The OpenSocial Business Model: Will the biggest social containers win? Google's CEO says no.

In my most recent post regarding today's announcement between Google and MySpace that MySpace would be embracing Google's recently announced OpenSocial framework of APIs, I noted that I asked two questions during the Q&A session with executives from both companies. The first question (which I'm really still waiting for an answer on) had to do with how two or more social networking sites will handle the thorny challenge of reconciling dissimilar identity management systems (when the integration involves the exchange of personal profile data). You can see in that post what some possible answers are, but what's not clear is how, in the demonstration given (see our video of that), unique MySpace IDs are mapped to unique Flixster IDs (the demo involved the incorporation of Flixster social movie reviewing service directly onto MySpace profiles).

Another question I asked had to do with business models in an OpenSocial world. I probably didn't phrase it during the press conference as well as I should have. But going back to the example of how OpenSocial results in the embedding of Flixster functionality into larger "social containers" like MySpace; It occurs to me that, to the extent the exporter of functionality (Flixster in the demo example) relies on advertising as a business model, the idea that a lot of people might begin to experience an exporter's content through a container (where the container gets to serve the advertising instead of the exporter) could result in a cannibalization of the exporter's traffic (and therefore, its ad revenues). Meanwhile, the container (MySpace in this case) benefits, doesn't it? After all, using the demo as the example, MySpace gets to serve advertising around Flixster's content. Today, lots of sites (eg: FaceBook) go out of their way to prevent other sites from using HTML's frames to frame their content and serve their own ads against that content (FaceBook for example purposely "busts" HTML frames).

Therefore, could the OpenSocial network lead to a world where the biggest and mightiest "social containers" win? As you can hear in the full audio podcast we have of the press conference, Google CEO Eric Schmidt answered that question as follows;

It depends on your view of how network effects happen and whether you think a single dominant player comes out in any of these spaces. The history of the Web says that that's not the scenario that will happen. The history of the Web says that there is enormous diversity in what people are interested in and that people who are willing to take a bet on an open platform whether its a developer or leading site like MySpace get the benefit of a larger pie. It does not end up as a zero sum game. Your question can be rephrased in exactly the same question we asked 20 years ago and 10 years ago and history says that the Internet wins and that the principles of openness; that people can extend things; that in fact they end up winning because the pie gets so much larger in all scenarios.

Given the way FaceBook has come on so strong in the last few months, it would be hard to argue with the idea that no single dominant player will ever emerge so long as the platform is open. But what about a small handful of dominant players like Google, FaceBook, and MySpace. Yes, OpenSocial is also about unlocking whatever profile data you have in your MySpace vault and making it portable to other social networks.

But how often will people really switch after they've invested so much time in building their online personas in a MySpace, a FaceBook, or both? Maybe they'll do it, but my sense is that they won't do it often or lightly in which case only a few will get to rise to the top. Put another way, Flixster may indeed be a container as much as it is an exporter of data to other containers. But in which direction will most of the data flow? To or from Flixster? My sense is that people will lean in the direction of uber-containers like MySpace and FaceBook (FaceBook has not announced support for OpenSocial) to be their primary containers and specialty function sites like Flixster to serve up data into their containers.

I'm not saying that sites who primarily end up in the role of serving data to larger containers can't win. But, if you ask me, the existence and adoption of OpenSocial will force many advertising-driven sites back to square one where they'll have to think hard about how they'll sustain themselves while also participating. One thing is for sure. Much the same way a day doesn't go by when some company doesn't carve out a niche in the FaceBook universe for itself (knowing full well that FaceBook is where the sunshine is right now), support of OpenSocial will be a checklist item for any site that's in a position to serve data into the larger container sites. Those sites may not realize it right now. But when Google turns on its container (and you know it's gotta have one coming or it wouldn't be doing this), a lot of people will have their moment of clarity.