This week, Inside Facebook asks people who have built businesses on the Facebook platform why they believe in the company. These are the people that are truly invested in Facebook, whether or not they bought stock.

For Part 3 of our series we spoke to Hussein Fazal, co-founder and CEO of AdParlor, which provides Facebook ad services and software to optimize campaigns for clients including Groupon, Digitas and a number of social game companies.

Seeing the potential of Facebook

When Facebook opened its platform to third-party developers in 2007, Fazal was working as a software engineer at Bell Canada. In early 2008, he and a friend Kristaps Ronka decided to try building some Facebook applications in their spare time. Fazal didn’t know what would come of it, but he thought it would be fun.

Fazal built a file-sharing app called My Documents, and Ronka made a treasure hunt app. Even though the apps only had a few hundred users, the two started to look for ways to make money off what they had built. When they couldn’t find a good in-app ad network, they decided to build their own.

“As soon as we started working on the ad network, we realized there was real money to be made given the unfulfilled demand and the rapid growth of Facebook,” Fazal says.

Developing a business idea

Fazal and Ronka initially struggled to get advertisers and publishers on board with AdParlor. If they signed a new advertiser, they wouldn’t have enough publishers to give the advertiser the reach they wanted. If they signed more publishers, they didn’t have enough ad inventory to fill the spaces.

But after “a lot of hustling,” as Fazal says, the company became more established among game developers — including Zynga — and started bringing in six figures a month. When they saw the offer wall space begin to develop, they got into that business as well. The turning point for AdParlor came in early 2010 when an advertiser from China wanted to run a huge campaign to drive users to its app.

“They were looking to spend $1 million as fast as possible,” Fazal says.

AdParlor didn’t have enough banner or offer wall inventory to satisfy the advertiser, so Fazal says he turned to competing networks to serve the ad. It still wasn’t enough volume for the client, so Fazal tried using Facebook’s self-serve tool to run ads directly on the site, rather than within canvas apps. It worked.

“The advertiser called us and told us to shut down the banner network, shut down the offer wall,” Fazal says. “The volume and quality of the Facebook ads was better than everything else we were doing.”

Fazal ended up spending close to $1 million using the basic self-serve marketplace.

“We were like, ‘Holy crap, we should start doing this for everyone!’” Fazal says.

AdParlor began using the Bulk Uploader tool and eventually got access to the Ads API, which was in limited private beta at the time. Within two months, AdParlor built their own platform using the API and it has since focused exclusively on ads within the right hand column of Facebook rather than in apps.

Confidence in Facebook

Fazal believes Facebook is fundamentally different than most websites and services because its power is not just on Facebook.com or its mobile properties, but in the network of information it has on its users.

“I feel every once in a while there’s a big shift on the web,” Fazal says, discussing how Google redefined the space by making it possible for people to find information they couldn’t before. “I feel like Facebook is the same way. There really has been a shift in the Internet and what people do online.”

He says the scale of Facebook is what really proves its value.

“Just go into a Starbucks and look at the laptops,” Fazal says. “It’s is everywhere.”

Future of Facebook

Fazal sees a number of ways it could be integrated into products like social TV, car GPS systems, and recommendation services for music and movies. But as a developer in the advertising business, Fazal would really like to see Facebook launch a display ad network and build a better search engine.

“We’d love to have more inventory,” Fazal says of serving ads off-Facebook. “And we’d love to have intent-based search ads.”

Fazal acknowledges that these are big efforts, and Facebook search in particular could be a long ways off.

“Search is not an easy problem to solve,” Fazal says. “But if everyone already goes to Facebook.com, that’s a legitimate social competitor.”

–

Read Part 1 with Clara Shih of Hearsay Social
Read Part 2 with John Corpus of Milyoni

Marketing hardware and software corporation Oracle today announced an agreement to acquire social media management company Vitrue. According to TechCrunch sources, Oracle will pay $300 million for the platform and its team, including CEO Reggie Bradford.

