By Josh Quittner

I’m rooting for the kid.

It’s not an easy decision—it never makes sense to be on the other side of Google (GOOG), and I am all for open standards. But on this one, I can’t help myself, I am rooting for the kid.

Imagine starting a business that, within 18 months, goes from nothing to 50 million members. You do everything right. You take a bit of seed capital and you make all the correct decisions, you play a scratch game, you innovate, you make a big bet, and bam! You create a product that’s so compelling, you make a market where none existed.

And now imagine that a far bigger company—no, the fifth biggest company in the U.S.!—comes along and simply copies your idea. It bigfoots you and says, you know that beautiful thing you figured out? Well we’re going to do it, too. And good luck competing with us because we’re going to take your great idea, and give it away for free to our market, which happens to be twice as large as yours before we even get started here.

In so doing, it (seemingly) neutralizes you, robs you of all the value you created.

How can you NOT root for the kid on this one?

A lot of this reminds me of the Browser Wars, when Microsoft took a similar tactic with Netscape. (“You know that cool browser you created? You know how your business model hinges on selling it to people? Well we’re copying it and giving it away for free.”) Of course, Microsoft also made the mistake of tying its browser to its operating system, which cost it billions. No one can scream “monopoly!” here.

So I’m rooting for the kid. I don’t care that, in this case, ironically, he has Microsoft (MSFT) in his corner. He is still the underdog.

I hope Dave Winer is right and that tech companies who promulgate standards to undermine other tech companies usually fail. I don’t believe him in this case. The “standard” that Google is foisting on its partners is open. It’s HTML and Javascript. Facebook has the proprietary code here.

But still I am rooting for the kid. He has momentum on his side—50 million people, and so far, Google’s ploy isn’t a good reason for any of them to leave. And that means the developers will stay. I am hoping that come next Tuesday, when he lets Madison Avenue see what Facebook can do with social ads, he’ll change the game yet again. God this is fun. That’s why I’m rooting for the kid.

By Yi-Wyn Yen

All those years playing the video game Madden NFL has paid off for Electronic Arts CEO John Riccitiello. To succeed in the video game industry, Riccitiello suggests taking a playbook from the popular sports game. Learning to react quickly, trusting his team, and admitting defeat are some of the lessons he’s applying to EA’s (ERTS) new strategy.

Riccitiello is shifting the focus of the company from publishing licensed video games to making its own titles. Earlier this month EA acquired independent developers, Pandemic Studios and BioWare, for $860 million to bulk up its library of original, high-quality games.

Madden NFL’s game-play has also been valuable to surviving in the gaming business. During a recent gathering at Berkeley Haas School of Business, Riccitiello talked about four lessons he’s learned since he joined EA as President in 1997.

Embrace change even if it costs a lot. A half century ago the three major networks — ABC, CBS, and NBC — were so dominant that they resisted change. Thirty years ago the three networks had more than 90 percent of the television market. Today, the big three account for less than half. “They were extremely arrogant,” Riccitiello says. “They viewed the rise of cable as being insignificant.

Riccitiello says the $31 billion gaming industry will suffer if it doesn’t start to reevaluate its business model. Game executives at Sony (SNE), Microsoft (MSFT) and Activision (ATVI) must answer some tough questions in the coming years, like how long they can expect consumers to pay $59 for a video game. Riccitiello predicts the model will be obsolete in the next decade.

“In the next five years, we’re all going to have to deal with this. In China, they’re giving games away for free,” he says. “People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt.” As more publishers transition to making games for online distribution, Riccitiello says he expects EA will experiment with different pricing models.

Don’t let detractors define you. Riccitiello blames the media for characterizing video games as more violent than images shown on cable TV on a typical Sunday night. He compared video clips of violent scenes from Kill Bill, CSI and 24 to games like Gears of War, Halo 3 and Grand Theft Auto. “Our industry is exceptionally well-controlled. Every game gets rated” by the Entertainment Software Review Board, he says. “The desire by the media to censor games amazes me.”

Admit your mistakes. Riccitiello concedes he failed to turn premium online-gaming service EA.com into an industry-changing product in 1999. The site launched an interactive spy thriller game in 2001 called Majestic, which featured rich, dazzling graphics that were accessed over agonizing slow dial-up modems. “It was a great idea, but it was way ahead of its time,” he says. “We spent several hundreds of millions and frankly, when it failed it took a little bit of me with it. EA’s investors weren’t going to wait five years to see it right. I had to admit my mistake and move on.”

