VC Perspectives on the Facebook Platform Ecosystem: Salil Deshpande, Bay Partners

As the Facebook Platform matures in its second year, big upcoming changes like the profile redesign and new policy initiatives have altered the Facebook Platform landscape significantly. Inside Facebook asked Salil Deshpande, General Partner at Bay Partners (which launched its AppFactory application developer fund and incubation program 1 year ago), to share his thoughts on the current state and future of the Facebook Platform ecosystem.

Which of your portfolio companies are significantly invested in the Facebook Platform? How are they doing?

We’ve made a handful of investments. Several are in stealth. Buddy Media, which started out as an investment in a virtual currency (AceBucks) for Facebook, has evolved into an app & ad network. They have significant revenue — can’t talk about how much, but it’s many millions of dollars. So certainly they are monetizing.  We have multiple others that are monetizing and are profitable on an operating basis. Some are not yet.

Some of our Facebook investments have abandoned Facebook and chosen a destination site approach. Some of our internet investments have gone to Facebook for customer acquisition, to bring users back to their destination sites. And one of them has reimplemented their destination site experience as a completely on-Facebook experience.

For a handful of post-traction applications that we liked, rather than invest in them directly, we referred them (with permission) to Buddy Media, and they bought them.

Most of our smaller investments have received reasonable acquisition offers along the way, not from Facebook, but from other players in the space, such as media companies, application rollups, studios, or ad networks.

What is your view on the state and future of the Facebook Platform ecosystem?

One of the things we said on the day we announced our program (in the comments of a TechCrunch thread) was that if Facebook wants their social network to be a platform, Facebook needs to behave like a platform company. This is more easily said than done. It took platform companies such as Microsoft, Apple, and Sun Microsystems years to get this right.

Whether a certain service should be provided as part of the platform, or whether it should be left to application developers, is *guaranteed* to be an area of tension.  And it was an area of tension for all of the platform companies mentioned above.

Other common mistakes that wanna-be platform companies make include not treating your developers right (by not allocating enough resources for API development, stability, evolution, backwards-compatibility, documentation, support etc.)

There’s been ample blogging on Facebook’s behavior (e.g. here), but it hasn’t always been succinctly characterized as I am doing here – that if Facebook wants to be a platform, it needs to behave as a platform company.

In the particular case of Slide and Top Friends, in Facebook’s defense, it could be argued that Top Friends was not a “deep” application in any case, and keeping track of which of your Facebook friends are your “top”
friends should have been a “feature” of the Friends facility in Facebook in the first place. I’m not taking sides, but it would be a valid argument. And the same argument could apply to a lot of narrow feature-like apps.

So perhaps the lesson here is that (a) developers should work on deeper apps rather than thin or silly ones that are close to being features of the platform, and (b) Facebook should get the virality features right such that the deep meaningful apps (and not the silly stupid ones) find it easier to propagate themselves.

We are still positive on Facebook as a platform, but we are observing their behavior as a platform company carefully.