steveharmon.com

A lot of hype around Palm and Pre mobile phone this week. Hmmmm, what’s the reality check? I was one of the earliest Apple evangelists when the company came out with the Apple II and the Mac. Back in the day I sold personal computers to help pay my way through college and based on the graphic interface and more “human” approach to interacting with a machine I became an Apple fan.

In my first job after college, in fact, I dragged my Mac to work and plugged it in, refusing to learn MS-DOS. But eventually in the business world Microsoft won. Applications for business were based on MS-DOS. Not Apple. MS-DOS was a platform. Third-party software developers made it into a global empire valued at hundreds of billions of $.

By the time 1995 rolled around and Microsoft came out with Windows 95 the eye candy advantage that Apple had was gone. Third party apps built on it and propelled Microsoft to the fore. I stopped being an Apple fan and started liking Windows and the plethora of apps available for a fraction of the price for a Windows PC.

Apple withered and fizzled like an open can of Pepsi.

I don’t know if you read Bill Gate’s book ‘The Road Ahead’ (way back in 1990s) but he talked about “virtuous cycles” that build companies. Positive swirls around a product. I guess the hippies in Cupertino at Apple must have read it since by the early 2000s the iPod popped out like Angelie Jolie emerging from Phyllis Diller. Somehow the gene pool that gave the world the Performa now had it right, again.

Maybe it was the return of Steve Jobs after his monk-like wanderings into NEXTville, which ended with Apple buying NeXT, his new PC company.

iPod gave Apple back a platform weapon, iTunes. Distribution. Ubiquity. The step from iPod to iPhone was short as who wanted to own a clamshell cell phone when a touch screen music and web player was available?

Mobile is not a desktop metaphor. It is what’s known in Latin as “tabula rasa,” or clean slate. What’s important on mobile isn’t the same as a desktop PC. Mobile is based on new apps, social and mobile by design (not afterthought). The mobile experience is staccato, Morse code-like bursts of communication. Texting. Gaming. Sharing. Listening. Watching. (And soon, Buying).

Today, iPhone is the world’s largest mobile computing platform with over 1 billion app downloads. Some 50,000 apps are reportedly available on the iPhone platform. Rivals are way behind: Information on Blackberry apps and its downloads are not readily available. Palm’s new Pre has about a dozen apps available and news reported about 150,000 downloads its first day (phone came out June 8, 2009).

Google is also getting into the mobile hardware effort by pushing out its Android mobile software to over a dozen handset makers.

The real battle is in third-party apps and who has the biggest ecosystem for developers to build on. Other contenders will emerge: Google, Facebook, Twitter. But they are all hopelessly late to the battle. Palm Pre may make it easier by using Web programming to hasten dev for its app store, but if a tree falls in the forest and no termite sees it…

The war will be fought by developers and won by developers — they are the ones that will make or break the computing platforms (Web, mobile, desktop). Whoever makes more money off of any platform will create the virtuous circle that wins. So far it’s Apple. By a 1 billion download margin. But, as mobile becomes the main computing/web/commerce/communication platform, the next 10 years will be more telling than the last 10.

Since the early 1990s I have been building companies and know many of the others foolish enough to build companies. Some of the better known fools built Yahoo, TiVo, eBay among others. I was a lead investor in Ad Sense which Google acquired and today generates about 30% of Google’s revenue.

The name for those that build new things is “entrepreneur” which is basically French for “dreaming against the odds.”

The dreamers against the odds include Bill Gates, who dropped out of Harvard to tweak an Altair, and ended up reselling DOS to IBM under the Microsoft name.

Then there’s Steven Jobs, phone phreak (free phone call hacker) who turned his hippy Zen on the PC with uber geek Steve Wozniak.

Jerry Yang, co-fiddler of Yahoo, who was set to be an electrical engineer but got sidetracked on a web directory thingie.

Wall Street quant deserter Jeff Bezos who left a good job with a major banking firm, loaded up his Honda Accord and headed to coffeeville, Seattle, to make an online bookstore.

There are hundred more in my Rolodex (I mean my Contacts! since nobody uses Rolodex any more).

Steve Harmon’s 8 traits of successful entrepreneurs (first here’s my napkin scribble with the traits, followed by more detailed examples):

1] Vision. Seeing what others don’t see. Inventing the future rather than reacting to it.