The acquisition could lead other large enterprise companies, like Salesforce and SAP, to begin pursuing social CRM companies more aggressively. Overall, the world of social marketing solutions is consolidating as many companies look to provide all-in-one solutions. Last year Adobe bought Efficient Frontier for $400 million not long after Efficient Frontier had bought Context Optional. Platforms like Buddy Media, Involver or Syncapse could be future targets for acquisition by companies looking to add more social media capabilities to their enterprise packages.

Vitrue’s software platform has four main components: publishing, app development, social commerce and analytics. Vitrue does not offer its own Facebook ad management tools, though earlier this month the company announced a partnership program that includes ad services and software providers Involved Media, Marin Software, Nanigans, Optimal, SocialCode, Spruce Media and Unified. Vitrue also has a partnership with e-commerce software company ShopIgniter, which gives marketers the option to create a Facebook store, shareable coupons, referral and loyalty incentives, private and time-based sales, and group promotions, among other features.

Since launching in 2006, Vitrue has raised $33 million in funding and worked with brands such as McDonald’s, American Express, Frito-Lay and Procter & Gamble. TechCrunch says the company is “nearly profitable” with revenues projected to be about $100 million, though we’ve heard others in the industry skeptical of this number. Bradford told us in 2010 that the company was profitable that year.

Vitrue recently launched a new branding campaign earlier this month designed to emphasize that brands should be using social media to build relationships with customers and not simply collecting Facebook Likes. This package, sent as part of a press campaign to Inside Network’s offices, displays the “Like Can Never Replace Love” initiative by including products from brands that Vitrue believes are loved:

Horoscopes topped our list of Facebook-connected apps growing by daily active users this week. then there were a few birthday calendar apps, games and an assortment of Timeline apps, like Spotify, Pinterest, and other integrations.

The titles below grew between 230,000 and 2.6 million DAU, based on AppData, our data tracking service covering growth for apps on Facebook.

Top Gainers This Week

	Name	DAU	Gain	Gain,%
1.	Daily Horoscope	4,500,000	+2,600,000	+ 137%
2.	Spotify	6,300,000	+1,300,000	+ 26%
3.	MyCalendar – Birthdays	2,400,000	+1,200,000	+ 60%
4.	60photos	1,500,000	+1,110,000	+ 285%
5.	Viddy	1,500,000	+600,000	+ 67%
6.	Bubble Blitz	550,000	+548,000	+ 27,400%
7.	Bubble Safari	580,000	+530,000	+ 1,060%
8.	Yahoo! Social Bar	4,100,000	+400,000	+ 11%
9.	Scribd	1,200,000	+320,000	+ 36%
10.	Buggle	1,000,000	+310,000	+ 45%
11.	MiCalendario – Cumpleaños	830,000	+310,000	+ 60%
12.	Bing	3,300,000	+300,000	+ 10%
13.	Candy Crush Saga	2,300,000	+300,000	+ 15%
14.	Pinterest	2,700,000	+300,000	+ 13%
15.	Siz.net	970,000	+300,000	+ 45%
16.	Texas HoldEm Poker	7,100,000	+300,000	+ 4%
17.	Pyramid Solitaire Saga	750,000	+270,000	+ 56%
18.	الأبراج اليومية	470,000	+270,000	+ 135%
19.	MeuCalendário – Aniversários	880,000	+260,000	+ 42%
20.	Zynga	900,000	+230,000	+ 34%

Daily Horoscope topped the list; this type of app usually posts to the stream regularly. There was a trio of birthday calendar apps in English, Spanish and Portuguese. These apps usually ask the user to invite friends to use the app before allowing them to create a calendar.

Games were led by Bubble Blitz, and the Zynga.com platform also made the list.

Timeline apps like Spotify and Pinterest were popular. Photo rating app 60photos generates tons of feed and ticker stories as users rate their friends’ photos. Mobile video app Viddy continued to grow at a good pace, as did other list regulars Yahoo! Social Bar and Scribd. The Bing integration showed moderate growth and Turkish website Siz.net also makes another appearance on our list.

All data in this post comes from our traffic tracking service, AppData. Stay tuned for our look at the top emerging apps on Friday.

Facebook today settled a proposed class action lawsuit that contested how the site uses names and images of users in its Sponsored Stories ad product.

