I Spoke Too Soon

Open Facebook
Rachel Rosmarin, 09.11.06, 5:30 PM ET

They'll let anyone in to Facebook these days.

Once the exclusive online stomping grounds of college students, social networking site Facebook.com is throwing open the doors to rest of the world. The site is slated to announce in coming weeks that anyone can gain access to the site, simply by affiliating themselves with a particular city or region.

The company had planned to announce and launch this expanded registration Tuesday but has delayed the expansion as it sorts through the backlash from changes it made to the site Sept. 5.

"Last week, we learned we need to do a better job communicating on launches," says company spokeswoman Melanie Deitch. "We are going to think through how to better inform users, and we don't want to risk expanded registration being a big issue on the heels of last week's changes." Deitch said the company might communicate with users in coming weeks about the site's growth pace via blog postings and comments in user groups.

The growth move is fraught with risk for the company, whose more than 9.3 million registered users are intensely attached to the site because it lets them connect to a select group of peers. But the nature of social networking sites makes it easy for dissatisfied users to migrate. Facebook executives must try to expand the site's reach without diluting its appeal. If they fail, the company risks being viewed as a second-rate version of MySpace, the famously open social network that now receives more than 46 million visitors per month.

"Facebook could be hurt when users start drawing comparisons to MySpace," says Fred Stutzman, a graduate student at the University of North Carolina at Chapel Hill's School of Information and Library Science, who studies Facebook's use among that university's students. "There's a backlash with every change at Facebook--but this is now the point of no return."

Last week, the company created a furor when it tweaked its model to show users updates to their "friends" activities as soon as they logged on. Facebook fans squawked, citing privacy concerns, and hundreds of thousands joined online petitions threatening to boycott the site.

"The Facebook users feel like they have ownership in the company," says Stutzman. "When they realize that they're not the ones in control, it's a real slap in the face."

Facebook executives initially dismissed users' worries, but within days the company backtracked somewhat, allowing users more control over who sees what. On Friday, founder and Chief Executive Mark Zuckerberg posted a public apology to his users on the company blog, outlining where he went wrong and what he has done to make amends.

Zuckerberg helped create the company in 2004, when the Harvard undergraduate wanted to find a way to let fellow classmates connect. The company later broadened its user base to include all Ivy League schools, then all universities, then high schools and eventually corporations. Would-be members had to demonstrate affiliation with one of these institutions, via a valid e-mail address. But as soon as the new look kicks in, users will be able to register with a generic e-mail account and join a group associated with one of 500 cities and towns, whether or not they live there.

Though group members can customize their security settings to include or exclude specific people from seeing certain personal details--such as photos, contact information and comments left on friends' profiles--default settings allow anyone within a network (such as a school, or now a city) see everyone else's profile details. The wealth of personal data available to large groups of strangers on Facebook has never been richer.

Comparisons to the much larger and more open MySpace--purchased by News Corp. (nyse: NWS - news - people ) in July 2005 for $580 million--are inevitable. But if Facebook truly wanted to emulate MySpace's success, it would have opened up its registration policy a long time ago. But until now, the site's restrictions restrained growth.

Now it seems ready to expand. The company has collected $38 million in venture funding collected since 2004; in August, it secured an advertising deal with Microsoft (nasdaq: MSFT - news - people ). The site's non-student population already appears to be growing. Between May 2005 and May 2006, the percentage of Facebook users older than 34 grew to 37.3% from 32.4%, according to eMarketer and ComScore Media Metrix.

Yet Facebook still has less than half the users MySpace had when News Corp. bought the company last year, and revenues are still small--an estimated $30 million a year compared with MySpace’s roughly $180 million--says eMarketer senior analyst Debra Williamson.

And perhaps because of the limited advertising real estate at Facebook, limits ads to sponsored profiles, banners on the side of the page and above a user's profile. "Facebook doesn't have that sexy glow as an advertising environment, as compared with MySpace's advertising buzz," says Williamson. "That could be a negative for Facebook unless they redesign their pages."

This year, U.S. advertisers will spend only $280 million on ads through social networks, according to eMarketer, but that will increase to $1.9 billion by 2010. Worldwide, that figure will reach $2.5 billion. Those numbers, coupled with the continued success of MySpace after News Corp.'s acquisition last year, have fueled rumors that Facebook is a likely acquisition target.

At the time of the company's last round of funding, the Silicon Valley rumor mill pegged the company's value at around $600 million. But the "why not?" logic of the latest tech boom has fueled reports placing even higher price tags on the company--someone purportedly attached to the company even managed to attach a $2 billion price tag/trial balloon last spring.

"We have to correct that. The $2 billion price tag reported in the media is so far out there," Zuckerberg said during an Aug. 17 interview. Zuckerberg, who admitted on a company blog that Facebook "really messed up" the launch of news feeds, wouldn't take interview requests about the delays in expanding registration. "We're not holding out for a price because we're busy building and growing the site." But Zuckerberg must tread carefully: Growth that scares his core could wind up hurting his young company's value.

article from Forbes.com