2] Instinct. Words cannot describe it. Gut feelings mixed with heavy doses of doubt from your brain.

3] Drive. It takes 5x the energy to start something vs. doing something that’s been done. And at least 4x the caffeine.

4] Alert. A certain awareness of opportunity. Quick thinking and reacting to very dynamic environments, changing landscapes of business and technology.

5] Calm. While storms erupt and brew inside as struggles increase, it reaffirms an inner sense of peace. Pruning makes the garden.

6] Persistent. Brothers Walt and Roy Disney started three or four animation studios all of which went bankrupt before creating Mickey Mouse. Pixar nearly went broke until Steve Jobs rescued it and invested when nobody else believed in computer animation.

7] Grounding. Sense of value in people, things, agreements. Belief in what they do for purposes other than “making money.”

8] Balance. Setbacks provide launching points to move ahead. Moving ahead can mean giving up opportunities. Understand the yin and yang of the situation and don’t lose sight of the balance. Build value based on the best whole advantage.

A few weeks ago, Steve Ballmer, CEO of Microsoft, addressed students at Stanford and shared his insights into innovation, which are so good I wanted to share some of Ballmer’s quotes:

“I did meet Bill Gates at Harvard, and our sophomore year at school we lived down the hall from each other. And his friend from high school, they had started actually a company when they were in high school that did software that processed traffic tape. I don’t know if you notice when you drive down the road you sometimes see these rubber tubes across the road. Well, it turns out in the old days when you drive over one of those, it would punch holes in a paper tape in a box at the side of the road. And you would have to ship them back to Maryland. And Bill and Paul said, gee, let’s buy one of these new Intel microprocessors. At the time it was something called the Intel 4004, just to show you how olden days that was, and they started a business processing these tapes for cities in the State of Washington.”

“…when our sophomore year in college, the cover of Popular Electronics magazine, there was a picture of the first microprocessor-based computer, something called the Altair. And Bill and Paul decided to ‘write all the software the machine would ever need.’”

“It was all programmers when I joined the company in 1980. I came in to ‘be a business person,’ whatever that meant. I didn’t know much. Frankly, all I’d ever really done was interview for jobs, and market brownie mix. I wasn’t exactly well-credentialed. I’d taken the first year in Stanford Business School, so I could read a balance sheet. That was really important. We didn’t have that much money back then, so there wasn’t much to read. But, anyway, those lessons were important.”

“…we kind of just kept grinding and grinding, a few bits of inspiration, a lot of perspiration.”

“I just spent an hour with a group of venture capitalists, and they said, hey, look, if you’re going to tell entrepreneurs – I said, I’m going to go talk to some entrepreneurs – what would be your lessons from the early days? They were simple. Hire good people. We actually didn’t have very good people when I started. Bill was good. There were like four or five very good people, and I went into Bill’s office after I’d been there a month or so, and I said, we’ve got to hire 18 more people on top of the 30 that we had. He said, Steve, our people aren’t even very good. Why do you want to hire 18 more? And you’re going to bankrupt us…and so we just really worked hard at getting good people, smart people.”

“Success is…(a) great idea, a lot of hard work, and then you work at it for a year, two years, three years, four years, five years, six years, seven years, eight, nine, 10. Some things that actually wind up being really important take more than 10 years to get popular. You wouldn’t believe it reading the popular press, but it’s really true. It’s really true. It’s true with Windows. It’s true with SQL databases, for guys like Oracle. The Google guys were at it for a number of years before that thing really took off. There’s a few exceptions, but most things you’ve got to really grind up. And certainly that was kind of the history of Microsoft in the early days.”

“You know, if you say today, OK, is all the good stuff in the days gone by? This is one of the questions I get a lot from people who are just starting out who say, wow, technology has changed so much in the last five years, 10 years, 15 years, 20 years. Are all of the
great companies created? The answer is no, not even at all.”

“Today you learn to speak the computer’s language, if you want to write programs you learn to write programs in the computer’s language. If you want to control programs, file, open, copy, paste, not get me ready for my trip to Stanford. My secretary is able to process that command, my computer cannot process that command. The kinds of things that are going to be invented over the next several years is just to me outstanding, and particularly for somebody who’s got skills in software.”

