As millions of social network developers discovered last week when Ning pulled the plug on free networks, building a company around a single company’s free service has its risks.

If the company goes under, scraps its free service, or changes the rules of the game, you’re, well, Ninged.

So while I’m a big fan of Facebook Connect — and am intrigued by today’s new announcements — and the way niche social networks can leverage it to build traffic and ease the sign-up process, history suggests they’ve eventually go from friend to foe. (Anyone who’s had their app rejected by Apple’s App Store knows what it’s like to have court of appeal)

For that reason, among others, if you’re developing a niche social network, you need to pay attention to XAuth (and its cousin, OAuth).

Here’s how Read, Write, Web decribes how the two work together:

If you’re familiar with OAuth, you might be wondering what the difference is between that system of secure authentication and XAuth. Here’s one way to explain it: XAuth tells a webpage “this is where the site visitor does social networking.” Then, OAuth is the way the user logs in there, granting the site permission to access their info without seeing their password. In other words, XAuth tells you where to ask for OAuth from.

XAuth is an open platform for extending authenticated user services across the web.  That means these platforms can help website owners (like you) discover which social networks a visitor to your site uses and prompt them automatically to log-in and share with friends on those network.

It’s like Facebook Connect, but for every other social network.

Google, Yahoo, MySpace, Meeb are in. Facebook and Twitter (who have their proprietary versions) are staying home.

While relying on Facebook and Twitter are easier in the short-term, it’s good strategy to play both sides of this authentication battle so you don’t end up on the losing side.

Update: Facebook just announced that they are adopting OAuth 2.0