It seems pretty obvious to me how Facebook is going to end up printing money. We already got a preview with Zynga. Display ads are a red herring and just there to keep the company profitable while the master plan is rolling into place. Eventually that ponzi scheme will bottom out but by that point it won't matter anymore. (Though FB might be cheap for a quarter after it does!)
Zuckerberg's thesis is that eventually all software is going to be social by default. Does social just mean "it has my friend graph?" No. It means it has access to all of the things your friends are doing right now and ever. And it also means it has access to all physical and virtual entities connected to you. The music you've played, the photos you've viewed, the videos you've watched, tracking all these things are possible today. In the future it will mean every little thing you do is getting logged by a big server in the sky. The places you go, the conversations you have, the things you look at, touch, smell, and taste. Facebook's goal is to be that server that all that data streams into. This is the reason that Google is shitting their pants trying to "iPhone" them by creating stuff like Google Glass, since unless they leapfrog them Facebook will be a large part of the "world's information" they cannot organize. It has nothing to do with search not being "social" (another red herring), it has to do with Google being left behind as Zuck spends 10 years rewriting the rules of the game, much like how Microsoft is suffering due to Steve Jobs doing the same. It's one thing for Facebook to make Google search obsolete somehow, its quite another for Facebook to make all software Google writes, now and in the future obsolete, which they are poised to do.
As for Microsoft, their investment into Facebook might be looked back upon as the smartest business transaction of the 21st century, if it gives them special privileges in building systems that are enabled by the data Facebook can give them. 2000-2010 might just end up being a "lost decade" for Microsoft, and they may yet come out ahead in the future of software in a way Google will be unable to. (And Amazon, as an aside, will be selling AWS pickaxes to everyone the whole time.)
All apps of the future are going to either be connected to the pulse of this feed of information or they are not. The ones that are not will slowly but surely be replaced by those that are, since they will be not just inferior but essentially braindead.
We are still in the playground stages of all of this since Zuckerberg is still plugging together the pieces. The stuff being built now is just scratching the surface since we don't know what we're doing and there are still gaps in the availability of this data. There is also a generational gap. Most people on HN cringe when they have to accept a Facebook dialog. Our younger siblings and kids will have opt-ed in to the big server in the sky in full, no holds barred, when they turn 13. By 18 it will be a distant memory that these choices were even made, and that they were choices in the first place. And by then they will be fully profiled by data mining algorithms, using software that knows them as well as their parents do (if not better.) And, for most software, opting out will mean the software basically doesn't work.
Once we are there, Facebook is essentially going to be able to implement a tax, much like Microsoft did for many years. Its hard to imagine how they will be usurped if they manage to get to this point, as they will be more integrated into the fabric of our lives than any other business I can imagine. More than banking, more than the utility companies, more than any retailers wet dream. Even more than Google. They have a strong technical team and a young, visionary founder who has absolute control of the company.
What could go wrong? Eventually we might see an anti-trust suit (think 2016-2017 time frame) but Google is doing its best to create the illusion of competition on that front. And, of course, Facebook still has (and will always have) a bus factor of 1, which can't be very reassuring to investors. If you step back and look on a 5, 10, 15 year window, though, you'll realize they are essentially unstoppable.
I don't disagree with the path you see Facebook going down and how disruptive it might be to Google. However, we shouldn't disallow for the chance that there will be an alternate future where "every little thing you do" is owned by an individual instead of a corporation or multitude of corporations. A personal data store, that companies pay the individual to access, is not inconceivable. It's being created by researchers[1] and start-ups[2] and may be accelerated by privacy laws.
Sorry, but I don't see things playing out in this way.
"It means it has access to all of the things your friends are doing right now and ever. And it also means it has access to all physical and virtual entities connected to you. The music you've played, the photos you've viewed, the videos you've watched, tracking all these things are possible today."
In terms of friends' activities, Facebook only has access to what people voluntarily post to it. And in my experience, only a small percentage of my "Facebook friends" actually post regularly about their activities. Moreover, that number seems to be going down, as though my friends have been using Facebook less as the years go by. Whether that's just because these people are getting older, or whether Facebook usage really is decreasing across all users, I don't know.
Sure, Facebook can see and analyze which Facebook photos you've looked at, but why is this particularly interesting? It's just a bunch of people dancing at bars, or maybe a few family vacation shots, at least in my experience. For videos, most videos people watch are on Youtube, not Facebook. So +1 for Google in that case (although I also don't see how this fits into the master plan you are describing). And for music, well, Facebook doesn't see what music I listen to. I don't list it in my profile, nor do I use Spotify or another Facebook-connected music program. I suspect most others are the same, as I don't see much music related stuff in my news feed. I don't see this changing in the future (and I even suspect that Spotify has come to view mandatory Facebook authentication as a mistake).