“You don’t even have to be interested in the tech field, software is going to change so many fields. It will change energy, environmental science, the impact of software will be broadly felt. So I’m a bit of a zealot on that, as a particular expertise, but the chance for entrepreneurship is really, really high.”

“We live in a world where I think things are really also changing based upon the fact that we’re still quite early in the presence of the Internet. People say, well, the Internet, we’ve had that for 15 years. So much has been invented. And yet really the whole world of
technology is being redone as we speak. Technology grew up with the computer, and now it’s the computer, the PC, and maybe the smart TV. The computers, phones, and TVs, didn’t grow up assuming the Internet. And frankly the Internet didn’t grow up assuming tomorrow’s PCs, phones, and TVs. And so the whole mode of how software gets written to run intelligently in PCs, phones, and TVs, to talk to the Internet cloud, that’s all going to get redone.”

“…now we’re in sort of a Web 2, Web 3 kind of generation. Smart phones, smart PCs, smart TVs, talking to a smart
Internet, and that creates a whole generation of opportunities to disrupt the businesses that are to there. To create new businesses that people couldn’t dream of before. We talk about the cloud, the cloud is kind of that smart Internet presence talking to those smart clients.”

“Your world needs to be brought together, the consumer, you have one identity on the phone, you’ve got another on the Internet, you’ve got another at work, you’ve got another at home. You may want them separate, but you may not want to manage the cacophony of things that you deal with today.”

“In our business you’ve got to be inventing new things, because software doesn’t wear out. It doesn’t break, or at least if it breaks it was broken when you finished it, it doesn’t break over time the way physical goods do. So the opportunity and need to invent, just like
any other startup, or entrepreneurial activity remains strong.”

“I think it’s just a phenomenal time to be starting all kinds of companies.”

“Entrepreneurs who invent, who create, who really add to the level of innovation, the productivity in the economy, will change the world, will create economic value, will drive jobs, and will have a heck of a lot of fun doing it. So I think despite everything else now is the time.”

sponsored by Taleee the leader in consumer product ratings

Here’s some evidence that things are picking up from the world’s largest chip maker, Intel. Intel chief executive Paul Otellini met with analysts at the company’s headquarters May 12 and said he sees business gaining traction, with 2Q orders better than expected.

What’s driving the action? consumers. Buying compact and powerful. Such as…

A netbook is basically a PC that connects to the Web, with a small screen and external storage. Typically they sell for under $300 in the US. Here’s a photo of one:

Intel’s CEO comments come as no surprise to me that what’s driving the signs of growth? The Internet. Or what I call the Webs. PC, Mobile and Gaming. These are what I refer to as the Three Horsemen of Technology. The Three Musketeers of The Global Economy.

Driving PC sales? consumers. Not business. At my company Taleee our software and algorithms measure consumer opinion from across the Web and the data shows that netbooks and next-gen mobile phones (which are more mobile Web than phone) are the two hot items consumers are after.

One of the greatest axioms of investing is “buy when nobody is buying” but if you happen to watch CNBC or financial TV you’d never get that advice. The media always trails the reality. It reflects what was, not what is. That’s why it’s important to look at technology companies that serve consumers for economic growth, and listen when a company like Intel provides insight into its business.

In the larger picture, the world is a consumer economy. What began in the 1940s in America stirred into the automobile boom, highway boom, gas boom, suburb boom and baby boom of the 1950s and 60s. By the 1970s, 80s, 90s and 00s that wave hit the UK, Europe and now Japan and China in a big way. It’s still a breaking wave.

Consumers now are the economy from San Francisco to Shanghai. Intel knows. Worth paying attention to as a leading indicator, especially since Intel also made a radical, cool motorcycle to celebrate its 30 years making embedded chips. Now it’s the embedded economy. Check it here, it’s got wheels:

And now for something completely different, quick takes (or what I call “blips”):

Amazon:
reported record sales of $4.89 billion, up 18%, and $177 million net profit, up 24%. Jeff is kickin’ kindle and not taking names. Which venture investor would back it today, especially with all the years of losses it had. Shows that patience is a virtue and a value.

Alibaba:
reports 150 million Alipay (PayPal-like service) users in China. That’s half of all Chinese Internet users.

Changyou:
online gaming site goes public. Yes, goes public on NASDAQ. It is growing like a weed. Most Americans know diddly yang about China. A lot of Chinese Web companies are gaining as stocks this year. Coincidentally, I pulled up a report from 1999 and it showed 6.3 million Internet users in China. Today it’s 300 million.

