Facebook Platform Faces Rough Road Ahead, Despite Successes
Mark Hendrickson
49 comments »
The Facebook developer community is thriving but faces a good deal of uncertainty about its future. That was the general message from a session held at the Web 2.0 Expo today called “The Facebook Platform: Finding Success in the Facebook Economy.”
The session started off with a disagreement over how much money developers are actually making through Facebook. Naval Ravikant from Venturehacks estimated that over $100M would be made in 2008, whereas Joyce Park of Renkoo and Matt Sanchez of VideoEgg predicted revenues as low as $10-35M this year.
All panelists agreed, however, that CPM rates on Facebook are miserably low, perhaps averaging 15 cents. Developers have begun experimenting with other sources of revenue, such as the sale of virtual goods and premium services, but advertising still generates more than 80% of the platform’s revenue.
The panelists also agreed that Facebook’s recent moves to block viral distribution channels have made life harder for the developers of low engagement apps such as Slide’s FunWall. These apps suffer most because they depend on Facebook’s viral channels for their adoption, having given users little reason to invite their friends proactively.
In the long run, more engaging apps such as Scrabulous are set to do better not only because they attract more dedicated users, but because they provide better opportunities for direct monetization, even if their CPMs are also quite low. Ravikant made a point to say that travel, dating, book, and game-related apps have the brightest futures whereas “everyone else is kinda screwed”.
Despite the shift away from low engagement apps, the platform will remain the most attractive economically for independent developers. Small teams can crank out applications within days and earn decent paychecks, but large companies only have a handful of opportunities to make worthwhile returns on their investments. Ravikant made a point to discourage multi-million dollar investments in Facebook app developers, citing the difficulties associated with monetizing and maintaining a strong user-base. The sense I got, however, was that independent developers will also face hard times, since traditionally they don’t deploy high engagement apps.
The consensus from the panel was that Facebook needs to continue building a strong infrastructure for its developers. Park even suggested that Facebook roll back some of its restrictions on viral distribution since they were hurting growth of many legitimate applications (the distribution mechanisms were the main reason developers came to the platform in the first place).
She also wants Facebook to enforce its policies more clearly and fairly, since there are currently too many incentives to cheat. None of the panelists, however, were concerned that Facebook itself would trample many 3rd party apps with its own feature additions, since Facebook has the mindset of a platform provider, not an app developer.
Ravikant particularly looked forward to Facebook providing a good micro-payment system since it will spur innovation in monetization strategies, which could in turn inform how Facebook itself does business. Providing developers with better ways to make money is perhaps the most important thing Facebook can do now, especially if it continues to restrict how quickly its applications can grow.
$10-35M off Facebook apps? Great, let’s have a run down of the top ten who are making the cash — not just installs.
Facebook is making it hard for the lame, non-engaging apps to succeed, why? Because the user’s don’t like the applications that send requests all day. Facebook employees are Facebook users too.
You’re going to see a lot of these spammy app developers come out of the wood work and start complaining about “limited viral channels” and “low CPM”. Truth is, they made a killing spamming Facebook users at one point, and now that the applications like Scrabulous are doing fine without the “Send 10 invites to earn 30 credits”, they are freaking out.
If your apps lack any real substance for the users, Facebook is weeding you out. And I say: good riddance.
The problem is … lack of QUALITY applications , its little more than copyright infringement, which I’m sort of surprised at.
Voice 2.0,
I don’t think 10-35M from FaceBook apps refers to a single app. They are talking about it collectively.
Scrabulous makes about 250K per month from their advertising revenue. What they are trying to say is that, if you are a VC, putting money into facebook app business is not that of a smart idea.
The longer Facebook goes without applications that are relevant, usable and valuable (all 3), to the community, the more damage it inflicts on itself and the users, impacting its ability to transform the platform in the mid term.
It’s always the same, either you hop on a rolling train and benefit from a platform’s success (in the old days this used to be plug-ins for popular desktop software - Lookout anyone?) or you build something from scratch yourself. The latter means much more risk and a steep entry barrier but gives you total control and freedom how you run your biz. The platform / affiliation approach makes is easy(er) to get stated and leverage an existing customer base / market. People that develop software for i.e. Microsoft’s products are as much dependent on the mood swings of the giant from Redmond as Facebook app developers have to hope that things will go in their favor while FB figures out their real business model and growth strategy.
What’s the best approach for you depends how deep your pockets are to get started, how much risk you want to take, how hard you want to work to establish your own customer base / market that makes your business more sustainable and how big you balls are to go it alone.
Facebook is not sustainable in the long run. Data portability will encourage competition and people will pick up their balls and leave for the next best thing.
Thanks for the writeup Mark. Two clarifications:
- “travel, dating, book, and game-related apps have the brightest futures whereas “everyone else is kinda screwed”.” Actually, I was referring to all “media” apps, not just books, and I would include gifting as well.
- I was caught off guard by the revenues question and probably over-estimated. After thinking about it a bit, I would guess that all of the Facebook Apps combined will do around $50M in revenue in 2008.
I thing i think Facebook should start is the user feedback on how to improve their website. They keep on asking the facebook users to send invitaitons to others to install some applications even if someone is not interested to. I myself now without checking ignore all the requests received by my friends and close the facebook. They should work more to make is more user friendly
Michael Arrington, I just want to truly compliment you on writing, day after day, the most interesting posts I could ever even hope to read in any given day. You really do give law graduates a positive image with your depth of analysis in any given Web topic and it really does reflect your keen interest in (nay, your love for) discussing the web and everything in it.
