Facebook Platform: Taking Stock Of The Marriage After The Honeymoon's Over

In May of last year Facebook did, at least in my mind, one of the biggest things in web technology in a long time. They opened up their service as a platform for third party developers to build apps that today run inside of Facebook. It’s seven months later and it’s clear that the honeymoon is over. It probably ended with the Beacon thing although frankly that has very little to do with the platform.

Just in the past 24 hours, I’ve read a post about how nobody makes money on with Facebook apps and a post that says all the top apps are losing users. The blog world is not much different than traditional media. We love to build things up and then tear them down.

I think the truth is very different. Maybe videoegg’s Facebook ad network isn’t doing very well, but I’ve seen a lot of data on facebook apps in the past six months and this is what I believe is going on.

1) Facebook apps continue to grow as a percentage of overall Facebook usage, both in time spent and page views. I’d love to see a chart of this if anyone has one. Maybe the master of 500 hats has some data. If so, I’d love to see it.

2) Facebook apps are being monetized very effectively. Probably more effectively than Facebook itself. The ecpms are low, but the volume is high and money is flowing into the app developers pockets.

3) Facebook apps have high churn. Last month’s hot app is nowhere to be seen this month and a new one is in its place. The apps that continue to do well month after month are few and far between and are mostly owned by real companies that can afford to continue to invest in them and grow them.

Late last year, Bebo launched its platform. It’s not nearly as slick as Facebook’s but there is real activity there already and it will grow. Someday myspace will launch its platform and it will be a vibrant place to make money with social apps as well.

I am glad the honeymoon’s over frankly. It was a crazy time and it was hard to figure out exactly what was going on. But it was a great time to be an entrepreneur operating in a wide open market space. And we’ve met quite a few really interesting businesses that were built in the past six months and have invested in one so far.

I hope we’ll invest in more and are working on it.

#VC & Technology

Comments (Archived):

  1. Steven Kane

    Hey Fred. On your point #2 – The grapevine data I am seeing/hearing about says that the vast majority of this money/revenues is actually “cost per app download/install” monies flowing from one VC-backed app developer to another (not third-party advertisers or direct marketers spending budgets.) True?

    1. fredwilson

      It was true but not so much in the past 30-45 daysFred

  2. Erik Peterson

    I wrote a little toy facebook app just to familiarize myself with the development side of the platform. It isn’t very useful, and has a small install base (114 users as of now), but I make about $5 a month on it just with Google Adsense. I haven’t marketed the app or even touched it since December.The point is that the apps are definitely monetizable, and if you can get a large install base you can definitely rake in the cash. I have no doubt that if I worked on Facebook Apps full-time that I could make a decent living off of it. But do I want my income to be dependent on an unstable company and platform? No.

  3. Troy

    Hey Fred… Its Troy Young here from VideoEgg.I tend to agree with you. Overall the platform is monetizing quite well. Many applications offer outstanding ad opportunities with less clutter and higher “media value” than profile pages. We are seeing almost $1 million a month off the platform at decent cpms. The number from our release was shared revenue with app owners over the first 4 or 5 months of the program. Sales are growing steadily.In my opinion, $1 million a month on a effort that is only a few months old ain’t bad at all. There is a lot of life here.Troy

    1. fredwilson

      troythanks for the commenti am sorry for taking a swipe at videoegg. didn’t mean to.i am glad to hear you are doing so well.it makes me even more confident about thisfred

      1. Troy

        Thanks Fred. i made a conscious effort not to spin the hell out of the release. i should know better.I am pretty confident that our investment in brand ad solutions for open app environments will pay dividends. We will continue to see innovation around the profile in ways that enhance the social experience. Social gaming in particular is a very interesting opportunity. We are seeing outstanding response.We are going to keep our heads down and find ways to bring value to our advertisers and the app developers that make the ecosystem vital.Love your blog.Troy

  4. Chris Neumann

    Shhhh! Don’t let the secret out that people are making money! For some reason, everyone has been able to keep that a secret.PS. “You have 2 secret crushes in your inbox. Click here to give us your cell phone number and we’ll start billing you $3/week for nothing.”

