iLike became something of an icon for a certain class of startup: Built on social networks, fast-growing, unprofitable, advertising supported. The company's impending sale to MySpace at a fire-sale price could hardly be a bigger wakeup call to these fellow makers of software "widgets."

The company was once valued at $53 million, back when Ticketmaster bought a 25 percent stake in late 2006, according to the Seattle Times. iLike amassed a total of $17 million from Ticketmaster and other investors like Silicon Valley venture capitalist Vinod Khosla and former AOL exec Bob Pittman. Now it's negotiating to sell for just $19.5 million, All Things D reports, and $6 million of that is contingent on retaining certain employees in coming months.

It's quite comedown. But it's easy to see how iLike became a media darling and a hero to other makers of widgets. In the late spring of 2007, iLike ported its music recommendation service to Facebook, and in the process spiked its user base dramatically, to 15 million from 3 million over six months. In one week just after the Facebook launch, four venture capitalists asked CEO Ali Partovi (pictured) to lunch, the Seattle Post-Intelligencer reported; the company reportedly added close to 200 servers over the course of the summer.

After retaining insidery Silicon Valley flack Brooke Hammerling, iLike saw its praises sung widely in the media (emphasis added):

• Wall Street Journal, June 2007: "'Somebody's going to end up being the Facebook music service,' [co-founder Hadi Partovi] says. 'It's either going to be us, in which case we're made, or it's not.'" (By the time Patrovie gave this retrospective quote, iLike was by far the dominant music service on Facebook.)
• Billboard, July 2007: "The smart money says someone will acquire iLike, and soon. The company's social media discovery capabilities are a natural extension to any digital music service, particularly iTunes."
  
• BusinessWeek, July 2007:"'Widgets are a fundamentally important idea,' says Vinod Khosla... who has invested in two widget makers, Slide and iLike. 'I believe it has the potential to create big billion-dollar winners.'"
• Forbes, October 2007: "Says Khosla [Ventures]'s David Weiden: 'Widgets are the next kind of media network.'"
• USA Today, November 2007: "The company... has become an overnight sensation... Dave McClure, an angel investor in Silicon Valley, wouldn't be shocked if iLike... and others eventually go public."

Revenue was presumably slow in coming, though, because by fall of the following year iLike was said to be trying to sell itself and Ticketmaster wrote off half the value of its investment. Now investors are basically trying to break even with the MySpace sale. The music and advertising businesses have their own unique problems, but startups in other hot sectors, like iPhone apps, should beware: The excitement can dissipate as quickly as it inflates.

(Pic: Niall Kennedy)

The redesign is built around a new "stream" of status updates. It closely mimics the "timeline" feature of Twitter, a much smaller service which, like Facebook user, allows people to post short messages which are then broadcast to friends. But in adopting Twitter's simplified look, Facebook threw out or hid a whole host of features users have grown used to. (Try finding upcoming events, for example, or looking for updates on new friends people have made.)

A Facebook application built to poll users on the design is running 94 percent against the new design, with some 716,000 "no" votes against 44,000 "yes" votes.

One might argue that Zuckerberg didn't do the design to please the lowest common denominator of users, but instead was trying to win over the cognoscenti of Silicon Valley, who have been buzzing nonstop about Twitter. If so, he missed that target badly, too.

Facebook has a special program called "Great Apps" to recognize the best third-party add-ons to the social-networking sites. The favored few include iLike, a music app, and Causes, an app built by a startup called Project Agape which helps people rally their friends to various social issues.

Both have close ties to Facebook: Marc Bodnick, an influential Valley investor who sits on iLike's board, is the brother-in-law of Facebook COO Sheryl Sandberg. Project Agape is backed by former Facebook president Sean Parker, who still owns an estimated 5 percent stake in the company.

But guess who's been dissing Facebook's redesign on Facebook? iLike CEO Ali Partovi and Project Agape's Joe Green. Green recently wrote:

The stream does not out-Twitter Twitter and under-Facebooks Facebook.

Partovi snarkily noted that the new design inspired him to join Twitter — and employees at Slide, another Facebook-app maker, applauded his wit:

And mind you, these are people who make a living off Facebook. If they hate it, what friends will Zuckerberg have left?