The plaintiffs of Fraley et al v. Facebook, Inc. asserted that the social network’s new ad type turns users into spokespeople, and thus entitles them to compensation under California law. The company did not share terms of the settlement in court documents and representatives did not offer comment on the case. Had Facebook not settled, it might have risked what it sees as a major component of its future advertising business.

Sponsored Stories, introduced in January 2011, allow advertisers pay to promote a user’s actions — such as Liking a page, playing a game or sharing a link — to their friends. However, California’s Right of Publicity Statute prohibits the use of another person’s name, voice, signature, photograph or likeness for advertising without a person’s consent. According to Reuters, Facebook claimed it was immune under the law’s “newsworthiness” exemption because the plaintiffs are considered public figures to their friends and their actions on the platform are generally newsworthy.

Some advertisers have found Sponsored Stories to have lower costs and higher clickthrough rates than Facebook’s traditional ads. Earlier this year Sponsored Stories became part of Facebook’s initial steps to monetize mobile usage with these ads now eligible to be shown within mobile News Feed. The company is also testing options for advertisers to create Sponsored Stories that promote Open Graph activity, including actions, such as what users watch, read or listen to. We’ve also seen the social network increase the size and design of Sponsored Stories within the desktop feed recently.

Regulators suggested today that they will review Facebook’s initial public offering following reports of the Nasdaq’s technical issues and possible violations by underwriters, according to Reuters and the Wall Street Journal.

Securities and Exchange Commission Chairman Mary Schapiro and Financial Industry Regulatory Authority Chairman Rick Ketchum separately told the press that their agencies would be looking into allegations and concerns surrounding the much-scrutinized IPO. [Update 5/22/12 2:27 p.m. - Massachusetts Secretary of Commonwealth William Galvin has issued a subpoena to Morgan Stanley over it discussions with investors on Facebook prior to the IPO.]

Sources tell Reuters that Morgan Stanley, JPMorgan Chase and Goldman Sachs revised their earnings projections for Facebook during the company’s roadshow but did not make the change widely available to potential investors. Business Insider’s Henry Blodget explained that the underwriter analysts reduced their estimates after Facebook had filed an amendment to its IPO filing, which included a note that user growth continued to outpace revenue growth in the second quarter of 2012. He wonders whether Facebook had any direct involvement in the analysts adjusting their projections. [Update 5/22/12 3:02 p.m. - Blodget now says he has sources confirming that a Facebook executive told analysts to lower their estimates.]

Although companies do not release their own financial forecasts before an IPO, they generally provide guidance to underwriters whose analysts determine an estimate. Any information a company offers leading up to an IPO is required to be made available to all potential investors, however, bankers often favor their institutional clients and share information with them before disseminating it to retail investors.

As for issues with the Nasdaq, the exchange experienced a number of technical issues on Friday that could result in $13 million in compensation for bad trades. A number of investors were unable to verify whether their orders went through for several hours.

These problems seem to have led some investors to be more wary of Facebook’s stock, which has fallen to $31 today after initially listing at $38 and going as high as $45 on Friday morning. Shares are down 8.9 percent since Monday and down 18 percent from the offering price.

This week, Inside Facebook asks people who have built businesses on the Facebook platform why they believe in the company. These are the people that are truly invested in Facebook, whether or not they bought stock.

For Part 2 of our series, we spoke with Milyoni founder and CEO John Corpus. Milyoni is the Facebook commerce and social entertainment company best known for making films and live events available for streaming on the social network.

Seeing the potential of Facebook

Three years ago when Corpus was CIO of Mervyns department store, he saw the rapid growth of Facebook as an opportunity for commerce. At the time, the social network had about 150 million users. Although that is far less than the more than 900 million using the site now, it was a major milestone in 2009. Corpus says the growth was especially interesting when compared with trends showing that online display and search conversions were declining.

“The three rules of retail are location, location, location,” Corpus says. “Facebook was where people were spending more time.”

He says it was the amount of interaction and the speed of sharing happening on the site that stood out and led him to want to build a company on the platform.

