SocialMedia, one of the leading advertising platforms for social network applications, announced today that they’ve paid out over $8 million to developers since the platform’s launch last year.

The majority of this revenue has gone out to Facebook app developers, but the platform also supports applications running on OpenSocial. The money has been paid out to approximately 1000 developers that have used SocialMedia’s ad platform across 5000 applications (the money has not been evenly distributed, so it isn’t worthwhile to look at the average).

These figures may be encouraging to critics of Facebook’s development platform, who worry that applications can’t be easily monetized. During a talk at the Web 2.0 conference last April, members of an expert panel were predicting total revenues on the Facebook platform of as little as $10M this year - an amount that certainly wouldn’t be encouraging to the venture capital firms that have been pouring millions into some of these apps.

Around 20% of Facebook’s 29,000 applications have used SocialMedia to distribute ads (and contributed to the $8M total). While this is impressive, it only represents a fraction of the total revenue that’s being generated - clearly, there’s far more than $10 million to be had on these still-fledgling development platforms.

Later this month SocialMedia will be holding a pair of Facebook “Business Schools” (one in New York, one in London) to help encourage growth on the platform.

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The list of former TechCrunch writers who’ve gone off to greener pastures grows longer today. Yesterday was Nick Gonzalez’s last day at TechCrunch - today he starts a new job at the San Francisco startup Social Media.

Nick started at TechCrunch in June 2006 and has worked along side of me, day and night, since then. For many months in early 2007 he was the only person other than me writing for the site. He was a perfect business partner, always steady emotionally as my temper flared at regular hosting outages, missed stories and pissed off readers. In addition to writing and general analysis, Nick also kept the site running and wrote any new code we needed. Basically, I worked him to death.

At some point late last year he simply burned out, telling me (jokingly?) “I just can’t write about another fucking startup.” I think we both knew at that point that it was time for Nick to move on to the next step in his career.

He soon had offers from a bunch of startups and venture capitalists, and I think he made an excellent choice with Social Media. I suspect he’ll give his reasons for joining, as well as some juicy gossip about TechCrunch, on his personal blog in the near future. For now, you can read his bio on our About page.

Nick joins ex-TechCrunchers Marshall Kirkpatrick (now at ReadWriteWeb), Natali Del Conte (now at CNET TV) and Ben Meyer (now at Facebook) who’ve abandoned us over the years. I miss working with all of them, and all are still very good friends.

You’ll be missed, Nick. Come by any time to write a post or two, for old time’s sake. And good luck at Social Media. They are very lucky to have you.

Update: Nick speaks.

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Social network platform provider SocialMedia Networks has taken $3.5 million Series A in a round led by Charles River Ventures that also included Marc Andreessen and Jeff Clavier (founder and managing partner of SoftTech VC). CRV had previously seed funded the company with $500,000.

SocialMedia Networks provides a suite of tools and services for developers building applications that run on social networking platforms including Facebook and MySpace.

SocialMedia Network’s Appsaholic sells click-throughs to other Facebook applications across a network of affiliated sites, a similar model to FBExchange’s link exchange model, but has more features (reporting) and seems easier to use (FBEx requires separate filings, Appsaholic can use PayPal).

George Zachary of Charles River Ventures said that the investment “underscores the significant opportunity for SocialMedia Networks to become the new standard for how social networks are monetized.”

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So Facebook will finally allow users to group friends and control information flow based on friend type. For guys like Robert Scoble, who have 5,000 friends (the limit), this may be a way to finally sort through the real friends from the fans. It’s a much needed feature that people have been requesting for a long time.

It also shows the steady maturity of Facebook from a college network to a full on world network, where friendships, business contacts, family and other types of relationships need to be more fully described. And this is also as much about privacy as it is about organization - users will be able to limit the information that certain friend groups receive.

A few existing applications are going to be affected, like Slide’s Top Friends application, the most popular third party app on Facebook. Lots of other applications will likely need to be tweaked to work properly when this launches (so many of them access the friends list). And this will shut down at least one “startup” we’ve been tracking that was creating this exact feature as an application. At least they can quit now and stop putting good time and money after bad.

Building Facebook applications is a big dice roll. If it’s too popular or too obvious of an idea (even if it hasn’t been done yet), Facebook is just as likely to compete with you as pay a few bucks and just buy you (they are probably more likely to compete with you than buy you, actually).

Some developers will probably wonder if getting a cash grant from Facebook’s just-announced fbFund will lessen the likelihood of direct competition from the company. Only time will tell.

Update: Wired is writing about a slew of Facebook ad networks and the almost inevitable fact that Facebook will be competing with them directly, too. We’ve covered most of these: SocialMedia, VideoEgg, Lookery, fbExchange, and RockYou. Also mentioned are Cubics and Appfuel. Lots of brave souls racing to build a business before Facebook comes in and stomps all over the scene.

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There are several startups gunning to be the top Facebook ad platform: Lookery, FBExchange, RockYou, and Cubics. SocialMedia also became one of the early players when they launched their Appsaholic advertising network soon after F8. Previously only a select group of developers were able to sell ads through the service. However, they’ve now opened it to everyone through a self-service model, and some developers are making some real cash off of the service.

Appsaholic isn’t banner advertising like Lookery offers, or developers can get through traditional ad networks. Instead, Appsaholic sells click-throughs to other Facebook applications across their network of affiliated sites. It’s similar to FB Exchange’s link exchange model, but has more features (reporting) and seems easier to use (FBEx requires separate filings, Appsaholic can use PayPal). They have plans for other models as well, including a advertising that rewards users for engaging in advertisements.

How It Works

Developers become a member of the network by tracking their application on Appsaholic and adding some embed code to their application. The embed code adds an iFrame that serves paid links on their affiliates’ applications. The links go to the highest “AdRanked” advertising developer on their live bidding market. AdRank is determined by multiplying two factors, the offered price per click, and the advertising application’s quality score. The quality score is based on a function of the application’s clickthrough rate and viral growth within the network. The idea is that higher quality applications should be rewarded with cheaper advertising. This dissuades disliked apps from spamming the service.

So, for example, a developer whose application has a quality score of 60 and is willing to bid $.10 per click, has an AdRank of 6. Since ads are served in AdRanked order, the developer could boost his AdRank and position in the queue by bidding a bit higher. Currently PPC rates are 10 to 20 cents. Appsaholic takes 12-30% of that revenue.

How It Pays

While that doesn’t sound like a lot, people are still making some significant cash off the platform. Click through rates vary from 0.2%-3.0%, effectively paying about $0.60-$3.00 for every thousand visitors to your application. SocialMedia’s Seth Goldstein is optimistic and only sees these rates as the beginning.

The company cites Greg Thompson as one of their recent successes. Thompson, a contract programmer from London, Ontario, is known for making the popular Facebook application My Aquarium. The application has about 2.2 million users. Within less than a day of running SocialMedia’s ads Thompson made over $500. While CPM rates on VideoEgg can upwards of $8.50, Thompson found they had less inventory. Over the past three months, Thompson has made around $100,000 in Facebook advertising overall.

SocialMedia has shared their network’s revenue to date viewable to the right.

Going Forward

While Facebook hasn’t clobbered an application yet, they’ve definitely laid out some advertising plans of their own. Facebook has also shifted away from installs to engagement, thereby improving how users can discover applications and perhaps undercutting the need for affiliate linking to get big. There’s no telling if Facebook will directly take on advertising within applications. Playing in Facebook’s garden may be risky business, but Facebook need only look to MySpace’s dwindling approval amongst the developers to see what a heavy hand can ruin.

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