Facebook Is Biggest Beneficiary of KPCB sFund

Armed with 500 million users and 2 million-plus Like buttons worldwide, Facebook stands to gain the most from investing in Kleiner Perkins Caufield & Byers (KPCB)' sFund venture.

Lost in the sound and fury over Kleiner Perkins Caufield & Byers' (KPCB's) creation of the sFund was the fact that investor Facebook stands to gain the most from the new venture.

Amazon, Facebook, social gaming giant Zynga, Comcast, Liberty Media and Allen & Co. Oct. 21 joined venture capital fund KPCB to invest $250 million in the sFund to finance new social applications and Web services.

KPCB partner John Doerr said the sFund's raison d 'etre is to help foster the third great wave of innovation after the rise of personal computers in the '80s and the Internet and Web browser in the '90s.

"The third wave is based on the convergence of mobile and social and cloud computing," said Doerr, who announced the sFund with Facebook CEO Mark Zuckerberg, Amazon CEO Jeff Bezos and Zynga CEO Mark Pincus at Facebook's headquarters Oct. 21.

The sFund is a tremendous launching pad for the type of startups Facebook loves to buy: small, bleeding-edge startups that Zuckerberg himself likes to characterize as hungry with little to lose.

Facebook likes to work with "scrappy underdogs" that are "incentivized to go deep and do something innovative that other companies aren't doing," said Zuckerberg recently.

Take Cafebots, one of the first beneficiaries of the sFund. The Web service helps Facebook users have more fun and productive relationships. Another sFund startup, Lockerz, is a social commerce company geared to help consumers shop and connect.

These are exactly the types of companies that Facebook likes to target, which makes sFund a great place for Facebook to mine for talent as it seeks to build out the social Web's connective tissue all over the world.

Facebook's rise to 500 million-plus users is astonishing itself, but what's more interesting is that, thanks to the network effect the company engenders, Facebook has gained the trust credibility of businesses all over the world.

Many of these companies are more than happy to hook into the network via Facebook Connect or social plug-ins such as the Like button to benefit from instant personalization.

The Like button lets a user share publishers' content with friends on Facebook. When a user clicks a Facebook Like button on a Website, the publisher will gain a link from the user's profile, the ability to publish to the user's News Feed, inclusion in search on Facebook and analytics.

Facebook partners that feature the Like buttons push to Facebook information about items their visitors liked. Information about objects users click on will appear in users' profiles as items they endorse.

Microsoft just joined Facebook this way to boost Bing, displaying the Websites and links "liked" by a Facebook user's friends.

Facebook CTO Bret Taylor announced that 2 million Websites have added the Like button and Facebook's other new social plug-ins only since April.

At the current pace, Facebook may rack up 5 million Websites a year. Zuckerberg ultimately expects 1 billion Like buttons to propagate across the Web.

By seeding startups in the sFund, Facebook can quietly cultivate its social networking empire for years to come.

So while the startups can gain a leg up, Facebook can more firmly entrench itself in the Web's social fabric. Good for Facebook, but bad for Google and others who want to carve out a big piece of this pie.

"I think that there's going to be an opportunity in the next five years or so to pick any industry and rethink it in a social way," Zuckerberg said at the sFund launch event.