Rupert Murdoch is a very savvy businessman, and he’s often credited for moving fast to snap up MySpace at what seemed like a foolhardy price, until it wasn’t. However, one reason he is a good businessman is because he doesn’t fool himself when it comes to business matters.

In an interview with the Wall Street Journal (a company he’s trying to buy) (http://online.wsj.com/public/article/SB118115049815626635.html), here’s what he said about Facebook:

WSJ: The Tribune company was shopped around for quite a while.

Mr. Murdoch: Yeah, but there weren’t any buyers.

WSJ: There was one in the end.

Mr. Murdoch: For $90 million. Risk. That’s in the figures …

WSJ: Why didn’t you do it?

Mr. Murdoch: Don’t want to spend the rest of my life going through that, getting rid of people, ugly. I think they’re in decline, they can fire a few hundred people everywhere, save a couple of hundred million dollars … I guess they will have a billion a year to pay down the debt, that’s what it sounds like. No, a bit less. I would have thought that, although the decline in readership will probably go on.

WSJ: They’re all going to MySpace.

Mr. Murdoch: I wish they were. They’re all going to Facebook at the moment.

And here’s what he said about Google and Microsoft:

WSJ: Then what’s the opportunity for you? Digital?

Mr. Murdoch: I think it’s in the digital area, digital and TV. And I think we’ve got to pour some money into digital. We’ve got to do a lot of things there… There’s so much going on on the Internet. We’ve got to find new ways and new business models to get revenues. Or else the world is going to be owned by Google. I was asked at this investment thing I had to go to, what competitors I see I would have in five years time. Globally. I said I’m sure they’ll be a lot of them. I know one is Google. It’s just getting so strong, so powerful. And I know the guys, and like them. They’re friends of mine. But it is a big fact of life. They sort of just hit the mother lode of search advertising and they’re just destroying Microsoft search, hurting Yahoo‘s and making others irrelevant. I don’t understand the technologies but whatever their technology is, it seems to be producing a much higher margin of profit. What are they going to do next? I saw in the New York Times today they’re devising certain, a lot of computer applications which would directly challenge Microsoft, which they’ll give away. So it’s going to be very interesting. Four or five years ago we were all convinced Microsoft was going to take over the world. Now we’re all convinced it’s Google. But that’s another subject.

We live in interesting times, where mega-billion dollar market cap companies arise in very short time frames and fall from relevance even before their cash flow drops. I wonder how long it will take people to catch on to how fleeting competitive advantage can be on the Internet, even for what seem today to be the titans. It’s something to think about the next time someone bemoans corporate power or monopoly status of a company in the software industry.

Update, June 25, 2007: My friend Danah (danah.org) points out that MySpace and Facebook have different levels of popularity in different social classes: http://www.danah.org/papers/essays/ClassDivisions.html

There is another company that seems to innovate much faster, and focus more strongly on being very useful in many interesting ways to many people, that has very rich information on its users, and is growing by leaps and bounds. For a youthful demographic, it is perhaps the most important site they stay on.

I’m talking, of course, about Facebook. With a clean elegant interface, and a degree of usefulness that infuses the whole site, it’s not really a social network site. It’s a social utility.

Signs of its power are growing. Among the younger generations, Myspace’s unruly ugliness has been eclipsed by Facebook’s elegant interface. (Rupert Murdoch, are you listening?)

And the true power of Facebook hasn’t hit the entertainment and business worlds yet, despite the fact it would be very useful to those worlds.

And Facebook isn’t stopping. It continues to evolve into something more powerful. They are now announcing that they are opening their website to outside application developers. For Facebook this may mean they are creating an even richer ecosystem of data and usefulness.

For the users of Facebook, this should let you see when and what applications friends are adopting, which could be very interesting in encouraging you to adopt new features on the site.

For developers, the applications can not only take advantage of the size and this new form of viral growth in the Facebook community, but they will also potentially be able to take advantage of the rich information Facebook has about its customers and their relationships to each other. If before it was difficult to compete with eBay’s stranglehold on buyers and sellers, the Facebook ecosystem may make it easier for an eBay competitor to emerge.

If Google is trying to create one super computer that solves all of your information needs, Facebook is creating one ecosystem that can do the same thing.

If Facebook ever ponders creating a search solution, Google look out.

For more, on Facebook’s past, present and future, see the Fortune magazine article here:
http://money.cnn.com/2007/05/24/technology/facebook.fortune/index.htm?postversion=2007052417

Or find out more about Facebook’s application initiative here:
http://www.techcrunch.com/2007/05/24/facebook-launches-facebook-platform-they-are-the-anti-myspace/

Update, 5/31/07: An excellent analysis of Facebook’s core power can be found here: http://feeds.feedburner.com/~r/Techcrunch/~3/121140079/

Update, 7/7/07: Rupert Murdoch, the power behind Myspace, recognizes Facebook’s ascendancy, as I point out here: http://www.mathoda.com/archives/165