TECH
04/08/2011 07:59 pm ET Updated Jun 08, 2011

The Open Compute Project: Why Facebook Is Giving Away The Goods

This week, Facebook did something that would be unthinkable for most tech companies: it created a product cheaper, more efficient and more environmentally sound than the industry standard, then provided explicit instructions detailing exactly how to build it.

Under an initiative dubbed the Open Compute Project, Facebook released designs for the technology powering its new data center in Prineville, Ore., which Facebook says is 38 percent more efficient and 24 percent cheaper to run thanks to its custom engineering.

Facebook framed the effort as a means of encouraging collaboration in the tech industry, advancing "best practices" in the construction of data centers and upholding its commitment to openness. But the PR-speak belies a high-stakes bet placed by the world's largest social network that could have far reaching implications for its balance sheet and those of its competitors.

To most of the social networking site's 500 million-plus users, Facebook is entirely virtual -- an intangible but interactive screen of likes, pokes, chats and status updates that exists only in the ether.

Though Facebook produces neither sneakers nor iPods nor any other physical good, the company owns a factory in the form of its Prineville data center. The racks of servers in central Oregon not only power the online experience that keeps users coming back for more, they also manufacture Facebook's key moneymaker: its advertising.

Now, Facebook is giving away the blueprints for that factory, in what appears to be a gamble that the move will help it leverage the expertise of thousands of engineers worldwide to further refine its data center technology, lower the cost of powering its site and, in so doing, squeeze extra dollars out of its ads.

Because the cost of creating and serving up a Facebook ad has little direct correlation with the ad's price, any savings in the expense required to deliver that content, via more efficient data centers and servers, translates directly into extra profit for the company. Even the slightest improvements to its factory can translate into more dollars for Facebook.

Google, which has carefully safeguarded the secrets to its hyper-efficient data center, has an army of engineers it can task with improving its servers. On the other hand, Facebook, which is growing but still small -- with several thousand employees to Google's more than 20,000 staffers -- has far more limited means. By opening up its data center designs, Facebook is now able to solicit suggestions from thousands of experts worldwide and potentially tweak its technology quickly with fewer people.

"When they make this know-how available publicly, Facebook can effectively crowdsource its expertise because it leverages a much larger community than they have available to them internally," said Stephen O'Grady, principal analyst at Redmonk. "As smart as the Facebook community is, they're not necessarily going to be as smart as the whole rest of the industry, which now has access to this technology."

Sharing its blueprints may gain Facebook not only free manpower, but cheaper equipment. The company's bet, analysts say, is that giving away intellectual property will help it foster an ecosystem of competing vendors that will drive down the cost of parts.

"They're hoping to catalyze a competitive vendor ecosystem so that they can put things out and get competitive bids for the servers that they need," said Forrester analyst Rich Fichera. "In order to do so, they have to open [the technology] up enough that it is of interest to others besides themselves."

There are also less tangible benefits to opening up the company's technological know-how, such as currying goodwill among the tech community, which looks favorably on information sharing. Experts note that the Open Compute Project, by lowering barriers to entry, could potentially provide a boost to future Internet startups looking for a way to save money on data center costs.

Though Facebook runs the risk their IP freebie fails to reap the financial rewards it may hope to see, by disseminating the designs in the first place, the company is sending a strong signal on what it sees as its own competitive advantage: software, brand and users, but not hardware.

"[The Open Compute Project] really is a big deal because it constitutes a general shift in terms of what how we look at technology as a competitive advantage," O'Grady said. "For Facebook, the evidence is piling up that they don't consider technology to be a competitive advantage. They view their competitive advantage in the marketplace to be their users."