Put your trust in visionary people. The failure of Majestic didn’t stop Riccitiello from putting faith in EA vice president Neil Young, who created the game. Shortly after, Young negotiated a deal to make the Lord of the Rings franchise, which has brought in $725 million in sales since 2004.

Riccitiello is also banking heavily on two innovators to launch big first-party games. Will Wright, the creator of Sims, is working on his highly-anticipated followup, Spore, which is expected in early 2008. And Alex Ward, a game developer who believes crashing cars can be more fun than driving fast, will release EA’s Burnout Paradise in January 2008. Says Riccitiello, “I met Alex in an English pub, and I made a judgment that he’s going to be a mega hit.”

By Josh Quittner

If you can’t beat ‘em, join ‘em. And if you can’t join ‘em, get all your friends to band together—and gang up on them!

In a move that some Silicon Valley pundits are deriding as desperate, Google (GOOG) has unveiled a plan to fight back against social network Facebook. A dozen companies, including social networks LinkedIn, Ning, hi5 and Google’s own social network Orkut, have aligned together under Google’s “OpenSocial” banner to “make the Web more social,” said Joe Kraus, who’s managing the project. Business software makers Oracle and Salesforce.com also joined the alliance.

The announcement was supposed to hold until Thursday, but the New York Times never agreed to the embargo and broke the news in today’s edition (see here). You can read Google’s press release, dated Nov. 1, here.

The goal is to lure software developers back to the open Web from Facebook and create standards for applications that can run on any social networking site. In June, Facebook opened its site to apps makers, allowing them to launch their own applications on its social network, and make money from them. Some 5,000 applications were launched enabling Facebookers to do everything from play Scrabble to engage in virtual food fights. And that caused the young site to take off, with membership growing at the healthy rate of 3% a week. It now has some 50 million members and is expected to unveil a new advertising platform next week that, many believe, will cleverly target “social ads” at users, mining their connections for useful information. If it works, it could be a huge breakthrough in online advertising.

And that’s what’s got Google taking the offensive. Google’s business model hinges on selling ads targeted against search—a diminishing activity while people are cavorting within the closed-off walls of Facebook. Adding insult to injury, last week, Microsoft (MSFT) beat out Google and bought a minority stake in Facebook—valuing it at $15 billion. That secured Redmond’s role as the social network’s sole partner in international advertising, and potentially much more.

Google’s OpenSocial project aims to do Facebook one better: It’s opening the entire Web to developers and making it even more remunerative for them to create cool applications. How? For starters, Google will be sharing critical APIs—in this case, datastreams that divulge a user’s profile information, who their friends are and what applications they install. (Among other things, that info helps applications spread virally since people see which applications their friends just installed.) While Facebook does the same thing within its closed network, twice as many people are in the Google alliance—100 million—and it’s just getting off the ground. Better yet for the developers, Google isn’t extracting a penny from them. They can keep 100% of the revenues from advertising or referrals. Finally, while developers need to learn a special programming language to write apps for Facebook, they can write widgets in HTML and Javascript—the common language of the Web.

“It’s a little bit of an apples to oranges comparison, but the full application we’ve built on Facebook took us six months to write,” said Ali Partovi of iLike, one of the better-known music applications. “The one that we’re demoing here took us a matter of days to write.” (It also looked very slick.) Partovi said that since OpenSocial uses the common languages of the Web, it will also make it easier, and cheaper, to hire programmers. Developers such as iLike will continue to work with Facebook.

Ning founder Marc Andreessen applauded Google’s move. “This is more like what we always used to do at Netscape — someone does something proprietary, so we create or embrace an open alternative and get lots of people to support it,” he wrote in an e-mail. ” We did that originally with HTML (!!) and Javascript.”

While a hand-full of demonstration projects will be unveiled Thursday, Kraus said the goal of the announcement today was to invite in the developers and get them started on rolling out new apps. He said it would be about a month before consumers started to see the first OpenSocial apps. Ultimately, the widgets could run on virtually any website that elected to participate.

“They were totally desperate,” one Silicon Valley financier observed yesterday. “Google isn’t making a dime from this. It was just a way of keeping people off Facebook.”

