Late last week, a federal judge in California gave preliminary approval to a settlement of the class action lawsuit regarding Facebook's Beacon program. The controversial program, launched back in November of 2007, allowed Facebook users to share online purchases made on third-party affiliate websites with their social networking friends. The problem with the program was that it was opt-out instead of opt-in, angering many Facebook users who unknowingly shared information they wished they wouldn't have.

Details of the Agreement: Shutting Down Beacon, Paying Damages, Non-Profit Foundation

The case has been in litigation since last year, but now looks like it's drawing to a close. U.S. District Court judge, Richard Seeborg in San Jose, has approved the proposed Facebook settlement that would have the company paying out $9.5 million, two-thirds of which would go to setting up a non-profit foundation to fund "projects and initiatives that promote the cause of online privacy, safety and security." The remaining money would then be split among the lawyers and the plaintiffs, each of whom would receive damages of $1000-15,000, according to MediaPost.

The other major part to the Facebook settlement is the required termination of Facebook's Beacon program in its entirety. Although Facebook had quickly reacted to the Beacon outcry after its launch, changing the system over to opt-in and even issuing a formal apology, the program still exists today. (You can check your settings by going to Settings -> Privacy Settings -> Applications -> Settings tab. Then scroll down to the bottom to see if "Beacon websites" is checked or unchecked. Checked will ensure no Beacon stories get posted to your profile).

If the proposed settlement goes through, Facebook would then be relieved from liability from any future lawsuits regarding the same complaint and even those still pending like the Facebook/Blockbuster class action suit brought in April 2008.

Settlement Sounds Great...Especially for Facebook

On the surface, the proposed settlement sounds fair enough to all parties involved. Damages are paid and Facebook has to promote online privacy. However, as David Johnson points out on the Digital Media Lawyer Blog, Facebook is already required by law to promote online privacy and the safety and security of its users' information per FTC mandates. In addition, Facebook would get to nominate one and have say over the other two board members on the proposed Privacy Foundation's board of directors.

Says Johnson: "Facebook effectively gets most of its money back to fund projects that it is already has an obligation to perform."

Sounds like the real winner here may be Facebook.

You can read the Settlement Agreement here, courtesy of CircleID. The settlement was proposed last month, but only received preliminary approval on Friday. The affected parties have until February 1st to object to the proposed settlement.

True, Twitter traffic has gone through the roof. True, Twitter is the new killer app, the new cool kid on the block. And yes, even Oprah now loves Twitter. But does this mean Facebook should be worried? Well, maybe yes, but likely no, because Twitter and Facebook are two very different services.

It is always hard not to be the cool one anymore. Whether you're a movie star or an NBA player, going from #1 to #2 is hard. It is even harder not to be near the top at all. Aging is pretty hard and something we all have to deal with. But change is inevitable, part of the cycle of life. The new comes in and replaces the old.

The history of the software industry is a classic illustration of this kind of transition. IBM was replaced by Microsoft, which reigned for decades. Its strong grip was taken over by Google, and for a while Google was cool. With the rise of the social web, things have changed again. MySpace, Facebook, and now Twitter are taking over in people's minds as the newest, coolest kids on the block.

But IBM is still around and doing well. So is Microsoft, which now looks more like IBM. And, of course, Google, despite not being so cool anymore, is still king of the web. Not so cool, perhaps, but certainly very solid and with enviable revenue.

So maybe Facebook should not feel the need to be so cool and look like Twitter.

Why Did Facebook Take Off to Begin With?

Facebook emerged out of Harvard and was initially a network for college students. It started out as a simple way to keep in touch, to see what was going on around campus. By the time its doors opened to everyone, Facebook had a few things going for it:

- Unlike MySpace, it had clean and elegant profiles.
- It made sharing pictures easy.
- It made sending private messages to friends easy.
- It made posting public messages on walls easy.

In short, Facebook solved basic problems of communication between friends. And it solved them very well.

But it felt compelled to continue evolving. Perhaps it felt threatened by Google's foray into the social space. Perhaps it was enticed by the prospect of being bigger than Google. Or perhaps it was the $15 billion valuation offered by Microsoft that set the bar too high. Whatever it was, it kept rolling out features, including the Facebook platform and Beacon, which aimed to make the web revolve around it.

Facebook blew past MySpace and managed to keep Google at bay. It firmly won the race for the social web. But now it has begun a brand new race, this one against Twitter.