Facebook:
Realizes that social is more about “streaming people in realtime” than posting profile pages. Still a work in progress with clunky interface and terrible ads that have no meaning at all for 99% of users. Ads look like spam (pigs with lipstick on?). Hired a lot of Google execs, raised capital from Microsoft at a high valuation before the birds hit the turbine. Needs to get smarter about what people want and ways to deliver it through, let others customize it without going down the MySpace roll your own nightmare design route. End game? Microsoft, Google or Yahoo picks it up. If it was based overseas maybe it could go public in London, Shanghai or Berlin. NASDAQ? Maybe.

Twitter:
Raises $35 million more. Free PR on Oprah. My perspective is it’s 2% there as a company and 98% to go. Hardest part will be getting mainstream people to use it. If blogging is a time taker, micro-blogging is a voracious piranha for your time. Current service is cool but not ready for prime time in my opinion. Who really wants to follow CNN? RSS is easier and more convenient. Also doubt about “active” following…my guess is 1% or less actually read the tweets they follow.

Myspace:
Hires a new executive from Facebook to run the show as CEO. MySpace isn’t the “company du jour” as it was in 2006 but still has tons of users and News Corp. cash behind it. Don’t forget, Google paid $900 million to serve ads on it. Its two founders are out.

AOL:
Hires former Google exec to run the show. AOL’s ad platform still looks valuable to me, hard to beat its scale and it’s not just on AOL, it’s webwide. AOL is going to take a lot more work to become viable again in my opinion. The entire social web has passed it by. Ironic since AOL was built on chat in the 1990s.

eBay:
restructuring big time. Made some bad bets on Skype and stumbled with StumbleUpon. Neither had anything to do with eBay’s core business. eBay needs to acquire ecommerce firms.

Yahoo:
not moving fast enough yet. Hard to do with large companies. Needs more of a MASH unit approach than patient outclinic. BTW: MASH = mobile army surgical hospital for those of you who didn’t watch the TV show.

Google:
passed its prime? vested executives (and talent) bailing out. No longer the “media darling”. Needs to find some fresh energy again, new blood. New acquisitions that will move the needle beyond 10 on the Richter scale.

–sponsor–

When I was a kid I studied Chinese martial arts and, in particular, Jeet Kune Do, the martial art approach developed by Bruce Lee. The one thing that Lee always repeated was “no way as way” and “be like water.” Which to me always meant: be open and adaptable to situations.

If you think about most business schools they teach a certain approach to creating a business. While there are the fundamentals if you look closely, no school teaches innovation. Innovation by its very nature cannot be taught. An environment that fosters innovation can be taught but isn’t in most business universities. That’s why you have students like Bill Gates who dropped out of Harvard to start Microsoft. Harvard wasn’t teaching how to create something new but rather how to perpetuate something old.

Other examples: Facebook founder dropped out of college to pursue building Facebook; Apple Computers founder Steve Jobs never finished college. Google founders dropped out of Stanford University. The list can go on. Nobody gets a degree in being a “Master Entrepreneur”… entrepreneurs must adapt and react to the environment.

Which led me to the thought that much of what Bruce Lee did in martial arts was about a philosophy that can be applied to business. So I pulled out my old copy of Tao of Jeet Kune Do and wanted to share some of Lee’s sayings. Here are a few along with some business lessons that I added that correspond:

Victory is for the one, even before combat, who has no thought of himself.
—>applied to business: put your customer first and not yourself

If nothing within you stays rigid, outward things will disclose themselves. Moving, be like water. Still, be like a mirror.
—>applied to business: listen to the market; don’t create something nobody wants

The point is the doing of them rather than the accomplishments. There is no actor but the action; there is no experience but the experience.
—>applied to business: enjoy what you do, riches are not the reason

To see a thing uncolored by one’s own personal preferences and desires is to see it in its own pristine simplicity.
—>applied to business: look for the core essence of the solution, make it simple

The problem is the answer. Understanding the problem dissolves the problem.
—>applied to business: if you’re not solving a real business problem you don’t yet understand the problem