Kraus said that Google’s interest was in preserving the open Web. “By making the web a better place to be, Google ultimately benefits because people spend a lot of time on the Web searching,” he said. Asked whether Facebook could join the alliance, Kraus said, “Obviously we would love to have them participate.” He declined to say whether Facebook was ever invited, however.

By Michael V. Copeland and Lindsay Blakely

Instant messaging startup Meebo has opened up its online service to outside developers. It has become — wait for it — a platform.

In its new guise, Meebo will allow hand-picked developers to put their browser-based applications in front of the site’s 6 million monthly unique users. The widgets will exploit IM technology to focus on instantaneous interactions between the folks on your buddy list. The first applications announced by Meebo include audio chat, video chat and a video broadcast service that allows you to stream video to all your friends at once. (Think of it as your own live TV show.) Other buddy-friendly apps in the offing include a digital map mashup that could be accessed simultaneously by multiple users. You could debate the merits of a particular bar or restaurant, for example. Games are another obvious category, Battleship anyone?

Meebo CEO Seth Sternberg is quick to point out that he and the Meebo co-founders had this platform idea two years ago when they were first pitching the Mountain View, Calif., company to investors like Sequoia Capital. While that may be true, Facebook did it first, and is effectively the largest social network platform on the planet these days. And don’t forget that other massive social networks like MySpace and Bebo are busy working on their own platform plays. The big question is, is their room for more than one, even a handful of these platform plays?

“What it comes down to is that an attractive platform is directly related to the number of users it can bring to the developers,” says Jeremy Liew, a partner at venture capital firm Lightspeed Venture Partners. “If that’s the case, not everyone can be a platform.”

Facebook and Meebo are already competing for users’ time. Now they will be competing for developers’ attention and efforts. Meebo’s tack, and it’s a smart one, is to pay developers more to do their coding for Meebo. The startup will share with the developer half the advertising revenue any application generates. And rather than let developers hawk ads, Meebo will do the selling for the site. Facebook leaves ad sales to the outside developers, and while a few of the most popular Facebook applications make money for their creators, the vast majority do not. “These people are engineers,” Sternberg says. “They’re good at coding applications, not selling ads.”

The Meebo gang also claims their service is not a direct competitor to Facebook’s. “Facebook is all about leaving a message for someone to pick up later, it’s asynchronous,” says Sternberg. “We are all about live, synchronous communication. It’s very different and those developers that have tried it on Facebook have not found an audience.”

Meebo is welcoming those developers to their side of the social network playground. And there is reason to believe if Meebo can offer them the right kind of distribution and the right kind of remuneration, they will take that offer. Popular widgetmaker RockYou, for one, sees the opportunity in developing its multimedia slideshows and other social networking widgets on top of Meebo.

“People haven’t thought that much about IM because the software has always been proprietary,” says RockYou co-founder Jia Shen. He notes there’s no reason why Meebo can’t become as successful a platform as Facebook. Unlike the social network, “Meebo is going to be more focused on real-time interaction -– that’s its advantage.”

Still, there is nothing to prevent Facebook from developing its own IM service to try to keep its members and all the developers to itself. Or not bother and just buy Meebo, says StumbleUpon CEO Garrett Camp. “They’ve got to do something with that $250 million they just got.”

By Jeffrey M. O’Brien

Gaming powerhouse Nintendo (NTDOY) announced late last week a revamping of its Nintendo of America marketing department. Out go SVP of marketing George Harrison and VP of marketing Perrin Kaplan. In come the former head of marketing at Yahoo (YHOO), Cammie Dunaway, and Shigeyuki Takahashi, the former head of Nintendo Research. Dunaway will serve as EVP of sales & marketing, reporting to NOA president Reggie Fils-Aime, aka “the Regginator. ” Takahashi, the new EVP of special assignments, will consult the marketing department while trying to expand the company’s North American business.

The timing is auspicious, considering that Advertising Age just awarded its Marketer of the Year award to Harrison, Kaplan and senior director of consumer marketing Robert Matthews for their work hawking the DS and Wii. But the company had to see this coming when it decided last year to move the NOA headquarters from Redmond to Silicon Valley. (There’s an invite-only grand opening party this Thursday, btw.) Word is the duo, as well as 90% of the marketing staff, refused to leave the Pacific Northwest.

