Go to any office on Sand Hill Road in the last three weeks and you’ll know what the buzz in the valley is about these days: Facebook. Not about the company itself, but about the Platform and its implications for venture funded consumer Internet businesses. Is a Facebook app the same as a website or a widget? Is a Facebook user the same as a regular user? Will Facebook threaten application developers?
These are all new, hard questions. As soon as we see one successful exit in the Facebook app world, they will all go away 🙂 Until then, many will remain just as skeptical of Facebook app companies as any widget company on the web today.
IF: According to some, the Facebook Platform opens entirely new doors for software startups. Do you see significant new opportunities for venture backed companies in the Facebook Platform world?
JL: Absolutely. Acquiring new users is always one of the key challenges for a startup. As we have already seen, some startups have been able to acquire over a million users in a very short period since the Facebook Platform was launched. iLike in particular has done an amazing job on Facebook where they’ve acquired an order of magnitude more users than they had on their standalone site.
IF: Does that mean you’re more interested in companies building Facebook apps?
JL: We’re not looking to invest in “Facebook companies” explicitly. Facebook is an avenue for customer acquisition that has proved to be quite effective. But there are many other ways to acquire customers, and Facebook should be part of a broader strategy. It can be an incredibly effective tactic, but it is still tactical.
IF: You’ve invested in RockYou (and Flixster, which also has a popular Facebook app). What separates widget companies in your view?
JL: Rockyou is a widget company, whereas Flixster is a standalone destination site that also has widgets. For Flixster, the path to a business model is very clear as they can sell traditional advertising on their destination site.
The monetization path for widget companies is still evolving. The IAB is starting to address the issue of standards in widget advertising and social media advertising more broadly, and I think that this is one of the areas that will need to be resolved before we really see an explosion in widget advertising. For now then, while the widget business model evolves, the most valuable widget companies are the ones that are clearly demonstrating that they are filling the needs of users. In most cases, that’s companies with a lot of users and a large installed base.
IF: Does anyone differentiate between “widget” and “Facebook application” companies right now?
JL: There is a great deal of overlap between the two as many “Facebook apps” appear as a “widget” on a user’s profile page. I think the key is to think about is whether the company controls pages that they can sell ads on (whether this is a page served up within Facebook in an iframe, or on their own site.). The more that this is true, the more that they can fall within traditional online media models and the quicker their path to scalable revenue.
Follow more of Jeremy’s thoughts on Facebook on the Lightspeed blog.