By Robert Young

Late last week, the Financial Times reported that MySpace was likely to respond to Facebook’s much-hyped F8 Platform initiative with its own third-party application/widget development program. Last week also brought forth an interesting debate, initiated by Jason Kottke via his aptly titled post “Facebook is the new AOL”, questioning whether the Facebook Platform was truly “open” or in reality a “walled garden”… an issue MySpace will have to tiptoe around gently as they specify their own API framework and policies.

In my mind, however, the central issue that MySpace needs to address competitively is not necessarily one of policies concerning technology (e.g. being open or closed), but rather it’s one of monetization policy. Specifically, what will MySpace’s policy be in terms of how third-party developers can monetize? As we know, Facebook’s position is that third-party developers can monetize their applications in any way they wish and they get to keep 100% of the revenues generated. Will MySpace do the same, or will they want a piece of the action (as I had speculated back in January over at GigaOM).

Although it may seem counterintuitive, particularly in light of the fact that outside developers can keep all the money they earn within the Facebook ecosystem, I would strongly urge MySpace to base their upcoming program around a revenue-sharing model. Put simply, MySpace should take a cut of the revenues that third-party developers generate. But to ensure a win-win, the key is to create a model where third-party developers can actually net more money inside the MySpace economy (even after sharing) than with Facebook. And this can be accomplished if MySpace leverages a clear advantage that they currently have over Facebook… re-focus their ad sales programs and their growing ad sales force to sell the inventory generated by third-party apps/widgets (in addition to the core MySpace ad inventory). In other words, MySpace should essentially share its own monetization engine with their outside developers.

You see, even though Facebook is currently enjoying the benefits of having thousands of new applications on its platform, most of those third-party developers will go out of business if they cannot eventually make money. And the reality is, except for a few well-funded ventures, the vast majority are starving long tail (often one-man) development shops. So when it comes to monetization, which requires ad sales capability, 99% of them are not equipped with the necessary resources.

At the end of the day, monetization is the big problem, and MySpace is positioned to solve it better than Facebook. After all, for the developer, sharing a percentage of some revenue is better than keeping all of nothing.