Given the company’s runaway success, a tripling of first-half profits and revised earnings guidance for the year, some think Dunaway has landed the easiest job in the world. But not all is rosy in Nintendo land. For starters, working at the U.S. arm of a Japanese company can be a nightmare. Kaplan, who had been with Nintendo for 15 years, was by all appearances a master at communicating with the mothership in Kyoto. What’s more, Microsoft’s (MSFT) Xbox 360 outsold the Wii in September thanks to the much-anticipated launch of Halo 3. (Sony’s (SNE) PS3 remains an also-ran). And then there are the continued inventory shortages. What’s a marketer to do when there’s no product to sell? She can push the games, sure, but has to be careful about creating too much disappointment among would-be Wii owners who can’t find a unit to buy.

And then there’s the growing concern that Wii is a fad. Everyone (hard-core gamers, mainly) who has said so from the beginning has been proven wrong. But I’ve watched my own habits and have lately become concerned for the company. I’ve never been an avid gamer, but immediately saw the appeal of the Wii (conveyed so expertly in the bundled title Wii Sports). Lately, however, the console has been getting little use and my household has returned to non-gaming status. Dunaway has to figure out a way to get me back up off the couch — which my wife and friends can tell you is definitely not the easiest job in the world.

By Lindsay Blakely

With Facebook widely expected to unveil a big advertising initiative next week, ad network AdBrite today is launching its own way for advertisers to target consumers on the social networking site.

The question, of course, is if Facebook gets into the ad game, will there be room for anyone else?

“Facebook may have a brilliant new way to do ad targeting based on profiles,” but that doesn’t mean it will crush the ad network business, insists AdBrite co-founder Philip Kaplan.

AdBrite lets advertisers buy space on websites of their choosing or target groups of consumers according to geography, demographics, keywords or channels, like health and finance. Web developers can also use AdBrite’s self-service marketplace to sell real estate on their websites to advertisers. AdBrite now will facilitate buying and selling ad space on Facebook applications. Like other ad networks, AdBrite is trying to profit by connecting social network developers with advertisers.

Kaplan notes that when Facebook signed on Microsoft last year to provide its advertising the deal didn’t hurt ad networks’ business and he suspects that whatever Facebook has planned won’t either.

“Nobody has an exclusive on Facebook,” he says, “unless the company changes its policies. But that would derail the idea of having an open platform.”

Others in the ad business aren’t quite so confident. Scott Rafer founded Lookery in July as a Facebook-specific ad network. But Lookery is now looking to take its ad business outside of Facebook by gathering data it collects on smaller social networks and marketing it to other developers and advertisers.

“We’re going to be excluded,” Rafer says. “I’m of the opinion that Facebook is not going to set a rule that they’re the only ad network, but they’re going to do a good enough job that there will be no significant business left for third-party ad networks.”

Facebook has declined to comment on its advertising plans.

Rafer says Facebook’s big challenge is to figure out how to spot social momentum behind products. For example, the social network needs to find a way to pinpoint and capitalize on a wave of popularity behind a new book or music album.

Peanut Labs is another new company that is trying to make money off social networking but by selling market research rather than ads. Facebook application developers can offer virtual currency, or peanuts, to their users in order to get them to participate in surveys that collect information about their interests. Each completed survey is worth from $3-5 and the revenue is split equally between Peanut Labs and the developer. The company is only three months old, but founder Murtaza Hussain claims it has a reach of 10 million users and paid out $100,000 to developers last month.

Hussain says traditional ad networks like AdBrite should be worried. “The mothership will always get better cpms and targeting than anyone else’s.”

By Josh Quittner

Apple is the king of simplicity. A huge amount of engineering and thought goes into making every aspect of every product — from how the thing works, to how it’s packaged — simple. One could argue that’s Steve Jobs’s greatest gift: taking the enormous complexity out of technology, and making a tool work as it should.

Luckily, lots of companies are finally starting to get this. A smart, new product I’ve been fooling around with lately, the Eye-Fi Card, is a great example. The gadget takes something complex (uploading digital photographs) and let’s you do it simply (on most cameras, via Wifi).  The $99, 2-gigabyte WiFi-enabled memory card goes on sale today at online stores such as Amazon and Wal-Mart.

Perhaps uploading photographs isn’t complex so much as it is too-many stepped and annoying. Either way, people simply don’t do it: Some 4 out of 5 pictures are never uploaded and languish, forgotten, on digital cameras. Eye-Fi solves the problem by converting most digital cameras to WiFi, and allowing them to transmit photos over home wireless networks. The card works on any digital camera that has a slot for an SD memory card — that would be more than 60% of digital cameras out there.