Twitter and Facebook Are Just Different

The thing is, though, this race makes no sense. Facebook and Twitter are simply two different services that need to co-exist on today's web. The only thing they have in common is that their users have a limited number of hours in the day in which to socialize.

At its core, Facebook is about closed sharing between a group of friends. That is why my sister, one of Facebook's first users, felt so compelled to use it, not because of apps or Beacon or tabs within tabs within tabs. It was simply about photos and messages on walls between friends.

Unlike Facebook, Twitter has not added new features. It has stuck to its core product: connecting people via short messages. And unlike Facebook, Twitter has allowed uni-directional connections: if you want to follow someone without him or her following you, you can. Twitter was never about sharing between friends in the first place, but rather about sharing news. And if you look at Twitter today, it has clearly changed the way the world consumes news.

So, Facebook is chasing a rival that is playing, in Gartner-speak, in a different Magic Quadrant. And that does not make sense because even if it refocuses on streams, Facebook at its core is about friends, not news. Even if it had public pages for celebrities that everyone could follow, Facebook would still not be about news. It's just different.

Focus on What You Do Best

Chasing Twitter could be costly. Facebook likely won't overtake Twitter and what it has built up today. Twitter has won that race already. But if Facebook continues to spend too much time trying to re-position itself, its core business (i.e. connecting friends) is in danger of becoming vulnerable.

Clearly, MySpace, with its brand new management, is not wasting time. AOL is cooking up some interesting new stuff itself in the social networking space. And Google may just decide to make Chrome more social than other browsers.

So, it seems that Facebook's best path to preserving its strength is to not waste energy chasing Twitter. Instead, it should return to its roots and core strength: being the #1 social networking site that makes it easy to network with your friends.

An App Endorsement (see the sample below) is more effective at driving traffic to an app, according to Identified Hits founder Nathan Blecharczyk, because they are personal. That's the same argument Zuckerberg and company made for Beacon. Blecharczyk, wisely looking to avoid the sort of conflict that was caused by Beacon when it was rolled out last fall, was quick to highlight differences between the two services. "These ads differ from Beacon because they are strictly opt-in and do not broadcast actions from outside of Facebook," he told us. "[Also] every one of our ads allows the viewer to opt out of receiving future ads from any particular advertiser."

Identified Hits ads are sold on a CPM basis and are shown on the landing pages of publisher apps in its network. Because ads are only sent to friends of users of the advertisers, and only sent to publisher apps that those friends have installed, Identified Hits will need to build a fairly large publisher network before they have any kind of usable inventory. In other words, in order for App A to get an ad shown on App B, users of App A need to have friends who use App B.

The company says that they're showing ads on app canvas pages rather than the News Feed because the News Feed messages are easily overlooked. More likely it is because ads of this nature are not possible in the News Feed except via official channels, and because if they were they would likely violate Facebook's terms of service.

Another wrinkle is that these ads are completely opt-in. Users are asked to explicitly grant permission for their likeness to be used in an advertisement before any are shown on canvas pages of their friend's apps. We're skeptical of how many users would actually do that, but Identified Hits says that it has seen "yes" rates are high as 70%.

The service could be more fully developed but it's certainly in the lead compared to other services aiming to do the same thing. A close look at the details leads us to believe that this could be a much bigger move than it might seem to be. Here's a few reasons why we believe it's so interesting.

SixApart is a leading company in the field of social graph experimentation and the most outspoken participating company willing to be critical of some of Google's efforts like OpenSocial. BlogIt is interesting beyond its basic functionality because it can tie together confirmed accounts on Facebook, outside blogs and Twitter - then place that information in the hands of a company dedicating significant time and resources to leveraging such information in the interests of users. BlogIt may be just a beachhead landed in the hostile territory not of Facebook, but of online identity chaos in general.

Continued below.

Blog Posts to the Newsfeed

Many people want to know when 3rd party RSS feeds will be able to be ported into the Facebook Newsfeed, something the company has been hesitant to allow but put its toe in this week (see Sarah Perez's dismissal and some commenters disagreeing at Facebook's Lifestream: Nothing to See Here).

Typepad's BlogIt won't post Twitter messages to your Newsfeed, but it will post blog post links there. It effectively automates sharing your blog posts off-site with your friends on Facebook. That's a big deal. The Facebook Newsfeed is the RSS reader of choice for millions of people - they just couldn't subscribe to RSS feeds in it! BlogIt is another crack in that wall.

