "hosting a fabulous party." These hot "parties" range from a social network for the music artist 50 Cent to one dubbed Twitter Moms.

She tried to make the case that Ning is a "platform" that provides creative freedom, whereas Facebook, MySpace, YouTube, and LinkedIn are "walled gardens" that limit freedom. In this context, freedom is the ability to have more control over the user experience and data.

Ning CEO Gina Bianchini compares Ning social networks to hosting a great party.

(Credit: Dan Farber)

Her "open" social network argument is not a very convincing to me, though. Ning users can move components around on the screen and choose from 50 design templates. Ning also has APIs that allow for data portability and access to member data. However, the primary code that runs Ning is proprietary. Ning does allow some modification of templates and code, such as the photo component, under an Apache 2.0 license. Programmers can change the way a photo is displayed or sorted, for example.

"Platforms win because they enable people to do things because they are programmable and give people control," Bianchini said. Ning and other more open platforms will make walled gardens obsolete, she contended. "It's not the case today, but this is what happens throughout history when people have choice." Facebook, MySpace, Google, and others would argue that they are platforms, which are defined by having a robust ecosystem and developer/user community. And they are open to the extent that they have APIs allowing access to their social graphs and other data. In addition, supporting open standards, such as OpenID, should be part of an open platform. But Bianchini said that OpenID is not user-friendly enough at this point and still has some security issues.

Overall, Ning is more "open" than other social networks in terms of the flexibility it gives users, but it serves a different purpose than Facebook and other social networks. Facebook's growing membership seems to appreciate the consistency of the user experience, the growing feature set, and the APIs, such as Facebook Connect.

Bianchini expects that there will be millions of social networks and that people will express themselves "for every conceivable niche, need, location, and language, with an infinite choice of features."

"If we do this right," she added, "it will happen on the Ning platform."

Clearly, something is happening on Ning. Whether it will become the next Facebook or MySpace in terms of growth and user activity remains to be seen.

In January at the Consumer Electronics Show in Las Vegas, Yahoo CEO and co-founder Jerry Yang offered a sneak peek at Yahoo's next-generation, socially networked user experience. In a Flash-based demo, Yang showed how Yahoo was opening up its platform to third-party developers and building hooks to socialize the experience for the more than 500 million users of its various services.

Third-party applications can be accessed via the Yahoo Mail interface, as well as services recommended by friends. My Conversations is a way for Yahoo Mail to digest conversation threads and initiate actions, such as planning a dinner with a group of contacts. You can drag an e-mail thread into a map and profiles of those on the e-mail are surfaced, noting preferences (food in this instance), and suggesting and locating restaurants in the area.

(Credit: Yahoo)

In this screen from the January 2008 CES demo, Yahoo Mail shows messages from a user's most important connections as well as their status updates.

(Credit: Yahoo)

But that demo of socially enriched Yahoo services is still incubating, and the company has not been successful in becoming a social-networking hub. Yahoo 360, introduced in 2005 , never took off. A more hip version, Mash, was recently shuttered after less than a year. In the meantime, Facebook, which Yahoo tried to acquire for a rumored $1 billion in 2006, has accumulated more than 100 million users in four years.

But Yahoo executives claim they are not focused on challenging Facebook or MySpace. They are seeking to add a social dimension to the Yahoo platform by intuiting a social graph and profile page for each user and opening up APIs that allow developers to access the profile data.

Ash Patel, executive vice president of Yahoo's Audience Product Division

(Credit: Dan Farber/CNET News)

"We are really not interested in creating a social destination site," said Ash Patel, executive vice president of Yahoo's Audience Product Division. "That ship has sailed, between MySpace and Facebook and Hi5 and Bebo and other reasons. Even with that, there are 1.2 billion people on the Internet, and only 150 million are using social networks. That's a lot of greenfield."

"Look at the hundreds of millions of people using Yahoo," Patel continued. "Many of them don't care to go to a social-networking site to build their profile. For them, we want to add the right amount of social to give them social relevance but not to duplicate Facebook or MySpace. They don't want all features."

"Yahoo has done well with taking a lot of user experiences that have taken off and doing them well so they appeal to the masses. For example, we did that with RSS. People don't know what it is but we put it into MyYahoo and got wide adoption. We can put the right bits of social that matter and put them into products in the right way," Patel added.

