Will Facebook tax the Platform?

Facebook shook up the social networking world in May when it announced the financial terms of doing business on the Facebook Platform: not only did Facebook give third parties unprecedented APIs and opportunities for viral growth, but it also agreed to let developers sell advertising and conduct transactions for free, keeping 100% of the revenues generated by their applications.

This laissez-faire approach to the Platform economy stood in stark contrast to the command-and-control philosophy of MySpace (and others), and consequently spurred massive entrepreneur and developer interest.

But will free last forever?

Platform developers and others who are familiar with the Facebook TOS know that Facebook protects its “social graph” dearly: Facebook disallows developers from retaining member profile or relationship data in their databases. Facebook wants to always own the fundamental human grid on which the myriad of social applications are developed; without exclusive ownership of that grid, applications would have much less reason to exist within Facebook.

However, while developers agree not to retain Facebook profile and friend data, they still have temporary access to it during application use, and are finding ways to use that information to serve better targeted ads. (It’s what one VC I spoke to recently called “profile-enhanced” targeting.) By combining profile-enhanced targeting with more traditional contextual and behavioral targeting approaches, Facebook developers (and ad networks) may be able to deliver new significant value to advertisers.

Based on how protective Facebook has been of the social graph, many are beginning to doubt that Facebook will continue to allow developers free use of profile data for long. It’s a potentially significant value leak that Facebook could plug in a number of ways:

  1. Prevent developers from passing along supplementary profile data to advertisers. However, this could be quite difficult to manage.
  2. Require all developers to use a yet-to-be-created Facebook advertising marketplace for any profile targeted ads. This would keep Facebook in the middle of advertisers and all premium Facebook inventory.
  3. Tax developer queries on profile data. While sure to scare away some developers, Facebook could charge for queries that access certain profile fields, thereby capturing some of the margins of third parties selling profile-targeted ads.

As the initial bonanza matures, how long do you think Facebook will be able to maintain its hands-off approach to the Platform economy?