Facebook Encroaches in MySpace's Space

Facebook is quickly superseding MySpace as the social network of the moment. But can it be sustained?

Yes, Facebook will be here to stay, even though questions remain about the social network's ability to make money and hold the attention of fickle Web users (After all, MySpace was once lauded as the darling of social networking.)

In less than a year, Facebook has grown from an online meeting ground for college kids to a cultural phenomenon – and the growth is phenomenal. Its hold on me is addictive --I use it everyday to post messages on my friend’s ‘walls,’ ‘poke’ them and compare my movie tastes with them. Users now spend an average of 14 minutes on the site every time they visit, up from eight minutes last September, according to Hitwise, a traffic measuring service. Even MySpace owner, and News Corp. chairman, Rupert Murdoch recently alluded to the threat posed by Facebook.

Fortune said that Facebook’s unique audience grew by 1.5 million people in October, according to a report released this week by Nielsen Online. That’s five times the rate of larger rival MySpace, which grew by about 300,000.

“If the numbers are accurate, it means Facebook, the second-largest social network, continued its surge. MySpace logged 58.8 million unique visitors in October, up 19 percent from a year before; Facebook logged 19.5 million, up 125 percent.”

But it goes on to say: “Though the numbers seem to suggest that Facebook is growing at a far faster clip than MySpace (NWS), third-party numbers can be deceiving. Because of the methods companies like Nielsen use to estimate traffic, the official numbers from the sites themselves can differ somewhat. It’s also not clear whether the trend will continue as both companies link up with powerful online allies. Facebook last month took a $240 million investment from Microsoft (MSFT), and MySpace announced that it will participate in Google’s (GOOG) OpenSocial initiative to build social software on the Web.”

The smart thing about Facebook, which generates most of its revenue through advertising, is that it is constantly creating new revenue streams. The New York Times reported that the social networking site is inviting thousands of technology companies and programmers to contribute features to its service. They can even make money from the site's users by doing so, and, at least for now, Facebook will not take a cut.

“Some of the new features, demonstrated by software developers at a Facebook event here on Thursday, will allow members to recommend and listen to music, insert Amazon book reviews onto their pages, play games and join charity drives, all without leaving the site.”

One example of this is Facebook's iLike application, which gives users the opportunity to hear and buy the music their friends are listening to.

If users choose to add iLike to their Facebook pages, the software will automatically see where they live and what bands and songs they say they enjoy. It will then recommend songs and local concerts.

The NY Times story says that ILike will get a commission if the user acts on either recommendation, and it will also show its own ads.

Dow Jones NewsWires reported that Jim Breyer, a partner at Facebook backer Accel Partners, said recently the company would collect more than $100 million in revenue this year and generate a profit and significant positive cash flow.

The article also said that an analysis by investment bank Thomas Weisel suggested “venture-backed technology companies like Facebook and YouTube have fetched 6.5 times trailing revenue in sales since 2004, or by different metrics an average value of $40 for each person who visits the Web sites.”

“Using Breyer's revenue estimate, Facebook could be worth $650 million. Based on visitors, Facebook's valuation jumps to more than $1 billion.

Many people think Facebook could fetch prices that dwarf these estimates. The site's explosive growth in traffic means every month boosts the company's value. Accel Partners' Peter Thiel said in an interview this month that the firm would consider acquisition offers for $10 billion.”