At the recent Yahoo Open Hack Day about 300 developers got access to new "social" APIs, which open up user address book contacts, profile data, notifications, and the "vitality stream" (like Facebook's news feed) to external applications, which can be added to services such as Yahoo Mail and the Yahoo front page.

"We are taking existing products and services, making them richer, and enabling social elements for the audience, and potentially leading the way for new applications," Chief Yahoo and co-founder David Filo explained during an interview last week.

Yahoo is focused on Mail--which has 275 million monthly users, according to Patel--as the core application to wire up with the social APIs. "People have their top 10 to 20 friends they care about. We have to take the latent social stuff, such as the address book with tens of billions of connections, and instant messaging, and buddy lists, and find the top 10 to 20 people who matter to a person," Patel said. Yahoo is developing a new profile page; Yahoo 360 profiles will be migrated to the new profile pages, and those users will have the option of moving their Yahoo 360 blogs to other blog platforms, such as WordPress and TypePad.

During a meeting with the press last week, Patel showed how Netflix, Flickr, and Evite could be integrated into Yahoo Mail. For example, an e-mail from a Netflix user about returning a movie could be turned into an interactive experience. Using the Yahoo Mail developer platform, Netflix can be added as an application in Yahoo Mail. A new tab appears and the application shows a list of movies that friends from within the Yahoo address book, who are also Netflix customers, have watched. Yahoo Instant Messaging is also integrated with the Mail and Netflix experience.

Applications such as Netflix could be integrated into Yahoo Mail.

(Credit: Yahoo)

Patel also showed Netflix integrated into the Yahoo front page and integrated into Yahoo search. "In Yahoo Search, you can see the general Web critics view of the movie and the Netflix ratings, and you can add it to your Netflix queue. Instead of a bunch of searches, you can actually get something done there," he said.

Patel didn't give a precise timetable for introducing the new profile page or the social graph of the top 10 to 20 contacts based on address book and buddy list contacts and their "vitality" stream.

"The profile page is a cornerstone. It's a necessity but not a destination as on Facebook or MySpace. Yahoo 360 was a way to create a new profile with social networking. We didn't get it right. We need the basic profile for users just to manage their identity so when they participate in other parts of Yahoo they have options to see," Patel said. "We will go out in steps, with the first rollout of profiles in beta later this year."

Yahoo executives wouldn't say when the user experience demoed at CES would be available, but made it clear that scaling the new functionality for more than 500 million users was a major technical and user interface challenge. Venkat Panchapakesan, head of Yahoo's Audience Technology Group, noted the three top challenges for getting Yahoo's social to scale: the complexity of mobile and making applications work fast for Yahoo Mail; data privacy, such as dealing with notions of user control at the same time data is broadcast; and converting all profiles to a single name space and lighting up the social graph.

Yahoo is heading in the right direction with its newly found openness and social rewiring, although it should have started this undertaking a few years ago. Now it's a matter of executing on the plan, which hasn't been made easier by the exodus of talent from the company in recent months, and getting developers and hundreds of millions of users to buy into the plan.

On November 1, 2007, Google launched OpenSocial, a set of APIs that leverage JavaScript and HTML for creating applications that access friends and update feeds from any compliant social network. Nearly 10 months later, Google is touting the maturation of the OpenSocial specification and growing developer and user adoption.

At this juncture OpenSocial version 0.7 has an addressable market of more than 300 million social network users, including the social networks that have delivered OpenSocial applications or are actively developing them, according to Joe Kraus, Google's director of product management. Friendster, which claims 75 million users including 55 million in Asia, recently unleashed OpenSocial for its developer community. Hi5 has more than 1,800 OpenSocial-compliant applications and 66 million installations, according to platform architect Paul Lindner. Hi5 has nearly 60 million users, with 80 percent outside the U.S., according to ComScore.

Overall, Kraus said that there are more than 4,500 OpenSocial applications and 150 million installs. In comparison, Facebook, which has so far eschewed OpenSocial, has more than 30,000 applications and 700 million installs.

"We expect to reach 500 million OpenSocial users by the end of the quarter. It's also very international, as social networking is a global phenomenon," Kraus said.

