Today Facebook made it official: its goal is to leverage its 25M users and platform to allow developers to build applications on top of its network, according to Fortune’s David Kirkpatrick:
The short version is that Facebook is taking its two major assets - its 24-million-members (growing at about 150,000 per day) and its strong technology underpinnings - and making them available to all comers.
The theory is grand, the potential is enormous. A lot of companies are already using Facebook’s API, taken from Business Week:
Today, it’s announcing that more than 65 developers from the likes of Amazon.com, Microsoft, Obama for America, and Warner Bros. Records are developing applications on top of its Facebook Platform. Essentially, those companies are embedding pieces of their applications–like book reviews from Amazon and photo slideshows from Slide–into Facebook itself. Facebook members, who now can include anyone with an email address, can add applications integrated with their existing Facebook services. The idea is to make Facebook even more of a utility for everything people want to do online that benefits from a social component. That’s a lot of things.
And many more will. But these companies should be careful, much like Yahoo! strengthened Google by using it on their portal, these companies are now creating a monster that they won’t be able to tackle down the road. By making Facebook the social utility, they will all become beholden to a powerful company that will sooner than later be competing with them, much like Google competes with everyone, everywhere, at all times.
Been there, done that? Not quite
Facebook’s strategy is the opposite of other companies in a major way.
Traditionally, it goes like this: Over two years ago, Yahoo! opened up its search API to one-up Google amongst search afficianados in allowing them to build applications on top of their search infrastructure. I vividly recall the euphoria and “gentlemen, let’s start our engines” feeling amongst the developer community.
I’m not developer, programmer, coder, etc., but as someone who was thinking about vertical search, I thought it was a great (read: cheap) way to test out my little theory about vertical search results yielding high-quality, authoritative results from best of breed publishers in a contextual manner from a subset of domain specific sources. I was right about that.
But quickly, I realized that only a fool would use another company’s API to build much. Immediately after launching MetaMojo.com on Yahoo!’s API, we turned to Nutch, an open source search software to swap out the Yahoo! index for a more proprietary one.
It’s a Money-Mad Mindset Again
Today’s announcement from Facebook will - and should be - greeted by the developer community with great joy. But while I don’t see much valuable applications really seeing the light of day, especially after the Photobucket/MySpace brouhaha and mainly, episodes like Alexa/Statsaholic, to name but one, many companies will rush to Facebook due to its huge size and reach. This is very dangerous, because they’re strengthening Facebook and forgetting how Google came to be.
Facebook’s API strategy is a reverse strategy, which is what is brilliant, but it makes it twice as dangerous, in that it sucks people away from other sites and keeps them even longer on Facebook. What makes this a brilliant move for Facebook but a dangerous one for bandwagon-jumpers is that the future of online ads will be driven by how long people stay on your site… and yes, having users play with your widgets on Facebook is nice, but MySpace/Photobucket showed the perils of such a strategy (more on the “future on ads” below).
Moreover, what makes me, and should make anyone wary of is the fact that unlike Yahoo! and most other tech companies, Facebook is not just any company, it is a company that is arguably the fastest growing in the social networking space (if not any space), as manifested by Facebook’s explosive growth:
It is also a company that just last year turned down subsequent offers of $800M, $1B and $1.6B by Viacom and Yahoo! Investor Peter Thiel has come out and thrown out an $8B valuation. Judging on reports that social networking will garner $2B in ads bby 2010, we projected a valuation of $2.35B by 2010 last fall, and have since revised that projection upwards quite a bit, though many prognosticators say that social networks’ time has passed, in favor of ad networks. The M&A deal pipeline this surely supports that, but we don’t really think that Facebook is on the M&A radar anymore, having priced itself out of that market, with an IPO all but certain come 2008.
The Real Highlights: Facebook’s size, retention and growth
What really mattered today in Facebook’s spiel, was some of the results that ambitious CEO Mark Zuckerberg laid out, taken from Tech Crunch:
- the 25 and over age group is the fastest growing segment on the site
- It is growing 3% per week, or 100,000 new users per day
- average pageviews per person: a whopping 50 (!)
- 50% of registered users come back to the site every day.
- Facebook is generating more than 40 billion page views per month. That’s 50 pages per user every day.
- 6th most trafficked site in the U.S.
- More page views than eBay. Says they are targeting Google next.
Evolution of Advertising: What’s Next?
And that last part is key. eBay and Amazon were masters of transcational commerce, and this helped paved their way to rich market caps in the late 1990s. Yahoo! followed suit as the portal to the Web, garnering ad revenue. As the ad market changed, Google pioneered clicks better than anyone.
What’s next? Well, while many are quick to call for the demise of the pageview, the truth is that the pageview is still king with media planners and buyers. Pageviews, in fact, drive ad impressions… and as F500 advertisers and global ad agencies spend more money online, they won’t be giving up the impression metric.
Clearly, Facebook is becoming king of the impression, and user time spent on a site.
Lastly, it could be argued that the next holy trail in online advertising is average time spent on a site per visit. If that pans out to be true, then there is a lot of upside for Facebook, Zuckerberg, Thiel and company.
To connect the dots, by pulling this API move, Facebook is - much like Google did - sucking out a lot of value from other sites and keeping it on Facebook.
Many folks are starting to worry that Google’s omnipresence is making Standard Oil or Microsoft look like the Muppet Show… if that is the case, then they better be careful what they’re asking for with Facebook’s latest push.
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