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Two reasons why Facebook is about to become bigger than Google

By on October 5, 2009
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Facebook is on the cusp of becoming the dominant company on the Internet. The company has realised that the web is about so much more than just searchable information, and it is on track to beat Google to be the web company.

When Microsoft invested in Facebook at a valuation of $15 billion in October 2007, many people scoffed. (I confess I was one of them).

But we were wrong.

Facebook is just about to crack two elements that will give it unrivalled power across the Internet.

Facebook Connect

Facebook homepage

The first is Facebook Connect. If you want to comment on this blog, you can sign in via Facebook Connect. Facebook Connect takes your connections with all of your friends away from the closed environment of www.facebook.com and out into the worldwide web. You can play games on your iPhone against Facebook friends. Before long, you’ll be able to log-in to the majority of websites through Facebook Connect, rather than having to register individually for each one.

What’s in it for the websites?

Websites will soon start falling over themselves to implement FB Connect. It reduces the friction that stops visitors from registering. It makes a user’s interaction with that website appear in the user’s Facebook stream, which is both a vote of approval and a viral marketing tool. And, pretty soon, users will just expect it.

What’s in it for users?

A single login, that you can take with you across the web. Add a comment to a news story and your real friends will see it, and perhaps start a conversation with you, instead of the anonymous trolls who currently inhabit forums. It will be the first step towards the socialization of the Internet and it will be a huge improvement.

Facebook payments

But the real weapon for Facebook is payments. It is an open secret that Facebook is building a payments system, and they are clearly working on making sure that they get it right.

I can’t overstate how important I think payments will be. The first thing it will do is make a lot of money for Facebook. Companies like Zynga and Playfish are making tens, maybe hundreds, of millions of dollars from selling virtual goods on Facebook, and Facebook is getting no direct revenue from that. Yet Zynga and Playfish have to work with many different partners to generate their revenue. When Facebook offers a simple, easy-to-use, standardised payment system, it will make billing much easier and drive usage.

But that’s only the first part of the story. Let me walk you through a scenario:

You buy me a beer. I don’t buy you one back so I want to give you a fiver (I live in London. Beer’s expensive). Under your profile picture will be an option: “Send money”. I can transfer £5 to you in seconds, with no need for sort codes and account numbers, and I’m know it’s you, because we’re friends on Facebook.

"Facebook becomes a payment system more global than Western Union, more ubiquitous than PayPal and as trusted as Mastercard and Visa."

Now let’s imagine that you’ve never used this modern “Facebook payments” system. You don’t really like it. But now, you’ve got £5 in it. You could spend that money on virtual goods. Before long, I’ll bet you could spend it at Amazon or any number of other online retailers.

Or you could give Facebook your bank account details and ask them to deposit the £5. And at the same time, they’ll ask if it would be OK to take money out of your account in the future if you want to buy something using your Facebook credentials.

And Facebook becomes a payment system more global than Western Union, more ubiquitous than PayPal and as trusted as Mastercard and Visa.

Your social graph and your bank account, following you across the web

With these two elements, Facebook has blown Google out of the water. Google helps you find stuff on the web. But with Facebook, wherever you go on the web, your friends and your wallet will come with you. Microtransactions on every site becomes realistic. (Maybe, just maybe, this will allow Rupert Murdoch’s idea of charging a penny to read a single article on his sites come true).

And Facebook’s valuation of $15 billion begins to look like it might have been a bargain.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com