Developing a business idea

When Corpus founded Milyoni (pronounced “million-eye”) in February 2009, the company was focused on helping businesses sell physical goods. Milyoni offered the “iFanStore,” an e-commerce platform for Facebook, Twitter and MySpace. It was one of the few e-commerce apps that let users stay within Facebook during an entire transaction and then share their activity with friends.

The company gained a lot of entertainment-focused clients, including HBO, the NBA, UFC and The Onion. These companies were selling things like t-shirts and DVDs through the app. But Corpus says that a conversation with Warner Bros., at the end of 2010, led to a whole new market: digital goods.

Milyoni and Warner Bros. were discussing how video was incorporated in the app when an executive asked whether a full feature could be shared on Facebook. The companies decided to try it, and in March 2011, they made “The Dark Knight” available for streaming on Facebook with users paying for the rental using Facebook’s platform currency, Credits. The success of that test and others led Milyoni to develop what it calls “Social Cinema” for movies and “Social Live” for things like concerts and sporting events. The company is now primarily focused on these areas rather than selling physical goods through Facebook.

Confidence in Facebook

Corpus says Milyoni could expand to other platforms in the future, but for now it’s focused on Facebook.

“This is not a fly-by-night type of business,” Corpus says, pointing to Facebook’s latest user numbers and engagement statistics, which includes 300 million photo uploads and 3.2 billion Likes per day. “From a foundational standpoint, they’re here to stay.”

Milyoni’s own success on the platform is further proof for Corpus, who says Facebook users have watched more than 700,000 minutes of Milyoni content in the past three months. The company now offers more than 150 titles from 16 studios available on Facebook, and it plans to bring 700 more titles and 30 more live events to the platform this year.

Facebook’s future

To capitalize on the social network’s growth in users and engagement, Facebook now has to focus on growing its revenue streams through advertising, mobile and commerce, Corpus says. Social games were a good start, but he says there is a lot more opportunity around social entertainment where studios and other content providers can connect directly with their consumers.

Facebook’s payments revenue was $186 million in the first quarter of 2012, up 98 percent compared to the first quarter of 2011 when Credits were not mandatory for social games transactions. However, most of that revenue is still from sales of virtual goods, not digital goods or experiences. Milyoni is one of the few companies helping to pioneer the use of Credits outside the realm of games. Corpus says the social network needs to do more to get users to understand Credits so that they are more comfortable using the currency and spending money within apps. He sites PayPal as an example of another company that took a few years before it was widely considered secure. Corpus says that making it easier for users to see and manage their Credits accounts could help Facebook in this area.

“They have to let people know it’s not just Monopoly money,” Corpus says. “They have to provide people with a level of confidence and security to make it a more trustworthy place.”

Read Part 1 of our series, which profiles Clara Shih of social marketing software company Hearsay Social.

Facebook’s mobile application for feature phones topped our list of the fastest growing Facebook pages as measured by Likes this week. Musicians, Facebook, YouTube, a few movie pages and brands like Target and Ray-Ban rounded out the list.

Pages on our list this week grew from between 357,200 to 2.6 million Likes. We compile this list with our PageData tool, which tracks page growth across Facebook.

#	Name	Total Likes	People Talking About	Daily Growth	Weekly Growth
1	Facebook for Every Phone	89,216,745	2,836,432	+372,633	+2,645,489
2	Rob Zombie	1,851,994	27,773	+466	+979,482
3	Andaz Apna Apna	837,833	3,604	+349	+600,012
4	LUX	595,756	906	+126	+590,282
5	Samsung Mobile USA	5,889,231	604,665	+69,475	+537,159
6	Adele	28,738,324	565,979	+66,984	+497,406
7	RealMsLaurenLondon	522,026	11,238	+32	+491,890
8	Titanic	23,922,569	566,844	+60,494	+452,417
9	Jeremy Lin	954,881	552,606	+34,979	+438,508
10	Rihanna	56,128,843	753,451	+58,302	+433,580
11	The Simpsons	50,674,946	841,397	+54,353	+419,958
12	Serve	503,633	374,353	+25,365	+419,867
13	Facebook	66,877,793	451,328	+59,510	+404,236
14	Eclipse	5,564,067	57,491	+4,434	+399,854
15	Ray-Ban	3,485,020	287,717	+59,974	+399,406
16	YouTube	57,826,245	445,547	+53,951	+389,501
17	Target	12,442,767	402,109	+55,638	+381,990
18	Slotomania – Slot Machines	4,387,218	605,582	+43,965	+367,094
19	FC Barcelona	31,181,615	802,392	+48,621	+358,974
20	Eminem	57,250,003	451,949	+47,901	+357,182

