Facebook to face off with new Web rivals

Mark Zuckerberg, founder and CEO of Facebook, delivers a keynote address at the company's annual conference in San Francisco, California July 23, 2008.

SAN FRANCISCO (Reuters) - Facebook's vision of becoming a "utility" that offers activities to keep people online for hours could set it on a collision course with the Web's giants.

In recent days, the No.1 social networking company revamped its search engine and bought a start-up that some call a rival to hot micro-blogging service Twitter. It is also testing a stripped-down version of its service to boost growth overseas and is developing an electronic payments system.

These moves mark a new phase in Facebook's evolution as the five-year-old company meshes the viral power of social networks and its huge member base to barge into new markets.

"When you become the site that people spend enough hours on everyday it's very natural to take advantage of that and to become the site that tries to provide all the services that portals provide," said Haim Mendelson, a professor at Stanford University's Graduate School of Business.

The site, co-founded by 25-year-old Mark Zuckerberg in a Harvard University dorm room, could challenge Web portals like Yahoo Inc and Google in content and communications, Brigantine Advisors analyst Colin Gillis said.

Facebook, which Zuckerberg has described as a "social utility," could take on eBay Inc's PayPal online payments system and maybe Apple Inc's iTunes for digital downloads, he added.

"People only do so many things on the Web," said Jeffrey Rayport, founder of digital media consultancy firm Marketspace. "There are a lot of companies that would like to own that set of activities."

FACEBOOK AND GOOGLE? SEARCH ME

With more than 250 million members, Facebook was the world's fourth most visited website in June, according to comScore. It is on track to bring in more than $500 million in revenue this year, most of it from advertising sales.

The new initiatives represent the natural evolution of the service, said Facebook Vice President of Product Christopher Cox. He downplayed the increasing overlap between Facebook's new search engine and Twitter's search engine, or Google's dominant Web search engine.

Facebook's previous search engine was useful for finding other people on the site, but the new version lets users look up what others are saying about particular topics, from healthcare to Iran. The search results are relevant to each person, Cox said in an interview.

"When you're trying to figure out what to eat, or what shoes to buy, or who to vote for, you don't go ask thousands of strangers," said Cox. "The Web should reflect that."

Facebook's recent acquisition of FriendFeed, which lets people share and search for content in real time across social networks and blogs, gives it another key asset as it seeks to perhaps extend its search scope beyond the site's boundaries.

Google recently unveiled new search engine prototype, dubbed Caffeine, that promises faster, more relevant searches.

Asked about Facebook's search efforts, a Google spokesman said, "We have many competitors, and we take them all seriously. But what we take more seriously is innovation and making search better."

Facebook is likely not interested in going head-to-head in Internet search with Google, Stanford's Mendelson said. But the areas of overlap between the companies are increasing, and by beefing up search, Facebook could become more competitive with Google, he added.

At the same time, Facebook could go after PayPal with the online payments system it is developing. Companies like 1-800-Flowers have already set up shop within Facebook, and e-commerce could become more popular on the site.

Software developers who sell applications on Facebook are testing the payments system, Cox said, but it is not clear whether it will handle e-commerce transactions across the Web.

"We're really just trying to get our bearings on what the right product is here with a handful of people at this point," said Cox.

(Reporting by Alexei Oreskovic. Editing by Robert MacMillan)