The second-hand artist blindly following the sensei or sifu accepts his pattern. As a result, his action and, more importantly, his thinking become mechanical. His responses become automatic, according to set patterns, making him narrow and limited.
—>applied to business: copying others only leads to mediocrity and not success; innovation cannot be “taught”

The efficient structure in attack and defense.
—>applied to business: focus on a niche since they are easier to grow and defend

It is not daily increase but daily decrease–hack away the unessentials
—>applied to business: decide based on need versus want; need should drive business, don’t be distracted by things that create no revenue or earnings value to the company

To hell with circumstances; I create opportunities
—>applied to business: opportunity never knocks at your door, you must go knock on its door and, don’t forget, open it

Use only that which works, and take it from any place you find it
—>applied to business: lessons and common sense can be learned from many sources, not just “schools”. Just like these ideas are applicable to business.

Hard to believe that the industry started as a video version of ping pong today is larger than the movie, TV or radio industry in annual revenue. Yes, we’re talking video games which are in the news today as World of Warcraft inks a deal with Netease in China for its popular online game. Hard to believe that video games began in a more humble way…I want to take you on a little journey down video game memory lane…if you can handle it. From the days of the first video games to today’s interactive “movie-like” experiences.

The Top 10 Moments In Video Game History (I’ve played every one of them!):

#1 Pong
The first time I came across Pong I was just a kid. The local Sears department store had the game plugged in next to the escalator (why? who knows!). I remember looking forward to going to Sears so my brother or sister and I could challenge each other on Pong. Looking back, Pong was a very simple game (not even in color). But in a world dominated by board games and a 3-network TV choice, Pong was the only interactive media going. Atari went on to sell 19,000 Pong units, installed in stores across the USA. Here’s a glimpse:

#2 Space Invaders.
Aliens advancing down the screen to a monotone beeping sound. Now suddenly you were pitted against the unknown advance of offworld spaceships shooting at you. The drama quotient went up rapidly vs. Pong.

#3 Pac-Man.
The turning point for arcade games was the little yellow gobbler that had to eat as much as possible before being killed by rival eaters. The Pac-Man music is now classic. Not sure what the idea says about culture of the 1980s: eat or be eaten?

#4 Atari 2600.
There were a lot of home video game consoles launched in the late 1970s and early 80s. The standout by far is the Atari 2600. Now, for the first time ever, those cool arcade games could be brought home. Pac-Man, Chopper Command, and Adventure. I remember playing Adventure and finding the hidden “Easter egg” which the programmers hid behind the wall along the journey.

#5 Mainframes.
Nothing like a bored programmer to write his/her own adventure game. And that’s exactly what one did at a major technology company where my sister worked. I used to go to work with her on the graveyard shift (11PM – 7AM) and play a textbased game called “Quest” that you controlled entirely by keyboard commands. In other word, “E” was to go East, “W” to go West, etc. Occasionally you would bump into an object and “P” pick it up. When you did, the object type would be revealed, such as “a shiny bright box.”

#6 Mattel.
Some of the first handhelds were from Mattel. One of the most popular was Football in which you would move little red-colored LED “players” around the screen to score points. This game was by far the most popular in my high school. It even sold out in local stores. Kids would play it in class and at recess. I ended up buying another Mattel handheld that had an LED light you raced up the screen by passing other cars. My best time was about 21 seconds.

#7 Playstation.
With the advances in graphics, computing power and storytelling the Sony Playstation took video gaming by storm. As kids that grew up with games we all were ready for more complex adventures, stories, challenges. On March 31, 2005, Playstation became the first video game console system to sell more than 100 million units. Ridge Racer kept many people awake at night testing their car racing skills. Parties became PS parties, not movie parties. Beer, chips and Playstation.

#8 Nintendo handhelds.
Game Boy and DS hit the offspring of first-gen gamers in force. Cool games, good graphics, Mario. What kid could resist? Nintendo’s DS crushed the competition on price and fun games. Hats off to Mario.

#9 Wii.
‘Nuff said? from sports to Star Wars, pinball (yes, you can play the Williams pinball games on Wii and it’s a blast), they’re all here. Wii was a game changer, taking gaming from the trigger style stationary controller to the moving hand, arm and body controller.