(Credit: Google)

The latest version of OpenSocial, 0.8, adds a number of new features that extend beyond its original JavaScript roots. "When we launched OpenSocial JavaScript was the center, but the community wants more choice. We agreed upon a RESTful API that gives access to the social bits and is already implemented in Apache Shindig and deployed by hi5 in beta," Kraus said. The OpenSocial RESTful API specification defines how servers, mobile devices, and desktop computers interact with OpenSocial containers without the need for JavaScript or direct user interaction.

"Hi5 launched with OpenSocial very early--January 1, 2008--and we ended up building the system, which had a lot of undefined pieces," Lindner said. "We had a lot of custom work with the REST endpoint so that applications could contact our server directly. As time went by all participants came up with one-offs, but now we are bringing it all together in the community with common types of solutions for these problems. Standardizing on a single specification will allow application developers to write code once and it will work on all different containers. We are already seeing others build on REST specification. Plaxo, for example, has enabled privacy-enabled exchange of contact info."

In addition, the OpenSocial community is working on compliance tools, such as an application that determines the level of compliance for a container.

(Credit: Google)

The 0.9 version of OpenSocial will add templates and markup, making it easier to develop the user experience dimension for an application. "Templates and markup are now in discussion on public mailing lists, but we believe we are pretty close," Kraus said. Regarding when OpenSocial is deserving of a version 1.0 designation, Kraus said that the "community will make the call."

The community Kraus speaks of is the group of about 350 developers participating in the main discussion around the evolution of the open-source OpenSocial specification and reference implementation. Google obviously has major clout in the evolution of OpenSocial, but Kraus noted that just 10 percent of the major participants are from Google.

To further untether OpenSocial from its origins, Google has also proposed an OpenSocial Foundation, which would be a steward for ensuring the OpenSocial specification stays open and intellectual property and patent non-assertions are handled so that developers feel safe about using the code, Kraus said. An announcement about the OpenSocial Foundation is expected "really soon," Kraus added.

Google clearly has a vested interest in seeing OpenSocial succeed. As Google's Vic Gundotra explained at the November 2007 launch, OpenSocial makes good economic sense. "The more applications, the more usage. More users means more searches. And, more searches means more revenue for Google. The goal is to grow the overall market, not just to increase market share." Having the an open source community behind it will make Google's economic mission much easier.

On this week's EIC Squared podcast, ZDNet Editor in Chief Larry Dignan and I discuss the news of the week. It was a big week for Microsoft, with several announcements and teases from its meeting in Seattle with financial analysts. Steve Ballmer is still bullish on the online space, but not on Yahoo. We also talk about Kevin Johnson's departure from Microsoft. (See coverage on the Microsoft financial analyst meeting from Ina Fried and Mary Jo Foley.)

We spend a few minutes debating the impact of Carl Icahn joining the Yahoo board and what it means for Jerry Yang's future. Larry thinks that Yang bought himself more time to turn things around. If so, he will need to speed up delivery on the Yahoo Open Strategy and build a social layer into Yahoo's collection of services.

Finally, we discuss the impact of Facebook Connect, which will let users access and feed their Facebook profiles and friends on any Web site. It's Facebook's way of extending its platform to embrace other services and get more data and pages flowing through its social portal.

This week, Facebook took a number of strategic steps toward its goal of giving people the "power to share and make the world more open and connected." That's how founder and CEO Mark Zuckerberg described the mission statement for Facebook.

With that mission statement, similar to Google's mission to "organize the world's information and make it universally accessible and useful," Facebook is highlighting its noble aspirations, but underneath the "make the world a better place" is the fact that both Facebook and Google, as well as Yahoo, Microsoft, MySpace, and others want to be the portal for the masses.

(Credit: (CC) Brian Solis )

By portal, I mean more than just a place to share content with friends, search or wire up a social graph. If the Web is becoming social at its core, Facebook (90 million and growing at hundreds of thousands per day) and its competitors want to be the center of their members' lives in the same way that MyYahoo became a personalized home base for millions of users over the last decade.

As evidence of Facebook's portal ambitions, the company introduced Facebook Connect, which will let users access and feed their Facebook profiles and friends on any Web site. Facebook is the identity system and portal through which the content from other sites flows--all roads leading to Facebook, which is distinct from what Google's more open and distributed approach with Friend Connect. Facebook Connect is not yet generally available, but demos from Digg and Six Apart, among others, indicate that it has substance.