Facebook for Every Phone has been a leading page for a few weeks now since users of the app are prompted to Like the page when they download it. Musician Rob Zombie came in at No. 2 likely as the result of page consolidation. Other musicians, Rihanna and Eminem, make frequent appearances on our list. This week it could be due to Rihanna’s role in “Battleship” and Eminem’s latest single.

No. 3 on our list was Hindi movie “Andaz Apna Apna,” which also appears to have seen a spike in Likes because of page consolidation. “Titanic” continues to grow after the film was re-released in theaters in 3D.

Social marketing software company Buddy Media announced Monday that its ad platform is now the preferred choice of major advertising media company GroupM. The news follows the launch of a number of new features for the platform, including a social data API released last week.

GroupM, which serves as the parent company to WPP media agencies will roll out Buddy Media’s BuyBuddy ad platform to global agencies including Maxus, MEC, MediaCom, Mindshare and M80. Although the deal isn’t exclusive, becoming GroupM’s preferred partner bodes well for Buddy Media, which takes a percentage of ad spend made with its ad tool. As the world’s largest advertising media company in terms of billings, GroupM spent $200 million in Facebook advertising in 2011.

With the new social data API, brands and agencies that use Buddy Media’s management software can integrate data from Facebook, Twitter, YouTube, Google+ and web apps into other services and analytics platforms like Omniture. Although the company does not suggest a preferred use case for the API — saying marketers can “do whatever they want to” with the data — this should give marketers flexibility in how and where they view Buddy’s social media marketing data.

Buddy Media also announced that its polls, product galleries, photo galleries, video players and other apps will soon be available for mobile devices. Users will be able to toggle between desktop and mobile views as they build their applications with Buddy’s “profile builder” tool. New features that are live now include goal and conversion tracking. With goal tracking, marketers can group content together as a campaign and set goals to measure the success of that campaign.

As many expected, Facebook’s stock fell below its offer price today, settling at $34.33 when the market closed.

Some pundits have rushed to call the social network’s initial public offering a flop, but it is important to distinguish between what a successful offering would be for Facebook versus what the media and some investors might have wanted to see. It is fairly common for stocks to fall below their offer price within the first six months after an IPO. The lower stock price does indicate that the market finds Facebook overvalued in the near term, though its future potential could be much higher.

As Fortune senior editor Dan Primack and Trinity Ventures partner Daniel Scholnick have written, Facebook’s was a highly successful IPO in that the social network likely maximized how much money it raised in the offering. Without a first day “pop,” Facebook can feel confident that $38 was the right IPO price. Had the stock gone way up, the company and investors who sold shares in the offering would have missed an opportunity to make more. Some aggressive investors might be disappointed that the stock didn’t pop on Friday and that it fell today, but that doesn’t change the outcome of the IPO for Facebook, which raised $16 billion in the offering.

Further, the IPO generated so much demand, the Nasdaq faced a number of technical issues that could result in $13 million in compensation for bad trades, according to the Wall Street Journal. On Friday, trading was delayed about 30 minutes and throughout the day investors faced issues that prevented them from confirming their trades of the social network’s stock. Nasdaq executives say the exchange will use $10 million of its own proceeds from the IPO in addition to a standing $3 million cap on payouts to customers who suffer losses as a result of failures in the exchange’s systems. It’s possible that those technical issues led some investors to sour on the stock.

