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Michael Brush

Company Focus3/25/2009 12:01 AM ET

Is Facebook the new Wal-Mart?

MySpace and other social-networking sites, beware: Facebook could squeeze you like Wal-Mart has squeezed mom-and-pop shops across America. Even Internet giants such as Google could lose ground.

By Michael Brush
MSN Money

Given the way social networking has exploded on the Web, it was inevitable that one player would soon emerge as the Wal-Mart of the space.

By many measures, that's now Facebook.

It's a giant, like Wal-Mart Stores (WMT, news, msgs). And as a one-stop shop that lets users easily build networks of friends to share news and photos, join groups and search for school and work buddies, it has the potential to bury MySpace, Classmates.com and other competitors the way Wal-Mart has busted local retailers.

In fact, even giants Google (GOOG, news, msgs), Yahoo (YHOO, news, msgs) and Microsoft's (MSFT, news, msgs) MSN might be getting nervous, because tools such as instant messaging and e-mail are built right in. (Microsoft publishes MSN Money and owns a small piece of Facebook.)

Cool goes mainstream

Yes, I can hear the howls of protest from Facebook's early adopters. How can the once-hip enclave of elite Harvard students now be anything like Wal-Mart?

Well, first of all, being like Wal-Mart isn't necessarily uncool. A lot of shoppers like the discount chain despite its detractors. Plus, money is cool, and being the "big box" of social networking means Facebook is best positioned to profit from the Web's hottest trend.

True, Wal-Mart has a "Main Street vibe" and Facebook represents "urbanism," in the words of Kevin Driscoll, a Massachusetts Institute of Technology expert in comparative media studies who tracks social-networking sites.

But let's face it: Facebook has sacrificed cool to go decidedly mainstream. Consider:

  • Its traffic. In December, 108 million people, or 30% of the world's Internet population, visited Facebook, compared with 81 million who visited MySpace, according to Nielsen Media Research.

  • Its users. Facebook now reports more than 175 million active users, compared with 130 million for MySpace, its closest direct competitor. "Facebook is eating MySpace's lunch," says Bill Douglass, a social-media strategist with Brainerd Communicators.

  • Its value. Two years ago, based on the sale of 1.6% of its business to Microsoft, Facebook might have been worth $15 billion. That's up there with household names like Nissan Motor (NSANY, news, msgs), Halliburton (HAL, news, msgs) and Kellogg (K, news, msgs) today.

Facebook's valuation was hotly debated and would likely be lower in today's bear market. But we won't know how much Facebook is worth unless it goes public or is sold to a media giant. Some now predict an initial public offering in 2010, but earlier rumors had predicted an IPO in 2009, 2008 and 2007, so don't hold your breath.

For now, only founder Mark Zuckerberg knows what he plans to do with all of Facebook's power.

Web's hottest trend

The idea of linking people with common interests into online communities is as old as the Internet. But lately, social networking has exploded. Ratings company Nielsen recently reported that time spent on social networks and blogging sites had grown by 63% last December compared with a year before. Three of four adults in the U.S. now participate.

Sites range from small, special-interest sites such as CafeMom to giants like MySpace and Facebook. Facebook began its path to the top when it decided to lift "college only" restrictions in 2006.

The cool fell away as more "old people" showed up, says Andrew Foote of Cohn & Wolfe, a marketing firm. But "Facebook had to lose its exclusivity to become a 'big box retailer.'"

In fact, older people are the ones flocking to Facebook right now. The fastest-growing age group is the over-55 crowd; membership in this group grew 27% during February alone. They now represent 9% of users overall, according to Hitwise, a Web site tracking firm. The next-fastest-growing age group is 45 to 54; its numbers rose 21% in February. The 45-to-54 age group now totals 17% of all users. (In contrast, the number of younger users is declining.)

"Adults are driven to the site in part to build their 'social capital,'" says Matthew Fraser, a social-networking expert. As they socialize, they're looking to develop ties to influential people and swap useful information, he says. It's just like joining groups in real life, but they can connect with people around the world.

In a sense, Facebook users benefit from the same sort of globalization that lets Wal-Mart shoppers find cheaper goods made overseas.

"You can go beyond normal constraints of time and space and connect with people who are far away," says Fraser, a co-author of the book "Throwing Sheep in the Boardroom: How Online Social Networking Will Transform Your Life, Work and World."

Continued: The 1-stop shop

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