The Salvation of Beacon

SixApart was an early participant in Facebook's highly controversial Beacon project. Beacon broadcasts user activity on 3rd party partner sites to their friends' Newsfeeds on Facebook. Almost all of the partners were e-commerce sites broadcasting purchasing activity and it was extremely unclear whether the program was opt-in or opt-out. SixApart negotiated with Facebook to make their implementation of Beacon entirely and clearly opt-in.

Now that almost any blog post, not just those on SixApart platforms, can appear in Newsfeeds - many savvy bloggers may do their composition inside BlogIt so that their posts can gain the additional promotion to their Facebook friends. This will increase the visibility of best-practices (opt-in) in broadcasting off-site information in the Newsfeed - that's just the kind of visibility that Beacon needs.

Make no mistake, Beacon is still very important to Facebook. Though the company made a very public move in apologizing for the opt-out nature of Beacon, CEO Mark Zuckerberg still considers user purchasing activity to be the best form of advertisement the social network can display and thus key to the company's monetization strategy. If Facebook can follow SixApart's lead in the way it handles permission to display off-site activity, and if BlogIt leads to a proliferation of off-site blog posts displayed in Newsfeeds then Beacon-type Newsfeed notifications could become much more palatable to Facebook users.

This week's inclusion of user activity from Flickr, Yelp, Picassa and Del.icio.us into the Newsfeed is a move in a similar direction - but blog posts written by your friends are likely to have a higher click-through rate than less frequently uploaded photos, reviews for random restaurants and URLs being saved primarily for later personal reference. Getting personal blog posts into the Newsfeed is more valuable for all parties involved than any of the first 3rd party feed steps Facebook has taken.

Conclusion

Maybe the thoughts above are crazy, but I don't think so.

The BlogIt interface is far less sophisticated than native blogging platforms, but many bloggers will appreciate the ability to post to their blogs, Facebook and Twitter at the same time. On one hand this could end up being just another Facebook app, the vast majority of which probably weren't worth the time they took to create. On the other hand, BlogIt could be a small wedge into a series of game changing moves in social media.

Social Networking

Social networking has been making headlines for the past few years. In 2005, News Corporation made a huge splash in the social networking market when its Fox Interactive Media division purchased MySpace for a cool $580 million. However, though MySpace remains by far the largest social network on the web, it has been new kid on the block Facebook that has been stealing all the headlines since fall of last year when it opened up beyond the college audience that had been its bread and butter. 2007 was an especially good year for Facebook and the company has made a number of moves that pushed the entire social networking market.

According to Compete, MySpace actually saw traffic fall this year, while Facebook enjoyed a 111% up tick in monthly unique visitors (in the "people count" metric, Facebook showed similar growth). Facebook nearly caught up with its rival in search volume, and overtook MySpace in press mentions by the end of the year.

To what does Facebook owe their amazing growth? In part, perhaps, because of the launch of their platform in May. The platform allowed outside companies to hook into Facebook's massive user base. Almost immediately we began to hear the success stories, such as iLike, whose application was added by 10,000 users in the first 10 hours of the platform's existence and by nearly 5 million in the first two months.

Facebook now has over 100,000 application developers working on platform apps, and over 85% of their users have added at least one app to their profile. The success of Facebook's platform initiative compelled other social networks to consider their own platform strategies. The rumors started to fly. First LinkedIn was getting a platform (which they have finally made good on). Then it was MySpace's turn. Finally, and most impressively, the world's second most valuable technology company announced their plans to compete with the Facebook platform.

Google's OpenSocial arrived in November with some of Facebook's biggest competitors as launch partners: Ning, LinkedIn, Hi5, Friendster, orkut, bebo, and the big daddy of the them all, MySpace. However, many of those companies have continued to build out their own platforms and Google's initiative has so far failed to deliver anything very concrete. Facebook may have had the last laugh when it announced last week that it was opening up its platform architecture. Facebook's first partner? bebo, an OpenSocial participant.

So influential has Facebook been on the Internet in 2007, that Microsoft agreed to invest $240 million in the company for what amounts to about a 2% stake. This deal shot Facebook's paper valuation into the stratosphere and gave it the cash it needs to take on competitors like Google and MySpace.

But not everything is rosy for Facebook. Following the launch a controversial new advertising system last month, Facebook faced a backlash from the media and consumer advocacy group MoveOn.org. Even though it appears that Facebook put the issue to rest with an apology and policy change, as Danah Boyd notes, this is the third time in the past couple of years that Facebook has pushed the envelope on privacy issues. They are practicing a form of "slippery slope" software development, she says, and users may not continue to stand for it.

