Is Facebook Transforming Into an Operating System?

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ADOTAS – Facebook’s finances are growing by leaps and bounds. According to an inside source (and published widely), the first six months of 2011 have brought in $500 million in net income to Facebook. As a private company, Facebook does not have to publically disclose its earnings, yet for a point of comparison, Facebook earned $335 million in net income in the first nine months of 2010 and revenues of $1.2 billion, according to documents from Goldman Sachs.

The reason for the increase in growth? Industry experts point to the Facebook advertising model as the main factor. Facebook ads have boosted revenue and made a big impact in the online advertising world. But Facebook’s partnership with virtual goods providers, the future partnerships with music providers and popularity on mobile devices are pointing to one possible outcome – a Facebook “operating system” that ties together the best of the web and gives users a one-stop destination.

The Operating System Approach

Facebook has already shown dominance in advertising, so creating a operating system is not so far out of its reach. According to the analytics firm comScore, Facebook accounted for nearly 1/3 of all Internet display ad impressions in the United States in June, which was more than the combined total of Yahoo!, Microsoft Corp, Google and AOL Inc.

The truth is that Facebook reaches targeted audiences, and advertisers want a piece of the action. Demand has grown so much that Facebook was able to increase ad prices by 62% since the fourth quarter in 2010.

Facebook can offer insights into user behavior that other platforms just can’t. When users endorse products and companies with a “like,” they are providing valuable data that advertisers can use to understand how best to reach consumers. While other advertising platforms like Yahoo! are relying on third-party data, Facebook can bring users right to the source. Large brand advertisers and local businesses are putting their marketing dollars into Facebook because they can target users based on interest and reach a large number of consumers all at once.

Closed Loop

People are flocking to Facebook because it offers a “closed loop” entertainment platform in addition to social connections. Zynga’s FarmVille and other social games keep users interested and in the social network (Facebook receives a 30% cut of the sales of virtual goods).

There are also other entertainment possibilities on the horizon: Facebook has released new features that port in music services from Spotify and Rhapsody. Social shopping app “SneakPeeq” allows Facebook users to browse through products and “like” them if they are interested. The likes show up on their stream, and the more people that “like” the item, the lower the price goes. These components come together to give users more reasons to visit Facebook, and more opportunities for advertisers to reach them.

The closed-loop operating system is being taken to mobile devices as well: Mobile web usage grew by 91% last year and 32% of that time is spent on social networks. Of every 74 minutes, 14 are spent on Facebook apps.

Facebook partnered with mobile product and app giant HTC to create the HTC Status, the only phone that allows people to directly post to their Facebook accounts with a button. The biggest sign that Facebook may be taking a comprehensive approach to mobile browsing is Project Spartan. Facebook plans to integrated directly into the mobile browser giving users instant access to their favorite apps.

With its growing advertising revenue, more features to keep users involved in the system and plans to make mobile browsing a seamless experience for smartphone users, we may be quickly approaching the day when Facebook is considered to be an operating system rather than a destination website.

 

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