The Eye-Fi Card looks like a garden-variety SD card, but contains a tiny WiFi transmitter. It’s a real feat of engineering, given that the entrepreneurs who founded the company two years ago figured out how to embed a WiFi chip on an SD card without drawing too much battery power or adding an external antenna. Try doing that for under $100. Some half-dozen patents (pending) flowed from that work. (See Fortune writer Michal Lev-Ram’s report on Eye-Fi, “New WiFi camera technology a boon for photo-sharing sites.”)

While setting up WiFi networks can be an exasperating exercise, installing the Eye-Fi Card may be the simplest tech chore I’ve ever performed. It was Apple-like, starting with the packaging: There’s only one way to open the box — via a tiny tab that juts out on the side. Pull the tab and the card slides out on the left side, and a Quick Start Guide slides out on the right side. Follow four steps — which take about two minutes — and you’re good to go.

The Eye-Fi Card slots into a USB reader, which fits into your computer during configuration. (PCs and Macs are supported.) During the config process, you can choose whether to automatically upload your pictures to your computer and to most major, photo-sharing sites, including such Web 2.0 stalwarts as Facebook, Flickr and Typepad. When you’re done with the setup, simply remove the USB reader, pull out the 2-gigabyte card, and put the card in your camera.

The rest is automatic. When you take a picture, it flows to your computer and to any photo-sharing sites you selected, as well as to your free, online Eye-Fi account. It’s pretty fast, too. The picture above was taken with a 5-megapixel Casio Exilim; it took 10 seconds to stream from my camera to my MacBook Pro.

Some tweakage may be required. I had to adjust the power settings on my camera to ensure it stayed awake long enough to transmit the images.

Emboldened by how easy it was to use, I took the Eye-Fi on the road and attempted to add a public WiFi network at a conference, and then my local network at work. Inadvertently, I had stumbled onto two things that the system cannot currently do. The public WiFi network had a “landing page” — as do many sites that offer free Wifi or sell it at airports so users can sign up for the service. Eye-Fi can’t handle landing pages. And in the case of my office wireless network, Eye-Fi can’t deal with so-called transparent proxies — a common protocol used on such networks for security reasons. A company spokesman said that future versions would address those issues.

But for now, the Eye-Fi works quite well on home networks, and you can add as many of them as you can access. I predict this will be a huge hit at the holidays. Indeed, it may be the first holiday season to actually be seen by future generations in too many awful digital photos.

By Michal Lev-Ram

At a friend’s wedding back in 2004, Yuval Koren and fellow guests snapped dozens of photos of the special day. They promised to share their pictures, but months later Koren realized he still hadn’t seen any of them.

That got the former Cisco Systems engineer thinking — what good are digital cameras if many of the pictures they take remain imprisoned on memory cards? Convinced that consumers would pay for an easier way to upload their photos, Koren left Cisco, assembled a team and founded Mountain View, Calif.-based Eye-Fi. Last summer the company raised $5.5 million from Silicon Valley firms Shasta Ventures and Opus Capital.

The result is an orange 2-gigabyte memory card embedded with a Wi-Fi chip that allows cameras to automatically and wirelessly upload digital pictures. The $99.99 Eye-Fi (available for Mac and PC) hits online store like Amazon and Wal-Mart today. (For a review of the Eye-Fi by Fortune’s Josh Quittner, see “Wireless photo-sharing.”)

“We evaluated a few different solutions,” says Koren. “This was definitely the easiest for mass consumers to adopt.”

And that, says Eye-Fi co-founder Ziv Gillat, the company’s VP of marketing and sales, could mean more business for photo-sharing sites websites that rely on members uploading and sharing new pictures as often as possible.

“We’re unlocking potential money here,” says Gillat. He adds that photos that aren’t uploaded within a week generally don’t get printed — one of the ways photo sharing sites make money.

“People want to share photos quickly,” agrees Alice Lankester, VP of marketing at Photobucket, a photo-sharing site owned by News Corp.’s Fox Interactive Media and an Eye-Fi partner. “They’re looking for ways to simplify that process.”

Here’s how Eye-Fi works: Camera owners set up their Eye-Fi account online and choose where they’d like to upload photos online and on their desktops. Photos can be sent to 17 photo-sharing and blogging sites, including iPhoto, Flickr, Shutterfly and TypePad. They then pop the Eye-Fi card into their camera’s memory card slot and snap away. A Wi-Fi chip (made by Santa Clara, Calif.-based Atheros) then communicates with their home network and automatically uploads photos to their computer and the Web.