"...they will be more integrated into the fabric of our lives than any other business I can imagine. More than banking, more than the utility companies, more than any retailers wet dream."
This is ridiculous. Even if a majority of businesses were to use Facebook to authenticate and track users, they are under no obligation to send this data back to Facebook (and, through Facebook, to other companies--possibly competitors--also connected to Facebook). The best Facebook could hope to do is impose a fee for using their authentication, and since they aren't doing this now I doubt they would ever.
Businesses just won't accede to sharing their information back to Facebook to the extent you think they will. They have no reason to, and plenty of reasons not to. The only things they will share are items users have specifically authorized them to post into their feeds[1], and based on my Facebook experience, those things are relatively few and far between (almost all of my feed is just status updates expressing an opinion or thought, or picture uploads).
[1] with the possible exception of spammy "social" games, which seem to find ways to post things even if players didn't really want them to -- but such spammy updates will only further drive people away from Facebook in the long run
The point is that eventually all businesses are going to have to integrate with Facebook if they want to compete. And, as part of that integration, data will be flowing back into Facebook. The more data that flows back, the more those businesses can extend the capabilities of their app in novel ways.
Right now things are incredibly primitive. Pictures at bars on the surface seem useless, but we're living in an era where machine learning and machine vision can extract tons of information out of those photos and that behavior. All it takes are a few nuggets of facts about a person that cannot be ascertained otherwise and Facebook has an unfair advantage as soon as people learn how to apply those facts in a way that puts them at an advantage.
I would not look to the status quo as an indicator of how this is all going to tie together. You and I are not going to be part of this, most likey, we are too old. Facebook hasn't even created a phone yet. Once they have hardware out in the field that is Facebook-enabled things are going to change rapidly since those devices are going to make non-Facebook devices look braindead, even today.
Zuckerberg's thesis is that eventually all software is going to be social by default. Does social just mean "it has my friend graph?" No. It means it has access to all of the things your friends are doing right now and ever. And it also means it has access to all physical and virtual entities connected to you. The music you've played, the photos you've viewed, the videos you've watched, tracking all these things are possible today. In the future it will mean every little thing you do is getting logged by a big server in the sky. The places you go, the conversations you have, the things you look at, touch, smell, and taste. Facebook's goal is to be that server that all that data streams into. This is the reason that Google is shitting their pants trying to "iPhone" them by creating stuff like Google Glass, since unless they leapfrog them Facebook will be a large part of the "world's information" they cannot organize. It has nothing to do with search not being "social" (another red herring), it has to do with Google being left behind as Zuck spends 10 years rewriting the rules of the game, much like how Microsoft is suffering due to Steve Jobs doing the same. It's one thing for Facebook to make Google search obsolete somehow, its quite another for Facebook to make all software Google writes, now and in the future obsolete, which they are poised to do.
As for Microsoft, their investment into Facebook might be looked back upon as the smartest business transaction of the 21st century, if it gives them special privileges in building systems that are enabled by the data Facebook can give them. 2000-2010 might just end up being a "lost decade" for Microsoft, and they may yet come out ahead in the future of software in a way Google will be unable to. (And Amazon, as an aside, will be selling AWS pickaxes to everyone the whole time.)
All apps of the future are going to either be connected to the pulse of this feed of information or they are not. The ones that are not will slowly but surely be replaced by those that are, since they will be not just inferior but essentially braindead.
We are still in the playground stages of all of this since Zuckerberg is still plugging together the pieces. The stuff being built now is just scratching the surface since we don't know what we're doing and there are still gaps in the availability of this data. There is also a generational gap. Most people on HN cringe when they have to accept a Facebook dialog. Our younger siblings and kids will have opt-ed in to the big server in the sky in full, no holds barred, when they turn 13. By 18 it will be a distant memory that these choices were even made, and that they were choices in the first place. And by then they will be fully profiled by data mining algorithms, using software that knows them as well as their parents do (if not better.) And, for most software, opting out will mean the software basically doesn't work.
Once we are there, Facebook is essentially going to be able to implement a tax, much like Microsoft did for many years. Its hard to imagine how they will be usurped if they manage to get to this point, as they will be more integrated into the fabric of our lives than any other business I can imagine. More than banking, more than the utility companies, more than any retailers wet dream. Even more than Google. They have a strong technical team and a young, visionary founder who has absolute control of the company.
What could go wrong? Eventually we might see an anti-trust suit (think 2016-2017 time frame) but Google is doing its best to create the illusion of competition on that front. And, of course, Facebook still has (and will always have) a bus factor of 1, which can't be very reassuring to investors. If you step back and look on a 5, 10, 15 year window, though, you'll realize they are essentially unstoppable.