Rumor: Facebook to take on iTunes?

AllFacebook blogger Nick O'Neill wrote on Friday that an "extremely reliable anonymous source" had told him that Facebook is working on an in-house rival to Apple's mighty iTunes Store. According to O'Neill, the company is in the process of looking for an executive to head this division--his source allegedly knew about the whole deal because of an acquaintance interviewing for the position--and is already meeting with record labels.

It's unclear whether this would be strictly a music store or whether it might extend to other forms of media, like TV shows and movies.

This is very much a rumor, but it would make sense from several different standpoints: first, the fact that Apple's iTunes Store is potentially at its weakest point in months due to controversy over digital rights management as well as disputes between Apple and the entertainment industry that have led to several big players like NBC Universal pulling out of the digital-media hub altogether.

Second, it's no secret that the future of Facebook's profitability is hazy, considering how much of the site's revenue relies on an advertising contract with Microsoft that expires in 2011. Plenty of analysts and critics have said that the Mark Zuckerberg-founded company is going to need to find an innovative way to make money.

But on the flip side, starting a digital download store would be a massive operation for a company that has heretofore been strictly a social-networking service--even one that's as hot as Facebook is now. Currently, the company's only e-commerce operation is the one-dollar "virtual gift" service that it's operated since February. Additionally, the digital download market is already getting saturated with new entrants eager to take on Apple's weaknesses. The new Amazon.com MP3 store, for example, has been described as a worthy competitor.

Not to mention the fact that, as O'Neill notes, the developers and companies responsible for Facebook's myriad third-party music applications won't be too happy if the site that provided their software platform created an in-house competitor. But something tells me that won't stop Zuckerberg & Co.