Of course, Eye-Fi isn’t the only solution to the digital photo conundrum. Some pricey high-end digital cameras already come equipped with a built-in Wi-Fi chip.

The coolness of Eye-Fi’s WiFi memory card aside, some analysts say the company’s real value derives from the software it’s developed to automatically send photos to multiple websites and locations on a computer.

“I am 100 percent enthusiastic about the notion of automatically getting photos moved from the camera to various destinations,” says Steven Wilson, principal analyst with ABI Research. “However, that is a software problem, not a hardware problem.”

Indeed, Gillat says software-licensing deals may eventually be part of Eye-Fi’s plan. For the time being, though, Eye-Fi is counting on the effortlessness of WiFi photo-sharing to boost its fortunes. For while uploading photos via WiFi can take longer than plugging in a USB cable, it’s the simplicity factor that counts.

By Jessi Hempel and Lindsay Blakely

Now that Facebook has scored a $240 million investment from Microsoft (MSFT) and is reportedly negotiating for another $500 million from two New York hedge funds, it’s time to ask: how is Mark Zuckerberg going to use that pile of cash to make money off his social networking site’s nearly 50 million members?

One clue came this week when a select group of national advertisers received heavy Lucite invitations requesting their presence at a Nov. 6 Facebook event in New York. The shindig falls during Ad:Tech, an interactive marketing conference, and will take place one day after Google (GOOG) is expected to announce its new social platform. The mystery event, along with the Silicon Valley’s company’s move to trademark the term “SocialAds” last month, has advertisers up and down Madison Avenue speculating about Facebook’s plans.

With a newly minted $15 billion valuation, expectations are high for the company to unveil something big. Facebook’s announcement in May that it was opening its platform to third-party developers caused quite a stir among Silicon Valley investors and sent membership skyrocketing. Yet even as Facebook has led the development charge on social networks, it has done little so far to exploit the site’s true advertising reach. The company is private and remains tight-lipped on numbers, but it is widely reported that Facebook earned a profit of $30 million this year on $150 million in sales. With a $15 billion valuation, that translates into 500 times earnings.

The ad industry is divided over Facebook’s advertising potential. Clearly the market — or at least, Microsoft — has spoken, and it’s making a very large bet that Facebook is the next big payday. Says Bryan Wiener, president of digital marketing agency 360i, “What the market is saying from an equity valuation standpoint is that creating an open system in the long run is going to create more value than trying to have a closed system.” Wiener notes Facebook will have to now help marketers bring “value into the conversation” and thereby appeal to Facebook users.

So far, however, Facebook’s advertising opportunities have been limited to banner ads that run down the side of pages and smaller ads that appear in news feeds. Advertisers can also pay to sponsor groups.

The question now is whether a cashed-up Facebook will bring the leadership, drive and vision to advertising that it has brought to software development. Ad industry magazine AdAge reports that the social network may be looking to tweak behavioral targeting technology so that advertisers can use Facebook profile data to target users even when they’re off Facebook. Let’s say a Facebook member declares her favorite movie is The Breakfast Club. Facebook could sell that information to a movie studio, which would then use it to send ads about its next film to her when she’s on other sites.

A Facebook spokeswoman declined to comment on the company’s advertising plans.

Facebook could also experiment with some other alternatives.  “Facebook thinks in a big and different way,” said Forrester Research analyst Charlene Li. She says advertisers and Facebook members could both benefit if users could choose which ads appeared on their profiles — rather like the way they choose which applications they want to add. “That level of brand affinity is extremely valuable and could potentially redefine the way advertising is done,” Li says. Facebook will of course need to disclose how it’s going to use personal information to avoid a privacy backlash.

But some say that Facebook will face a significant challenge in trying to make money off the information provided by its members. Rishad Tobbacowala, CEO of the Denuo Group, a consulting wing of the Publicis ad agency, says Facebook will need to do something radical because so far social networks have not proven to be effective advertising vehicles. “All of that profile data is actually not that targetable right now,” Tobbacowala says. “It’s too broad. This is a question of class versus mass and they’re going to have to give marketers the ability to do things better than they could with mass media.”

