Is Facebook stifling innovation?

The answer could prevent startups like foursquare from ever coming to be.

I predict that social geotagging service "Places" will be Facebook's TCP/IP moment. During the 1990s, Microsoft started to aggressively integrate previously standalone features into Windows, with TCP/IP and disk compression being notable. The features' integration made products from smaller companies -- many of them startups -- redundant. Microsoft didn't necessarily offer something better, but something free and easily accessible as part of Windows.

Particularly during the late 1990s, it seemed like anyone developing anything would ask whether or not Microsoft would move into their market. The day's hot startup could be tomorrow's roadkill if Microsoft chose to suck some new capability into Windows. Critics, and later the US government, charged Microsoft with stifling innovation, particularly as Windows' popularity increased. Facebook is starting to look eerily similar.

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The companies aren't just similar, so are their platforms, which is reason enough to ask the "stifling innovation" question. As I explained in September 2007 post "Microsoft's Facebook in the Mirror," the social networking service shares surprising similarities with Windows:

Like Windows, Facebook is an enclosed platform, and one where people can install applications, post and share digital content and communicate with friends, families or others in ways they might do with Windows on PCs.

Facebook is also a lot more like Microsoft than it resembles Google, because it's so-called openness is more of a one-way street. Information goes in, but it doesn't easily come out. Developers write applications for the one platform, which is different from, say, tapping into Google APIs (application programming interfaces) for use elsewhere. Facebook and Google both take platform approaches, but Facebook's way is more like Windows than Web 2.0.

I've repeatedly called Facebook "Windows in the cloud." The platforms simply reside in different places: The cloud data center rather than the local PC. Microsoft's integration approach arguably stifled software competition on the PC. Facebook can do something similar for social services served up from the cloud to mobile devices. Microsoft's integration approach also put it in direct competition with its Windows development partners. Facebook's position is similar.

Facebook announced Places at 8 pm ET yesterday, much to the chagrin of East Coast journalists (I read complaints on Twitter). Facebook put on a good face, seemingly making the Places launch a happy place. Major competitors like foursquare and Gowalla joined Facebook for the announcement. It was all huggy and kissy, but really the kiss of death. Standalone social geotagging services, where people checkin to let friends know their location, are endangered species.

Facebook Places"Oh, yeah?" you ask. I can recall countess events where Microsoft competitors put on the happy face during similar past announcements. They received the kiss of death and died. That's how business is done. What other choice do foursquare and Gowalla have? They run little shops, and Walmart just opened a Super Center down the block. Competition is brutal, baby. Take a look at Facebook's Places logo. Is that a 4 in a square? Get it?

That said, the competing business models are different. Microsoft vanquished products that consumers or businesses paid for. Facebook is potentially killing competitors even before they have clear revenue streams in place. The competitive chilling effects could be much more severe. Many startups are nearly or wholly reliant on venture capital funding. When their founders are asked about future Facebook competition, how can they answer -- particularly if the social media service will be given away for free at first and monetized later? Investors may be harder to come by, fearing they could lose their wad before the startup ever has a chance to succeed. Someone's good idea today becomes their death by Facebook integration tomorrow.

I'll close by asking a question for which I encourage readers to answer in comments: Could Twitter have been funded in 2006 if Facebook was as big then as it is today? You can guess my answer, particularly considering how many times the question is asked today about Twitter's future.

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