#10 Online.
What began as one of the world’s first first-person shooter games, DOOM in the mid 1990s turned into something much larger and diverse. Multi-player online gaming is now taking the world by storm 15 years later. Activision Blizzard’s World of Warcraft debuted in 1994 as Warcraft: Orcs & Humans, at a time when Internet connection speeds averaged 9600 baud. Today, in a world of broadband almost everywhere World of Warcraft is a global phenom with more than 11.5 million monthly subscribers. It holds 62% of the world market for online multiplayer games. Just last week the game partnered with Netease in China to bring its 1 million Chinese World of Warcraft players to Netease. In the US, Europe and North America console-based gaming is popular. However, in China and Korea, many players play at Internet cafes on PCs. China has more than 100,000 cafes serving more than 40 million players.

As video gaming is now more popular than the movie industry, what began with a simple ping pong ball is a pong heard ’round the world.

Right now the hottest company in Silicon Valley is Twitter, the micro-blogging, 140 character, company… as in:

“I’m eating toast right now”.

Having been in the web industry 15 years now I’ve seen this movie before. Sometimes it’s a double feature: 1) buzz 2) success as a company with revenue and earnings. The movie is still going, it can end like this:

Or it can end like this:

Right now Twitter is just buzz. Lots of celebrities (some new and some you forgot about or want to forget about) are using Twitter. Twitter itself promotes a handful to new users.

In his heyday (1990) I don’t think 200,000 people would be interested in MCHammer’s vitamin habit. And I like Hammer, saw him perform back in the day. But seriously, his daily updates are “took vitamins, heading to soccer game”.

Where are the Hammer baggy pants when you need them?

If you don’t know (or care) what Twitter is here’s the lowdown: it lets anyone share what they are thinking, doing, making, promoting, etc. in 140 characters (or less) and then have others subscribe to those updates. Basically, SMS meets the Web. Or the newfangled news groups, for those of you who’ve been on the Web since the early days.

From my experience and observation (cutting through the hype) it’s basically a modern-day PR service that people basically use to promote themselves or their company, etc.

Twitter just raised another $35 million from a group of venture backers that swear they focus on revenue and earnings, despite Twitter having none of either.

I’ve seen this movie many times:

* Netscape (owned the entire web, its browser was the default. Microsoft beat them and Netscape didn’t see the website itself as a business until it sold traffic to Yahoo and others).

* AOL (blanketed Earth with sign up disks and bundled itself with Windows in a deal with the devil in 1996. Time Warner was its hemlock).

* Alta Vista (the geek’s preference for Web search from 1995 – 2001. Got tangled up with Digital/Compaq and mangled in a body slam from CMGI).

* Blogger (hottest blog platform, sold to Google and lost its unique brand ID. Same guys founded Twitter).

* Skype, the #1 free web-based phone service, sold to eBay and stopped innovating. Now emerging as a player again thanks to iPhone wifi phoning.

With every twist and turn, technology companies hit crossroads and take the better path or they lose focus and dwindle an opportunity.

While some observers think Twitter should sell to Google, my advice to the Twitter founders (which I already shared with them) was this: just license the search on Twitter to Google and make Google pick up Twitter content for use across Google search and YouTube. Price?
charge Google $250 million per year for this.

This is a similar deal News Corp. CEO Rupert Murdoch did. He sold MySpace search to Google for $900 million license fee.

I like Twitter and believe a gem could exist if it’s smart about the future, smart about ways it grows. If not…then the movie ends there.

While the US media is gaga for Twitter what really caught my attention this week was Changyou, a Chinese online video game service that was spun out of Sohu (SOHU). While US media keep crying about how bad the economy is I believe they are behind the times. They’re
chasing a story that peaked November, 2008.

Anyway, since I prefer to live in real-time here’s the scoop: Changyou went public April 2 on NASDAQ and closed its first day of trading up 25%. Changyou raised $120 million.

Changyou makes and runs popular online multi-player video games. Its best-known game is Tian Long Ba Bu. Here’s a screenshot of the game:

Changyou says it has about 1.8 million paying active accounts for this one game and 800,000 simultaneous users in March of this year. It also offers other games and more on the way, which the $120 million will help, I’m sure. Sohu still owns and controls a majority of the company.

Maybe the tweet from Changyou is: I’ve got game and a business…hey, and also publicly traded stock.

Facebook’s dilemma after two years of record growth is how to grow the next 175 million users. Where are they? Easy answer is China. Sure there’s Europe also. But that’s 20 languages and Facebook already seems to be making headway into places like the UK. But China remains the elusive prize.