If Arrington was, as his flack claims, considered and discarded from the main list, why didn't he show up on Vanity Fair's "Next Establishment," a collection of up-and-coming also-rans? Startup types like Ali and Hadi Partovi, the cofounders of music widget iLike, appeared there, though they're pretty much unknown outside the Valley. In this beauty contest, Arrington didn't even get the consolation prize. (Photo by Maria Avila/San Jose Mercury News)

• Wendi Deng Murdoch, MySpace China
• Chris DeWolfe and Tom Anderson, MySpace
• Max Levchin, Slide
• Robin Li, Baidu
• Markos Moulitsas, DailyKos
• Elon Musk, SpaceX
• Ali and Hadi Partovi, iLike
• Mika Salmi, MTV
• Dmitry Shapiro, Veoh
• Quincy Smith, CBS
• Andrew Ross Sorkin, New York Times
• Peter Thiel, Clarium Capital
• Evan Williams, Twitter
• Andrew Zolli, PopTech

Facebook has been punishing widgetmakers for some time now on its platform, banning them here and there, for the most opaque of reasons. Widgetmakers should probably glad to hear the favoritism is at least codified now, and comes in the form of a carrot, not just a stick. But they aren't that happy. There is resentment among some widgetmakers over the politicking gaining preference on Facebook's platform will now likely require: "[We are] in the business of satisfying users every day, not lobbying for subsidies." No wonder Facebook put Elliot Schrage, a thoroughly political former think-tanker, in charge of the platform.

Universal Music: MIA on iLike [Silicon Alley Insider]

As CNET points out, it's all about the business ties. U2 lead singer Bono is the most stylish managing director at Elevation Parters, the Sand Hill private equity firm. Elevation cofounder Marc Bodnick is on the board of directors of iLike. Hence, the arrangement. Bonus for close students of the Valley's real social networks: Marc Bodnick's wife is Michelle Sandberg, the sister of Google executive Sheryl Sandberg, who's married to former Yahoo Music chief Dave Goldberg, who's an iLike advisor. Got that?

Notice the Flixster app installed on this profile, part of the Ask a Ninja socia network by Ning:

Here's a DubPages profile with an iLike app installed. Check out the "activity stream," very similar to Facebook's news feed:

"Facebook Music" will be the next salvo fired at MySpace. The platform will give musicians, as we suspected, their own miniature network where users can become "fans," watch videos, listen to music, interact with the band and other users and get tour information.

We still think a partnership with iTunes makes the most sense for Facebook, as iTunes is by far the largest digital music distributor. But, a standalone Facebook music store wouldn't be out of the question. Look for some fancy in-house applications as well, possibly competing with music-focused iLike, one of the most popular apps on Facebook.

Advertising and promotion of new artists and albums could tie in to SocialAds or the enhanced Facebook Flyer system. If a band shares fans with Green Day, for example, they could focus their ads and attention on Facebook users who list Green Day as their favorite bands. (And we, meanwhile, could make sure to unfriend those people.)

This is bad news for iLike, one of the most popular third-party Facebook apps. The company's president said in July, "our goals are first to become the dominant music player on Facebook and, second, to become profitable." Step one just got a lot trickier.

We've always said that the Facebook Platform was CEO Mark Zuckerberg's playground. He has no problem stomping on outside developers — and why should he? Last we checked, it's his company. And while app developers can add features to users' profiles, Facebook has the unique ability to set up custom profiles with special fields for artists. Most importantly, only Facebook can lift the 5,000-friend cap that has limited the amount of useful fan outreach on the site thus far.

This makes a lot more sense than launching yet another music store. A partnership with an existing outlet such as iTunes could set Facebook up with an easy way for artists to sell music and to make deals with record companies to get already-signed bands on board. Heck, now that talks between Microsoft and Facebook over the software giant taking a stake in the company have apparently cooled, maybe it's time for Apple to step up to the till.

Amazon.com has set the example of a Web-based store, unencumbered by annoying digital-rights-management software. By eschewing DRM, Amazon's downloads play well with any music gadget, including iPods. Would Facebook follow this model — or, like its photos, keep users' content locked into its website interface, playing music, say, on Facebook user profiles? The latter, however, would likely spark a user rebellion, if only because it might remind them too much of raucous MySpace profiles, which start blaring music the moment you load the page.

An obvious fear: Facebook's music store might draw users away from popular third-party Facebook applications like iLike and iMeem. But Facebook could instead design its store to work seamlessly with them, giving them access to an on-site store to close a sale instead of sending users off to iTunes or other stores, as they now must do.

