Facebook’s explanation for the rapid growth of social networking and applications associated with it is pretty simple, according to longtime Facebook executive Dan Rose. “We’re moving from the ‘wisdom of crowds’ to the ‘wisdom of friends,’ he said.

His comment suggests that users are often ignoring the multitude of suggestions coming from the internet (often viewed as spam) and are turning to their friends for more weighty suggestions.

Rose’s remarks help explain how Facebook sees itself and where it will put its resources as it fosters a community of 600 million users. They also shows that Facebook is in a very powerful position as the company that serves as a gateway to huge markets that are built on circles of friends.

That means that word-of-mouth marketing, which has been built into the Facebook platform, is taking over as the primary means by which people make their purchasing and other decisions. Rose spoke with Fortune writer David Kirkpatrick, author of The Facebook Effect, at the Digital Life Design conference today in Munich.

Rose said that when you see an ad with your friend’s name in it, the recall of that ad goes up by 60 percent. Facebook has been working closely with Nielsen, which measures ad effectiveness, for a couple of years to make Facebook’s ads effective by connecting them to your social circle of friends.

“Word of mouth marketing is the best advertising,” he said. “At Facebook, we are implementing it at scale.”

Rose said the company is helping spread word-of-mouth to other web sites through its Open Graph applications programming interface (API).

Disclosure: The Digital Life Design conference paid my way to Munich to moderate a panel. VentureBeat’s coverage of the conference is objective and independent.


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