Facebook's transformation from a quirky internet start-up into one of the most talked-about companies in Silicon Valley is sure to be remembered as one of 2007's biggest technology stories.
But as the new year begins, Facebook appears to be embarking on a new, more difficult phase of development that could test the mettle of Mark Zuckerberg, its 23-year-old founder.
Buzz around the company has been building since May, when it announced it would allow outside developers to build games, slide shows, and other features for use on the Facebook site. The move sparked a frenzy among software makers eager to tap into the site's rapidly growing audience.
Facebook received just over 92 million unique visitors in November, slightly behind the 104 million unique visitors at My-Space, according to ComScore, which tracks website traffic. However, Facebook's unique visitors increased 400 per cent from November 2006, compared with 26 per cent for My-Space.
Excitement peaked after Microsoft kicked off a new investment round in the autumn by buying a 1.6 per cent stake in the company. This was closely followed by a $60 million investment by Li Ka-Shing, the Hong Kong businessman.
The deals, which valued Facebook at $15 billion, turned Zuckerberg into a billionaire - on paper at least. It also increased the pressure on Facebook to make money from its fast-growing audience - an endeavour that has yielded mixed results.
Zuckerberg has apologised for mistakes made in the rollout of a controversial new advertising technology called Beacon, which broadcasts messages about purchases made on outside websites to a Facebook user's friends.
Facebook offered a way to opt out of the service after users complained that it was an unwelcome invasion of privacy.
The struggle over Beacon is emblematic of the broader challenge faced by Facebook as it attempts to reconcile the competing desires of three separate but important groups: The users whose social connections power the site; the developers whose applications keep people engaged once they are there; and the advertisers that Facebook relies on to make money.
"Facebook has these three constituent groups and it's a really difficult balancing act, especially when you are trying to be innovative," says Jeremiah Owyang, an analyst at Forrester Research. Users have been frustrated by Facebook's missteps around privacy, and developers by its frequent updates to the software toolkit that they rely on to build features for the site.
"Developers are frustrated because the platform continues to change," says Owyang. "There are never-ending tweaks." The company tries to announce platform changes in advance, in order to avoid unpleasant surprises, but frequent changes can be frustrating because they force developers to make tweaks of their own.
Friction
Further friction may be inevitable as Facebook and its competitors experiment with ways to attract developers and make money without alienating users.
"We are in an early stage in trying to monetise social media," says Jeremy Liew of Lightspeed Venture Partners, a venture capital group that is an investor in RockYou, one of the leading makers of Facebook applications.
Speaking of Facebook's trouble with Beacon, Liew says, "there are bound to be mistakes made" as social networks experiment with new advertising models. "It's not a Facebook issue, it's an industry issue."
Still, with Facebook's pace of growth, it has emerged at the forefront of the social networking trend, and all eyes are likely to be on Zuckerberg and his team as they attempt to negotiate an increasingly complex business environment.