Look for social networking to continue to play a major role in our lives in 2008 as the platform war brewing between Facebook and Google (and the others?) heats up.

Personal Publishing

The other area in the vast consumer application space that was extremely influential this year was that of personal publishing. No one company has been more disruptive than our top LittleCo, Twitter.

A pioneer in the area of "microblogging," Twitter is, as Alex Iskold recently wrote, a natural evolution of personal publishing that fills the gap between blogging and social networking. Twitter really picked up steam at the SXSW conference last March and has since become something of a phenomenon. In fact, people are even talking about "Twitterdiction" to describe how passionately some users feel about the service.

As we wrote when naming Twitter our best LittleCo of the year, the company truly "stands out as being something that has captured the imagination and become a new hybrid of chat, social networking and blogging." But perhaps one of the most interesting things that has come out of Twitter, is how it has pushed the creation of an entirely new type of personal publishing.

Probably the second-most talked about microblogging app after Twitter (which some might not really classify as a microblogging app at all -- but lets leave semantics aside for now), is Tumblr. Tumblr takes the traditional blog form, and strips it down to a sort of stream of consciousness inspired state in which posts are meant to be short and to the point: a single photo, video, quote, link, or thought. Tumblr certainly wasn't based on Twitter (it was based on "tumblelogs" like projectionist or Anarchaia), but Twitter's success really opened the door for more microblogging apps to be developed.

These tools are important because they are highly accessible. Microblogging apps like Tumblr and Twitter are pushing personal publishing into the mainstream in ways that probably hasn't been done in the past. Though disputed, Forrester Research reported that 6% of US adults use Twitter regularly. That's remarkable for such a young service (and one that actually has something of a learning curve to really "get").

Just how important is this new form of personal publishing? Important enough for Google to purchase Twitter rival Jaiku in October for an undisclosed sum.

Other

Facebook and Twitter weren't the only things to happen in consumer apps this year, just the most disruptive and influential.

IPTV: Another of the most anticipated and talked about startups of the year was Joost. Founded by Janus Friis and Niklas Zennstrom (you know, the Kazaa and Skype guys), Joost is an IPTV service that delivers streaming, on demand television over the Internet using P2P technology. Though they have signed a number of major content deals, including Adult Swim, Warner Bros. Records, the National Basketball Association, and CNN, Joost has yet to really capture the attention of the mainstream. See our full review of Joost, which compares the service to competitors Babelgum and Zattoo and be sure to check out last100's 2007 Internet TV review.

Politics: Also in 2007, web 2.0 began to play a big role in US presidential politics. Following the trail that Howard Dean blazed in 2004 with his innovative use of blogs and Meetup.com to mobilize grassroots support, this year saw candidates utilizing social web apps as never before. Having a profile on top social networking sites became almost mandatory -- almost every major party candidate had a presence on MySpace and Facebook, and some also utilized LinkedIn, Twitter, and others. YouTube held candidate debates with CNN and MySpace got in on the act with their Candidate Dialogues. Some candidates even began broadcasting live on UStream (like Dennis Kucinich or Chris Dodd, for example). The use of consumer web apps in politics is only likely to heat up in 2008 as applications continue to reach more mainstream Americans and the presidential races progress in the United States.

Web Office: Another hot area in the consumer apps space in 2007 was the web office. Because Richard MacManus already wrote a detailed year end wrap-up of that entire market, I'll be brief in my comments. With the continued maturation of online office suites, especially Google Apps and Zoho, and with Microsoft finally starting to show its online office hand, web office is a very hot sector. And while enterprise customers are who the real battle will be fought over, many of the current crop of offerings are mature enough for home use. Consumers already have access to fairly reliable, fairly complete online word processing, spreadsheet, presentation, and email applications. Be sure to check out Richard's write up for a more detailed overview of what went down in the web office this past year.

iPhone: Finally, I will take a moment to mention the Apple iPhone. No other product launched this year has captured the imagination of the press and the public like the iPhone, and with good reason. The iPhone has the potential to be a truly game changing gadget that forces other mobile device manufacturers to make a quantum leap in cell phone functionality. One of the areas that the iPhone can make the largest impact is in the adoption of the mobile web via its ability to so elegantly bring the entire Internet to your pocket. Be sure to read Alex Iskold's list of reasons he loves his iPhone as well as his follow up wish list for the device.

Your Turn

What do you feel were the most impactful consumer apps of 2007? What service or product did we leave off of our wrap up (and there were many!) that you think we really should have paid more attention to? What do you think will be the big trends of 2008? Let us know in the comments below.