May 25th, 2007
Facebook Platform, which allows companies to build applications — and entire ad or fee-driven businesses — inside Facebook is a brilliant move, which could given Facebook the opportunity to become the next Google. The secret to Google’s success with AdSense was sharing revenue with publishers and letting them figure out how to optimize the revenue. At launch, Facebook isn’t taking a cut of any revenue generated by businesses using the Facebook Platform, but it could easily do so.
Following the crack cocaine model, i.e. give it away for free then charge once users are addicted, businesses that achieve profitable growth through Facebook would have no choice but to accept a revenue share agreement. Facebook is wise to let this Platform grow without friction at first — and, as Arrignton points out, there is an elegant viral growth mechanism for adoption of applications available through Facebook Platform:
But there is also a crucial viral component – when a friend adds an application, it is noted in their news stream on their profile. Clicking on the item brings you to the app, where you can add and/or interact with it yourself.
With Facebook users driving adopting of apps and app creators focused on optimizing the value creation for Facebook users, Facebook can essentially sit back like Google and reap the benefits.
Arrington is also right that Facebook is the anti-MySpace. MySpace has taken the old media, un-Google-like, un-Web 2.0 approach of trying to control all of the revenue, including blocking and, when necessary, acquiring third-party applications (e.g. Photobucket).
There are clearly risks to this strategy, but I don’t necessarily think they are that great. Brad Stone in the NYT piece asserts:
Facebook might also inadvertently turn itself into a launching pad for other companies that could eclipse it â€” in the same way that YouTube rose to prominence because MySpace users found it an easy way to add video to their MySpace pages.
But this isn’t really a risk because YouTube didn’t eclipse MySpace — YouTube actually helped MySpace by making the service more valuable because videos could be embedded.
The opportunity for Facebook is not just to take a cut of revenue from businesses built on its platform, but also to charge to users for the Facebook service — if Facebook effectively offers users a full integration of everything that is important and useful to them online, then there’s a good chance they would be willing to pay for it.
Advertising isn’t going to be the right business model for everything — just because Google made it work for search, doesn’t mean it can be optimized for every platform.
Regardless, Facebook is now the company to watch.