Video: Zuckerberg introduces Facebook Connect

Om Malik extrapolates from Facebook Connect that Facebook is building a money machine:

You are essentially telling Facebook's proverbial brain what topics -- blogs or specific posts -- with which you like to engage. In other words, you just told the system a little bit about yourself. Now imagine such information coming from dozens of Facebook Connect partners.

Each service adds a few more data points about you inside the Facebook brain, which is quite aware of your activities inside the Facebook ecosystem. The brain can then crunch all that information and build a fairly accurate image of who you are, what you like and what might interest you. With all that information at its disposal, Facebook can build a fairly large cash register.

The cash register is an advertising platform, a follow on to Beacon, that leverages the social graph and each member as a potential marketing engine. With all the data and user permissions, ad targeting could be more precise. Zuckerberg has also talked about a payments system, a la PayPal, for the platform. After getting Chat launched, Facebook is likely working on making its e-mail application more robust as part of building out the portal.

Microsoft is poised to bring its Web search and paid search results into Facebook's U.S. site.

With 400,000 developers, according to Facebook, working on the platform, thousands of applications--from e-commerce to games--and widgets with any kind of feed will be available for each user's Facebook portal.

Facebook also has more than 10 million users of its mobile services, which is the next major frontier for building user portals. For example, Facebook Connect for Mobile, due for release in the fall, will allow members to hook up with friends over mobile devices to play games with friends and learn which friends downloaded applications of shared interest.

Challenges for Facebook are scaling to support the increased amount of data pouring into its servers and adapting to different geographies. More than two-thirds of Facebook users are outside of the U.S., but all of Facebook's servers are inside the U.S. Decreasing latency, which leads to increased page views, will be a key to Facebook's ability to keep up with demand.

If Facebook can continue to roll out new features, maintain its growth pace and improve site performance, it will be on a collision course with the Web portal giants who were born in the 20th century. Of course, one of those Web giants may pay mega-billions to consolidate the market, but it's unlikely that Facebook will give up its independence any time soon.

A few weeks ago I talked with Jonathan Heiliger, vice president of technical operations at Facebook, about the challenge of innovating quickly and building stable infrastructure while 250,000 new members are added to the social network every day. Check out the video on ZDNet.

Jonathan Heiliger

(Credit: CNET News)

Q: You've been at Facebook, I think, for about a year and it's been quite a ride I guess, scaling up from zero in 2004 to over 80 million today. How do you keep up with that hyper growth?
Heiliger: You're absolutely right--we've had a lot of growth. We add over 250,000 users every day, and that means a lot of infrastructure, a lot of servers, and constantly looking at new processes and looking at how we're doing things and ensuring that we're doing things the most efficient way possible, not just for delivering all the content to our users but to stay on top of what it costs to run the site.

How do you stay on top of the cost in terms of the kind of equipment you buy and how you work with the vendors? How do you prioritize those things?
Heiliger: One of the things we recently did was we ran an RFP process for the servers we buy from vendors and essentially did a bake-off with a number of different people looking at building servers on our own. What we concluded from that process was to continue to buy servers from a couple of major OEMs (original equipment manufacturers), but through that process we were able to lock in prices today and carry those prices forward as all the commodity components costs drop.

When you're buying those servers, and I assume you're doing just a huge scale out of commodity servers, what do they look like? How are they configured?
Heiliger: We're pretty lucky in that we run a wide variety of applications, literally tens of applications on our own and hundreds of applications for our platform developers that use Facebook as a distribution mechanism, as a way of interacting with their users. But one of the reasons we're very lucky is our engineering team has selected to use PHP as the primary development language. That allows us to use a fairly generic server type. So we, with a couple of exceptions, have three main server types and run a fairly homogeneous environment, which allows us to then consolidate our buying power.

You're different from Google in the kinds of applications that you run. They are mostly running search queries, and you're running all kinds of queries and bringing back all kinds of data from the social graph. How is it different in terms of the way you build out your data center from the inside?
Heiliger: Google has a tremendous amount of information that they index and archive and present to users, but fundamentally if you go to Google and type in a search for a "tiger" and I go to Google and type in a search for a "tiger" we're going to see generally the same results, so they're presenting that same information to both of us. Facebook is a little different in that the context for our data is all social. When you look at your friends and their status updates and their photos and the notes they may have written, you're going to see one set of data versus if I look at my friends and their photos and their notes and status updates, and those tend to be non-intersecting sets of data.

