SAN FRANCISCO - A year ago, when Facebook opened up its social networking site to software developers, it was Silicon Valley's hot new young thing.
After forming a developer's sandbox, where programmers were given free rein to play and create everything from inane applications like vampire biting, to useful ones such as finding friends you might know, Facebook's user base began to explode. It was the talk of the valley: Microsoft Corp. made an investment and even Google was jealous of the attention the company was getting.
But what a difference a year makes. As Facebook gears up to host its first big developer conference this Wednesday and a major revamp to its site, it is going through some growing pains. I also think Facebook has lost some of its buzz factor in the valley. Some also believe that its valuation on paper, once pegged at $15 billion, has notably declined.
And now, Facebook is also competing for attention from software developers entranced with Apple Inc.'s new, faster 3G iPhone and its application store. Some see a better way to make money, even at the low rates Apple charges for some mobile applications, ranging from 99 cents to $1.99 that users can download to the iPhone, while Facebook applications are for the most part free.
"There was a fascination with Facebook in the valley that hit its zenith last year," said Dave Sifry, founder and chief executive of OffBeatGuides.com, a new startup in San Francisco.
To be fair, the numbers so far tell a much different story, and seem to contradict me. Facebook seems to be on an unstoppable roll. In April, it narrowly surpassed MySpace (which, like MarketWatch is owned by News Corp. in terms of unique visitors worldwide, to become the world's largest social network, according to comScore data. In May, Facebook had an even stronger lead, with 123.8 million unique visitors, compared with 114.6 million at MySpace, which saw traffic decline slightly from the month before.
And therein lies one of the company's problems. The site's architecture is not dealing well with the massive increase in visitors and the growth in applications, some of which are viral and add to the problem.
"I have noticed a bunch of operational issues, including latency, pages not loading, basically inconsistent response times," said Ray Valdes, a Gartner analyst. "It is something that plagues social sites in general when they have high growth and they are rewriting their software continually."
Facebook, which at least manages to stay live but often becomes sluggish, recently got a new round of funding in the form of debt, which it plans to use to further build out its infrastructure.
The company also recently improved some controls that make it more difficult for applications to be spammed to friends, an additional processing burden to the site. Previously installing a viral application would send a spam e-mail to your friends, telling them you've added an application. Valdes said that some of these viral applications have resulted in some artificial growth, and he commended Facebook for dealing with them.
"They realized the gates were opened too wide," Valdes said. "They gave developers too much freedom to inflict their own agendas on users."
At the same time, Facebook has also made a few moves irking developers. For example, it copied some functions in Slide's "Top Friends" application, a move that reminded some of Apple and Microsoft in their more predatory forms. Slide, which is known for some of the most popular as well as annoying applications such as sheep throwing and poking, is also developing applications for the iPhone.
"Everyone wants to build an application now for the iPhone," said Mukund Mohan, an entrepreneur working on a startup in Palo Alto.
Salil Deshpande, a general partner with Bay Partners who leads its App Factory fund for Facebook developers, said if the company wants its social network to be a development platform, much like a computer or an operating system, it needs to behave like a platform company.
"This is more easily said than done," Deshpande said. "It took platform companies such as Microsoft, Apple, and Sun Microsystems, years to get this right."
Microsoft CEO Steve Ballmer pointed out recently that social networking companies tend to be faddish, and indeed, the past failures and travails of companies like Friendster, Tribe and others prove him correct. And Facebook, which was clearly last year's hot property, may have been usurped this year by Twitter, FriendFeed, and to some extent, the iPhone.
Facebook isn't going away anytime soon. Sudha Jamthe, who with a group of volunteers organizes the Bay Area Facebook Developer Meetup, said there is still magic in the air with Facebook. "The excitement among developers is still going on," she said.
Facebook still has the potential to become a big financial success, and perhaps an eventual public offering that could wake up the moribund IPO market. But the company needs to do more than just a cosmetic makeover to ensure that developers and its growing user base keeps going back, again and again.
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