Still, an increasing number of ad dollars are being sunk into social networking. U.S. ad spending on social networks will likely total $900 million in 2007, up from $350 million in 2006, according a May report from market research firm eMarketer. By 2011, it is predicted to jump to $2.5 billion. And as advertisers move to brand advertising on the Web, they will look to use more targeted advertising that goes well beyond the traditional banner ad.

But with Facebook growing by 200,000 registered users every day – the site received nearly 1 percent of all Internet visits in the week that ended Oct. 20 – other ad execs counsel patience. “They’re trying to achieve something Google achieved several years ago with page rank,” says Mark Ury, the consumer experience architect for Blast Radius, a digital ad agency that was bought by British marketing giant WPP last week. “It wasn’t until Google connected the dots through page rank that the web became supercharged. If Google helped us find things, Facebook is aiming to help us find each other. They are trying to build an operating system on the Web.”

By Yi-Wyn Yen

Making small business loans to the world’s poor is now as easy as buying an iPod on eBay. The auction giant has launched MicroPlace, a for-profit online service that allows mom-and-pop investors to provide low-interest “microfinance” in developing countries while earning interest off the loans.

Small, individual loans provide the cash for budding entrepreneurs to do things like buy a cow to sell milk or a fruit squeezer to open a juice stand. MicroPlace investors can loan as little as $100 with interest rates ranging from 1% to 4%. “All it takes is a small amount of capital to lift people out of poverty,” says MicroPlace founder Tracey Pettengil Turner.

MicroPlace is the first microfinance site that permits ordinary investors to profit from their loans. By acting as a broker between investors and microfinance institutions, it potentially lets all parties make money – from the working poor to the individual lenders. MicroPlace is similar to non-profit site Kiva.org. But while Kiva allows people to loan money online to specific individuals, it does not pay interest on the microloans.

The idea of profiting from the poor makes some critics uneasy, and they say it may be better to donate a check to established microfinance groups like Accion International or Finca International. “It’s an exciting model in that you’re connecting people and making a direct difference,” says Jonathan Morduch, a professor of public policy at NYU who co-authored a book on microfinance economy. “But over the long haul it hasn’t yet proved itself as an established model where you write a check to an institution or network. I’m willing to trust an expert to pick a field and figure out how to best use the money. I’m less confident that I can make the best choice sitting in my home office.”

MicroPlace says the interest payments are an incentive for people to make a little money while also helping to cure global poverty. “This isn’t the same as getting your money back from the stock market,” notes Morduch. “Maybe it’s better if the extra $15 you make on a return stays with the institution if it means it can actually do more for poor people.”

The MicroPlace works a lot like investing in a mutual fund. The site, which had been in development when eBay (EBAY) acquired MicroPlace in June 2006, lets individual investors pick a fund from a specific region or country. The funds are managed by the non-profit investor Calvert Foundation and Dutch microfinancier Oikocredit, which reinvests the money with hundreds of local lenders that make loans to the impoverished. MicroPlace investors can make a loan through a bank or PayPal, which processes payments for free. While there’s no guarantee that investors will make back their principal, let alone interest, Turner says microfinance receipients have a 97% repayment rate.

Much like eBay’s marketplace, MicroPlace earns revenue from listing fees that it charges the fund issuer. An eBay spokesperson says if MicroPlace becomes profitable, it’ll use future revenues to fund other socially-minded initiatives within the company.

EBay’s interest in microfinance was established by company founder Pierre Omidyar. A proponent of helping the poor create sustainable economies, he created his foundation, Omidyar Network in 2004, and helped advise MicroPlace in its early stages. Former eBay executive Matt Bannick, who spearheaded the purchase of MicroPlace, left the company in March to run Omidyar Network. Says Turner, “Matt felt it was a good fit for eBay to leverage its expertise in building marketplaces with small business owners, payment processing, and connecting people with one another to change world ideas.”

Turner hopes MicroPlace’s approach will help grow the industry from 100 million investors to 1 billion worldwide and subsequently, reach billions of the poor. The idea for the site struck her when she worked for microfinance pioneer Grameen Foundation in 1998.

Turner went to visit a woman in an extremely poor Bangladesh village. The woman had received a modest loan that allowed her to buy a handloom to weave fabric. She sold enough fabric to repay the loan, send her kids to school and earn a profit. A photo of her now hangs in Turner’s living room.

Says Turner, “I keep that photo there to remind me how everyday people like you and me can reach out and help people like Mina Choudhary in a sustainable way.”