So it's much more dynamic?
Heiliger: Much more dynamic data set--and what that means is it's caused us to do a bunch of different things relative to caching and relative to federating all of that data up amongst thousands of different databases so that as a user requests all of that information we're not using one particular server every time for different data.

You recently introduced a chat application on Facebook, and it seems like it took a lot of time to test it to make sure it could scale having all those simultaneous conversations going on. Could you give us a little background and color on how that came to be?
Heiliger: Chat is actually one of our most recent launches. It started as a hack-a-thon project, which is one of the things we do about every other month. People get together and work all night and pick a project they don't have time to do necessarily during the day. From the time it really germinated as an idea to the time it launched and was available for our entire user base, it became a more formal development project. One of the things we did as part of that was actually built a new back-end service to be able to deal with all of the millions of simultaneous connections that we persist for users.

One other thing I was reading up on some of the work you've been doing--you say that clouds don't solve single points of failure in your stack. What are those single points of failure?
Heiliger: Interesting question, and the notion you are referring to there was part of the talk I give in regards to cloud computing is just a panacea, and for a start-up or even a more mature start-up like Facebook, isn't the answer to solving failure points in an application. By that I mean the underlining infrastructure that powers an application is typically the result of, or the outcome of, how the application is originally designed and how users interact with that application. If an application is poorly designed or designed to constantly reference a single set of data, the underlining infrastructure is going to be the victim of that. Guys like myself in the infrastructure world have to figure out how to best make that work.

As someone who is in operations how much impact do you have on the application development to make sure that once it gets into the data center that it can work properly and scale and not have the kind of failures we're seeing with some of the new applications?
Heiliger: I think it's a constant challenge in any organization, particularly a fast-moving one like Facebook, where we want to iterate quickly and get product out in our customers' hands so we can get feedback on that product and continue to tweak and enhance it over time. We have one force that's moving in that direction, and we have another force that says we want to keep the site up, we want the site to be reliable, and we want the site to be fast.

So there's a fine balancing act, where everyone in management and everyone in both the engineering and operations department constantly just sort of works, interacts, and goes back and forth, figures out just how to make those trade-offs. Sometimes we err too aggressively on the side of innovation and iteration, and put things out on the site in perhaps a small quantity that may break the site or cause the site to slow temporarily. Other times we air on the side of conservatism, of not releasing new functionality or new features, and that then delays the sort of user gratification of having that feature or fixing that bug.

What are the challenges that you see--let's say you're at 80 million unique users per month, 250,000 being added per day and 50,000 transactions per second. What happens when you get to 500 million or a billion if you ever get there?
Heiliger: Hopefully, tremendous things. I think we can only look forward to those days.

But what are some of the bottlenecks or barriers you have to overcome to get to that kind of scale?
Heiliger: Some of the bottlenecks we're facing are how we scale this extremely distributed set of data. One of the challenges we have is figuring out how to make that replicated such that it can exist in multiple places around the world and we don't also have to bring users back to the U.S. or back to one of our data centers. I think it's a challenge that most Web sites tend to face as they scale, which is you start in one location with a single database and then you have to figure out how to grow from there, primarily driven by the amount of latency or the amount of time it takes to reach the site and interact with the site. Being able to replicate the data across multiple data centers and across multiple geographies allows users to not just read their data from a local version but write that data as well. That is one of our key challenges over the next 12 months.

As you learn more about building up this very large scale infrastructure do you ever see the possibility that a Facebook could be a service provider?
Heiliger: What do you mean by service provider?

In the sense that right now you're just running the Facebook application but what if a developer or user wanted to do something similar to what Amazon is doing, using your infrastructure to run their applications in the cloud?
Heiliger: Gotcha. So one of the values of Facebook is the Facebook platform. We have over 100,000 developers and several hundred applications that have over a million users using them. We've talked about perhaps opening up or further opening up the platform by offering compute power for those application developers. One of the steps we've already taken to improve that development environment and improve the experience for our developers is just to open-source our platform, which we announced just a couple of weeks ago as well.