Facebook Growing Pains

A few weeks ago, the social application developer Slide announced that movie and TV star Ashton Kutcher would headline an original Web series on Facebook.

Around the same time RockYou, another major apps provider, made some noise about a new product that it claims offers advertisers access to more robust behavioral targeting data than Facebook itself can offer. Meanwhile, Facebook — which spent last week dealing with a highly publicized revolt by its users over proposed changes to its terms of use — doesn’t see a dime from Slide and RockYou.

But as the company continues to struggle to find a sustainable revenue model while catering to an increasingly vocal user base, many believe that Facebook will soon impose some sort of tax or revenue sharing requirement on apps companies. “A deal of that sort is probably in the works,” observed Anton Denissov, digital media analyst, Parks Associates.

Adam Shlachter, digital practice lead for MEC Interaction, agreed that such a scenario is  possible, since apps companies like Slide offer an increasingly viable alternative for advertisers to reach users on social networking sites, while also driving up the number of page views these sites generate and need to sell. “I wonder if it becomes a problem eventually,” he said. “I do imagine it has to be something they are thinking about.”

Max Levchin, CEO of Slide, has spent a lot of time thinking about this issue, and perhaps surprisingly, he’s in favor of some sort of apps tax. He even proposed the idea to Facebook executives about six months ago — his contention being that if Facebook were incented to promote Slide’s apps: “That’s better for all individuals,” he said.

Chris Cunningham, founder and CEO of the apps rep firm appssavvy, says that though he’s heard “rumors and murmurs,” he doubts that Facebook will start charging companies apps fees. “I’m not worried,” he said. He estimates that the apps business will generate $125 million to $150 million in 2009. Solid, but perhaps not enough to get Facebook — which has been valued at $15 billion — overly excited.

Plenty of Facebook users were overly excited last week, when several changes to its terms of usage agreement came to light. Many panicked that Facebook was staking claim to permanent ownership of any and all personal information users post on the site-leading the company to negate the terms changes.

However, most buyers weren’t terribly concerned, pointing to Facebook’s enduring popularity. “It was a blip,” said Scott Shamberg, svp, marketing and media at Critical Mass, who doubts that the average user was even fazed by last week’s storm. “People just love the experience.” Lots of people in fact. The site now claims 175 million registered users, and in January Facebook cracked comScore’s top 10 audience ranking for the first time with 57.2 million uniques, up 69 percent versus last year.

Jordan Bitterman, svp, media, Digitas, said that Facebook might have suffered user and advertiser defections if they hadn’t changed course quickly. “To marketers it would matter in a big way [if they didn’t back off],” he said. “You never want to be associated with anything that threatens privacy. But this had just a short-term toll.”

In the future, Facebook may need to actively engage its audience prior to making any sort of change to its site or policies.  Reuben Steiger, CEO of Millions of Us, suggested that the company explore installing an executive as a permanent community liaison, or perhaps a council of community leaders so that future moves don’t catch the user base by surprise. “No one likes those ‘ta da!’ moments,” he said.

It may be that Facebook, by its very nature, faces issues that the average Web publisher doesn’t. Said Shlachter: “There’s really nothing else like this audience.”