I predict that with 24 months a post-IPO Facebook will finally begin to be discovered by the mainstream (i.e., your parents, grandparents, CEOs, etc.) as the world’s first social operating system and Facebook (and a few key app developers who wisely get on board early) will be making the kinds of defensible profits that have been reserved for the first dominant graphical operating system (i.e., Windows) and first dominant application suite (i.e., Office).

Comparing Facebook to Google undervalues Facebook!!!

The comparison should be with Microsoft in terms of the lock-in that can be achieved when you control both the operating system and most of the killer apps on the platform. 10% of the population of Canada is now on Facebook and this is just the tip of the iceberg in terms of how the mainstream cross-over from Facebook’s youth/college-oriented past can occur. Every consumer will benefit when all of their friends / family / business acquaintances can be reliably found, researched and touched via the social gestures that Facebook specializes in. This will ensure that Facebook zooms up to the 50% adoption levels in all key demographics that marketers care about and up to the 80% to 90% levels in many areas.

I’ve been a software entrepreneur whose lived though the OS wars, the GUI wars, the Word processing wars, the Spreadsheet wars, the Application Suite wars, the personal finance wars, the Browser wars and now the Search wars. You’ll note that Microsoft leverage their Graphical Operating System dominance to win all but one of those wars. (BTW, kudos to Intuit/Quicken for being the exception that proves the rule.) This is the kind of market power that Facebook will bring to bear as it faces new challengers.

In the case of Microsoft their lock-in was maintained by carefully courting, coaxing, coercing and collaborating with the hardware OEM’s and the software ISV’s. With Facebook, their lock-in will come from consumers who can’t easily decouple themselves from Facebook without giving up their network of friends and with application developers who will have to write for Facebook to reach a critical mass of connected consumers who trust their friends invitations/newsfeeds more than any 3rd party advertsing pitch (e.g., sponsored link) about which new applications/products deserve their attention.

I may sound like someone who owns Facebook stock or is an irrational cheerleader. However, no matter how much I might like to be a Facebook shareholder, the reality is I’m simply someone who is currently making significant personal and business bets on all things Facebook.

As CEO of Altura Ventures – the first VC company that is fully committed to the Facebook platform, I’ve made the decision that our entire investment portfolio will be made up of companies that have a shot at leveraging the coming dominance of Facebook to lay claim to the huge swaths of the virgin application territory that were opened up for an Oklahoma-style land rush the instant the F8 Platform was announced. Our Altura Ventures entrepreneurs plus 80,000+ other developers are now working to fill in every important application area at a pace that no other social network can possibly hope to match.

Why is Facebook more like Microsoft than like Google?

Google’s entire business is based on getting people to quickly leave their site (i.e., the outbound click that is their key monetization event). Even their very powerful, 3rd party AdSense network creates the perverse incentive on destination sites of paying them for customers who leave their site. On the other hand, Facebook’s entire business is based on bringing larger number of REAL PEOPLE closer to one another than has ever been possible before and keeping them informed about and engaged in one another’s business and lives. Clearly, Facebook’s model has huge lock-in with consumers (just like Microsoft’s) whereas Google’s objective is to push consumers out a toll-gate (where the toll is paid by an advertiser).

Think about it this way: The number of minutes spent per month inside Google viewing Search Results (and ads) shrinks to ZERO at the limit because every search will someday instantly deliver such perfectly ranked results that all you need is a search box and the “I’m Feeling Lucky” button that takes you to the ideal destination page. In this model, you never actually see any google search results (or sponsored links).

Imagine if Microsoft gave Google control over the IE browser search box, URL entry box, and MSN home page BUT made the “SEARCH” button routed the consumer to Google’s “I’m Feeling Lucky” destination page. Consumers would win, anti-trust officials would be happy and surprisingly Microsoft would win because Google would lose all its native-site CPC ad revenue. The reason for this is that the very efficiency of their GREAT search algorithm would mean that no consumer would ever even need to see a Google search results page where they might be tempted to click on a Sponsored Link.

I bring this up to contrast this with the reality enjoyed by Microsoft with Windows and Office where consumers live almost entirely on Microsoft-owned real estate at both the OS/desktop and application window levels 100% of the time that they have their PC turned on. This is the type of long term viewing/interacting/connecting that occurs when you can maintain control of both the OS and the major Apps that run on it. In Microsoft’s case, they’ve found it most efficient to monetize this via license fees from Hardware OEMs and small application fees from consumers/businesses. Other monetization methods could have been used and some may be tried in the future, but Microsoft has decided to limit the full pricing power they actually have.

How will Facebook monetize their dominant position in the Social OS and App domain?

This is an open question that will be answered in the next 18 to 24 months (pre-IPO). Google was able to leverage GoTo/Overture’s patented bid-based CPC model to create a huge cash engine that the market clearly understood and respected. Had Bill Gross and Overture not licensed this patent to Google on the eve of their IPO, life might have evolved very differently for Google. Likewise, Facebook will be leveraging a new revenue generation model that answers the skeptics’ view that Facebook’s inhabitants aren’t worth as much to marketers as Google’s key word searchers.

So, the interesting questions are not:

Is Facebook worth $6 billion? Or, Is Facebook the next Google?

But, Can Facebook get to be bigger than Microsoft? And if so, When?

My current estimate is that after Facebook’s IPO in 24 months and 12 month’s after their post-mainstream adoption, they will be worth $100+ billion and about 25% of the way towards surpassing Microsoft’s OS/App driven valuation.

I must apologize in advance because most of this is actually your themes stitched together to answer your question, but none the less I liked the framing …

While it is tempting to say “google had pagerank” I think more accurately, Google was monetizing their database of intentions. Obviously, this was only possible because they first gathered a large number of user’s intentions.

So I think FB right now is in a situation where they have captured a large number of user’s social gestures, but we now need to see if they can monetize those social gestures. I think as marketing becomes more conversational it will become easier to monetize those social gestures.

- Sean

At this point, the Managment team can look at companies like Google and reasonably see a valuation number that may not be Google’s $169B market cap but is certainly much larger than the last reported $6 billion acquisition buzz. Even Google didnt have this beacon a 4 years ago.

Why haven’t any journalists reported on the problems with the MSN/Facebook ad sales partnership (which is supposedly in place through 2009)?

http://blogs.zdnet.com/micro-markets/?p=370

What was the question?

The simple answer is that Facebook is executing better than any other networks. That’s really all Google does too, they execute better. But in order to be the next Google they need to execute their business model the way Google did. Only time will tell.