Five years, $500 million invested in it and 175 million registered users later does Facebook have growth questions? Yes, size matters on the Web where attention spans for friend networks last about as long as the buzz from a Red Bull soft drink. After all, anyone remember Friendster, the first mega social net? How about Ryze? Six Degrees? Even MySpace has lost its edge.

On the Web with no real emotional connection these networks become like flavors of cola. Coke, Pepsi, RC, or the Chinese made Future Cola. Cola seems to taste the same, social networks seem to be similar. Buzz means growth.

A few months ago Facebook reportedly saw smallish Twitter (3 million reported users) as a growth tool and offered to buy it for $500 million. Twitter turned it down, reminiscent  of Facebook spurning offers from Yahoo and others of over $1 billion just over a year ago.

In the U.S. Facebook is the 4th most used website now. College students, professionals, educators and brands all invaded the service a little over a year ago when Facebook opened its doors beyond the initial college user base. Suddenly your mother in law is your friend on Facebook, which is actually kind of bizarre in many ways.

The secret to Facebook’s exponential growth has been opening up and also turning itself from a service into a platform via its API. Through the Facebook API thousands of third-party developers built applications (and businesses) on Facebook. Example, Slide.com, Rockyou, and many more.

What Facebook did correctly was realize that nobody had a social network platform, that the key to success with a Web-based company is not just the user base but giving outside developers the keys to create businesses on the platform.

Apple is doing the same thing with iPhone (and did it earlier than Facebook). What Apple and Facebook learned is that Microsoft became the dominant PC operating system not from the operating system but by allowing third-party developers to write applications that used the Microsoft OS as the foundation. 32 years later and Microsoft still owns the PC platform.

Do you think Bill Gates was thinking of global domination here:

The race for the ’social network operating system’ (snos) is on.  Microsoft owns a small piece of Facebook, though not much. But if it was smart it probably negotiated for first right to acquire Facebook before anyone else can. Now may be a good time, in the last year Facebook’s valuation for common stock reportedly has dropped from $15 billion to $3.76 billion. $5 billion and Microsoft owns it.

In terms of winners you could call Facebook champion. After all, it would really have to screw things up to lose its position. Facebook also just turned its user profiles into “streaming” updates so that users can answer “what’s on your mind?” as they login, basically stealing Twitter’s thunder and growth curve in one swoop (ok, don’t accept our $500 million, we’ll just copy it and deploy it into our user base which is 50x larger).

Facebook is the largest photo sharing site in the U.S. with more than 4 billion photos uploaded.

But it would be a mistake to believe that Facebook will win the war. The battle? yes, this first one. But across the world many social networks have established themselves and built larger native user bases that Facebook will find hard to dislodge. Sort of like the image of Britney Spears OBGYN exit from the limo will be hard to purge from memory. An entire generation lost in one image.

Facebook has been smart in several ways, though, that many may not have noticed. Consider that China billionaire Li Ka-shing invested $100 million. And rumor has it that Facebook has been sending small envoys into China to try and figure out how to become the largest social net in China.

30% of Facebook users are in the U.S., followed next by the UK with 7% of its users. Chinese Facebook users account for only 2% of its users or under 4 million people — that’s small in a country with the largest Internet user base in the world with 300 million users, 70% of them on broadband connections.

So Facebook has its work cut out for it in many spots around the globe where it must grow now that 1 in 4 U.S. Internet users is on Facebook. Growth from here is almost ALL international.

Which is why in China a homespun company, Xiaonei, with about 40 million registered users is the leader there. 87% of Xiaonei users are in China and 2% are from the U.S., which is an exact mirror of Facebook’s Chinese user base of 2%.

Most Americans have never heard of Xiaonei and probably never will, although it’s raised more than $430 million from Oak Pacific Partners (which is  backed by U.S., Chinese and Japanese investors).  Investors mean nothing if the fickle users go elsewhere, to the new “new thing”. As the masses invade Facebook it’s coolness factor drops dramatically.

Remember that today’s Facebook can be tomorrow’s Friendster, popular but fleeting. That’s the power of the Web and appeal for entrepreneurs, the evolution is never-ending. Facebook’s goal of being the SNOS may turn out more like the dog treat: Snausages.