Well done, and keep it up!
oops wrong post ^^ but u r good too hendrickson :S
will be interesting to see if the # goes up once Facebook launches commerce / payment apis.
that said, i think the more interesting story is going to be monetization that occurs off-platform… sounds like Naval may already be headed in that direction. Facebook Platform is the place where viral / social apps started, but probably not the only place where they will thrive. will be interesting to see if they monetize the off-platform activity as well as on.
more discussion of “viral e-commerce” and other thoughts on where social platforms meet monetization:
http://500hats.typepad.com/500.....t-the.html
@ Chris S
Agreed. However, if a superstar app, namely Scrabulous is doing $250,000/month in revenue, then it’s reasonable to presume that other apps are making less than that.
I’d still be interested in seeing a run down of the top 10 apps by revenue.
Re Facebook continuing to build a strong infrastructure for its developers, the company recently said it is now using more than 10,000 servers to run its platform:
http://www.datacenterknowledge.....rvers.html
More and more, I find facebook boring these days.
When igoogle releases their redesign with canvas and opensocial, look to a big hit against Facebook
Faceboog rough road ahead comment
The hype around the platform seemed to have died fast. A lot of those fad apps, like Vampires and crap have stopped. Or at least on my friend list I don’t get their stupid messages anymore. I feel that 99% of the apps people are just ignoring. I ignore all most all requests for new apps and so do a lot of people it seems.
This goes to facebook in general. I’ve noticed a huge dropoff in its use among my friends and their friends. Not sure if anyone else sees this.
As much as I like to think that apps on facebook are dying down, i think facebook platform is just going through a maturity period. Facebook will still be a great destination for the next 2 years (at least that is how long you can predict anything on web, anyway) but the quality of applications will change. You will start seeing people ignoring all the dumb and mindless apps and accepting more engaging apps, like games and problem solving apps. There will also be more useful business apps on facebook.
The hype on the advertising network on facebook will also stabilize with more useful apps.
they’re not even doing $10M. Lay off the crack people. one of these days, all the facebook fanboys are going to stop having these silly conferences and realize that even MySpace, the pageview generating machine, is realizing a scant profit. and they don’t have near the overhead that Facebook does. Unless FBK finds a buyer, they are going to absolutely PLOW thru that investment capital.
There can only be so many apps that satisfy the need of so many people. I don’t use any apps anymore. In fact my time on Facebook has gone down a lot.
I’m really just waiting for someone to build e-mail into a social network/rss reader and that’s all I will need. I don’t need silly games nor do I have to decorate yet another page on a social network
I agree that even $10 MM for all Facebook ads together is an overestimate. Scrabulous is probably 50%+ of Facebook app revenues. Those guys are smart, they didn’t take any funding and are just making good cash.
agree with naval…..again, its the software stupid…build a great engaging app and the people and money will come…build a quick gimmick and be disappointed.
well at least they HAVE a cpm, like something NONZERO they can tie to their claim to survival. yet how come no other companies here get the same scrutiny? TC seems to have no problem relaying the laughable stats on ning network growth but won’t give the same free pass to facebook
I thought “web 2.0″ was free, and now you want me to pay for stuff? Micro-trxns, my ass.
And, you want me to let that company responsible for Beacon to be the gatekeeper?
Facebook shares way too much data with the public I DO know. I Can’t imagine what happens if the marketing-crazed people that like to talk about how to monetize “social media” get that data., and FB will be desperate to show results.
The trust-level has been fading, and I don’t think it can recover.
Our startup will make close to $2m this year from Facebook and we aren’t even in the top 10. I think the real collective app developer revenue is much closer to $100 million than most folks realize.
The problem is that banner ads just flat-out suck in social networks. Whether they are above an application or in the side column, they don’t work. They get horrendous CPM’s because they are unwanted, irrelevant, anti-social, and essentially blocked out by teenagers and young adults.
Social applications need “social advertising” solutions. There is a ton of money to be made, if brands are activated intelligently within social networks.
http://blog.splashcastmedia.co.....ion-pages/
OK, mark this story as the potential Blaine of a year from now for FB.
The less money apps generate off traditional advertising the better. With an over-crowding of applications on Facebook and soon to be on the Open Social supported sites as well, relevancy is what matters. Sponsorships, Branded apps, behavioral targeted ads, and the selling of tangible goods, downloads, prints and virtual items will help to efficiently monetize the best applications and the related profiles they are added to.
As someone who is close to several app developers in the top 20, I can assure you that they are doing more than $10M combined. Yes, their CPMs suck relative to the amount of traffic they have, but they have SHEER VOLUME.
Personally, I’m surprised Scrabulous is only doing $25,000 a month. They’re definitely on the lower end of the spectrum …
not only advertising.. but attention..
not only pay attention.. but buy attention..
the providers (and editors, commentators alike) should be positive about advertising… instead of firing comments left and right saying “i won’t even take a peek, never!”.. that said, of course, commentators are saints.. and they’re not in the interest of helping providers, nor the industry (though they live on it.)
meaning, the industry need evangelists to let the users know that advertising, particularly contextual advertising, are good for them, which in fact is true — ads are good for the users.
CPM rates on facebook are around 10cents or less for me. On the other had, a webpage with the same content has a cpm of 90cents.
The FB platform seems to be going through natural growing problems. More meaningful applications will begin to clean up the mess, (branded , targeted, in general more relevant app’s.) Good for Facebook and a less diluted experience for users.
Even if these revenue guesses are right, Facebook is bringing in nowhere near enough cash to support itself much beyond next year. I imagine that by this time next year, they’ll be in a downsizing panic when no greater fools can be found to throw more good money after bad. I just wonder if it will be a spectacular crashing collapse or a quiet fade to black.