Now, without underwriters to prop up the stock as they did on Friday, the market is determining an appropriate price for the social network. Business Insider editor and CEO Henry Blodget writes that the IPO price valued Facebook at about 65 times its 2013 estimated earnings per share. Apple, on the other hand, is trading at only 10 times its estimated earnings per share. Google is trading at 12 times its estimated EPS. That’s not to say Facebook isn’t likely to one day be worth much more than it is today, but it’s difficult for the market to uphold a $100 billion valuation for a company with $3.71 billion in revenue and $1 billion in profit last year, especially when its margins seem to be declining.

As Facebook continues to grow, its operating costs are going to increase and its stock is likely to fluctuate, but Benchmark Capital partner Bill Gurley points to Amazon as an example Facebook might follow. The Internet company saw its stock linger below its $18 IPO price for almost two months before really picking up. Fifteen years later, the e-commerce company is trading around $218 per share.

This week, Inside Facebook asks people who have built businesses on the Facebook platform why they believe in the company. These are the people that are truly invested in Facebook, whether or not they bought stock.

First up is Clara Shih, co-founder and CEO of Hearsay Social, an enterprise platform that allows financial services, insurance, retail and other brands to manage their online presence — on the local and corporate levels — and maintain regulatory compliance as they engage on social media sites.

Seeing the potential of Facebook

“It was the first f8 on May 24, 2007,” Shih says. “I remember the date because it changed my life.”

Facebook announced its platform that day, enabling any developer to build applications on the site. The company also introduced the idea of the social graph. This stood out to Shih, who had been working at Salesforce at the time.

“It really got me thinking about what Facebook could become. I realized that your trusted online identity combined with News Feed could be transformative for businesses.”

Shih got to work on an app called Faceforce, which pulled Facebook profile information into a company’s Salesforce system to augment CRM data. Shih says that when Faceforce went viral, it was validation that her thoughts about Facebook were on the right track.

Developing a business idea

The success of Faceforce ultimately led to a book deal. Shih wrote “The Facebook Era: Tapping Online Social Networks to Build Better Products, Reach New Audiences, and Sell More Stuff.” She says researching the book led her to want to start her own business focused on Facebook marketing.

“The more that I learned as I talked to brands and users, the more I became convinced Facebook would be the next Google,” says Shih, who previously worked in strategy and business operations at Google. “It became clear that social media is here to stay and it will be as big, if not bigger, than the Internet.”

When “The Facebook Era” made the New York Times bestseller list, it was further validation that Shih was onto something. She reached out to former Stanford classmate Steve Garrity, and the two decided to create Hearsay Social, which is a marketing platform that serves businesses with a corporate/local structure and addresses issues of compliance. The company launched publicly in February 2011, with Farmers Insurance, State Farm and 24 Hour Fitness as customers.

“Facebook has successfully changed consumer behavior,” Shih says. “It changes the way consumers find new information, content and recommendations. That’s transformational for marketers.”

Confidence in Facebook

Shih says Facebook’s growth rate combined with an opportunity to interact “the way we prefer to interact,” gives her confidence in the future of the platform.

“Facebook gets us back to basic human behaviors,” Shih says. “Facebook is all about people. We have innate human desires to connect, and Facebook is facilitating that.”

Shih says this works particularly well for “relationship sellers” — like the insurance companies and other businesses that use Hearsay Social. Facebook enables these companies to connect with individual consumers at scale.

Facebook and developers

Hearsay has had a good working relationship with Facebook since it began. Shih believes the social network has created “a win-win-win situation” with its platform.

First, developers have great revenue potential because of Facebook, Shih says. Facebook itself benefits because it can get into new industries without having to build its own products, for example instead of making a music feature, it can integrate Spotify, Vevo and others, which drive up the value and stickiness of the site. Finally, users benefit because they get access to all the innovation from third-party developers.

Facebook’s future

Looking forward, Shih believes Facebook will continue to transform industries and monetize in new ways. She says the company has only scratched the surface of its potential and suggests Facebook could get into social search, commerce, television or even out-of-home advertising that uses near-field technology to recognize who people are when they walk by.

“In the near term, they’re doing a great job innovating with new ads,” Shih says. “In the medium term, they’re in the best position to monetize mobile and internationally. And in the long term, the possibilities are endless.”