  5. Jon Bischke

    My usage of facebook is down in the last couple of months specifically because of apps. The invites, cluttered pages, etc…a friend said it best when he said that facebook apps have led to the myspace-ization of facebook. At a minimum they need to allow people to opt out of all app requests. If that doesn’t happen I wouldn’t be surprised to overall facebook usage begin to drop.

  6. amar

    Scrabulous..the popular app that got shut down was making above 25k per month.

  7. davemc500hats

    hey fred, i don’t have any data on FP app growth relative to platform, but i *think* it’s growing faster… not sure. Only my intuition and talks with a few other folks, but i’d bet money they are increasing their share of attention / user time (tho FB probably still doing quite well on proprietary non-3rd-party app growth too)i’d also agree that *currently* FB apps are monetizing very well. i’m not sure however if this is sustainable in the long run, or at least at the rates we’re seeing right now. my rough guess is the long-term sustainability of this revenue is questionable, but that some of it is valid. let’s say anywhere from 5-20% of current monetization is sustainable, but that’s a complete out-of-my-ass guess.lastly, definitely correct that FB apps have high churn, and that w/o attention & new feature development — or even sometimes regardless of those effortts — those users decay and inactivate over a pretty short time horizon.Still, it’s impressive what people have been able to do with both viral acquistion (for popular apps) and also user engagement (for certain social games). whether or not the money is sustainable, they’ve demonstrated *some* amount of traction as a vehicle for acquiring users & creating value.but i’d still say we’re hardly out of the 2nd or 3rd inning yet… lots more game to be played. we’ll see.as i’ve noted before, Facebook Monetization has a long way to go yet, for both FB itself as well as platform participants.

    1. fredwilson

      Thanks for your comment Davefred

  8. Paul Vogelzang

    Hey, Fred:Well, somebody’s making money. Our ads and Facebook pages for MommyCast have yielded substantial “click throughs,” impressions, and, ultimately, traffic and downloads of MommyCast shows. We’re getting traction, I’m paying for it, and we’re seeing results. Not a bad equation.

    1. fredwilson

      That’s a good fact patternAnother confirmationThanksfred

  9. Paul Levine

    Hi Fred. Paul Levine of AdBrite here. Long time listener, first time caller. :)Definitely agree that we’re in the early innings here – too soon to proclaim victory or defeat.As you point out in #2, contextual/display inventory overall, and social network inventory in particular, tends to be higher-volume and lower-price on a relative basis. This is fine because the user reach, and PVs per user, are incredibly high. But let’s be realistic that app owners won’t see high CPMs like search, travel, autos. I think some app owners, and even new social-ad businesses, have unrealistic expectations for social-ad CPMs.We power advertising for ~500 FB apps via our Facebook App channel. We’re seeing a lot of growth in PVs and also some interesting experimentation among app owners to drive up revenue yield. I agree with Mr McClure — we believe strongly the real value comes from bringing in ad spend from from outside the FB ecosystem. We’ve worked with lots of advertisers – most recently T-Mobile – and helped them integrate FB app advertising into a broad-based campaign, allocating spend to various FB apps, with app-level visibility into performance. This seems more sustainable to me that cost-per-install which may deliver some quick-hit revenue but ultimately seems less viable long-term.Better monetization of social inventory would be good for everybody. Two things I’d like to see are:1 – use of standard ad formats. right now we’re in experimentation mode and the dollars are being spread thinly across a lot of different shapes and sizes. using IAB formats, or convincing IAB to christen a few new formats. in a fragmented space standards are always good. This will also help expand spend FB app advertising from tech-savvy viral marketers to a broader base of advertisers with more stability and deeper pockets.2 – more data exposed by social sites to third-party ad providers. lots of talk about this but we would like to see more action. armed with user-level data (anonymous but identifiable at the user level), we can continue to improve ad relevance and drive up effectiveness for advertisers and yield for pubs/app owners

    1. fredwilson

      WowGreat commentReally insightful and helpfulThanksFred

  10. david wang

    I think the hoopla may have died down only because the “fad” apps with no real monetization strategy have begun to fade into the background. The apps with a real solid applicable usage model that leverages the social graph will grow just like any other online business outside of facebook. The people who continue to focus on apps that dont have any real value to a user will most likely fall to the wayside.I look at it like separating the wheat from the chaff.