One last option: Facebook might agree with Microsoft, the advertising partner with which it's negotiating the potential sale of a stake in the company, that subscriptions are the future of music.

Whatever Facebook decides on, one thing is sure: The site ensures a captive user base. If the Valley is swooning over Facebook's advertising potential, imagine the reaction when they add an e-commerce revenue stream.

What we do know is Facebook will not offer unrestricted file sharing. How do we know that? They've tried that before. Capitalizing on music sharing's popularity amongst its former core audience of college students, Facebook experimented with a peer-to-peer application called Wirehog in 2004. That legally questionable application has quietly faded into obscurity since Mark Zuckerberg opted for Wall Street and Valley acceptance and wealth over popularity with the college kids. Wise move. By following that path, he's ended up as even more of a rock star.

As I walked into the swank backyard of Marc Bodnick, the Elevation Partners managing director who is, unlike private-equity colleagues Bono and Roger McNamee, not a rock star, I was instantly handed a mango margarita and surrounded by men with mustaches. "What is this? The Edge?" I thought to myself. But it turns out that the Castro-conformist facial-hair regime wasn't the result of the gay mafia; no, it was just one of those Silicon Valley workplace motivational schemes gone horribly wrong. iLike CEO Ali Partovi abstained, but twin brother Hadi, the company's COO, joined in. He's in the upper left of the above collage, joined by various employees.

Snacky but control-freaky PR doyenne Brooke Hammerling tried to stop me from taking pictures, but I snuck away, whipped out of the camera, and went crazy documenting the iLike team's unfortunate facial hair. They even offered to supply a disposable razor and shaving cream so I could convert my goatee to the preferred look. I declined.

The party was ostensibly for iLike, but there was a big contingent of Facebookers, pumped from their second ultimate-frisbee win against Google. Founder Mark Zuckerberg showed up, and we made small talk about his sister Randi's burgeoning online video career. Then I sat down to dinner with Ron Conway, the angel investor, who affected a lack of concern about the meltdown in the markets. He did seem a bit distracted, though. Could the rumors be true that he just lost a big local deal to out-of-town venture capitalists?

Speaking of power VCs, as I was talking to Conway, VentureBeat blogger Matt Marshall pointed out semiretired Kleiner Perkins partner Vinod Khosla to Eric Eldon, one of his writers. It was a really good turnout — especially considering that Bodnick and iLike were competing with a private, but well-attended, August Capital event just down Sand HIll Road. I'd tell you more, but much of the night was off the record. Good thing, too, as I had one too many mango margaritas.

The most immediate issue facing iLike, and all Facebook applications, is performance. While the site is no longer down, it is extremely sluggish. Users are reporting that the application is disappearing from their profiles after being added and configured, and this appears to be occurring with all new applications. Users are concerned that they'll need to reconfigure their applications and are already being turned off trying to experiment with the new features.

Other reviews are reporting concerns about privacy, that their data is being shared with iLike — a potential concern but odd considering that the sharing, recommendation, and discovery features are what distinguishes and makes iLike more compelling than the standard lists of favorite music.

Of course, Facebook is able to wash its hands of any concerns about iLike's use of your data: "Facebook is providing links to these applications as a courtesy, and makes no representations regarding the applications or any information related to them. Any questions regarding an application should be directed to the developer." iLike's developers have no such luck when it's Facebook causing the users' complaints. One developer from iLike already posted a review addressing the complaints of sluggish speeds and lost applications saying that there was little recourse as Facebook addresses the site's performance. (Facebook apparently doesn't allow the browsing of all reviews, only displaying the last ten. Am I missing something?)

Presuming these issues can be remedied, as far as functionality goes, the potential is there, but it's not apparent that potential will cause mass defections from MySpace, the current leader in social networks. Receiving recommendations based on your friends' music and iLike's database, comparing music preferences with other Facebook members, and being informed of area concerts does show the power of Zuckerberg's "social graph" over standard lists of your musical likes. There are also limitations: only 5 songs will display in your profile, songs must be selected rather than artists or albums, there are no radio streams offered by larger recommendation services, and purchase options appear to be restricted to iTunes. Minor issues for a fledgling social network widget, but with an open market of applications, competition amongst applications is sure to be fierce. iLike and all Facebook applications will have to rapidly add features and distinguish themselves with users to stay at the top of the rapidly growing list of available widgets (80+ and growing) as many already overlap in purpose.