Facebook Connect: The Money is in the Feeds

As Facebook steps up the press around Facebook Connect this week, much of the discussion in the media trades around the business model for Facebook Connect is focusing on its potential to enhance contextual advertising on Connect-enabled websites.

But while supplemental demographic data and social endorsements will inevitably improve website ad performance in the long run, the real business behind Facebook Connect lies in its potential to make Facebook a communication platform for the whole web. If successful, Facebook Connect could increase webmasters’ reliance on Facebook to distribute and deliver messages between their own website users – and their friends.

In the Facebook Platform world that began in May 2007, Facebook provided application developers with several communication channels that users could employ to send invitations to or notifications about the application to their friends. Because messages sent across these communication channels consistently converted into so much quality application traffic, developers have been willing to pay the “tax” of modifying their applications to meet Facebook’s changing user experience guidelines to maximize their exposure in Facebook’s “viral” channels. If message distribution through Facebook’s communication channels wasn’t so critical to application developers’ livelihoods, developers would have much less concern for maximizing their presence within Facebook’s notification systems.

Now, imagine a world in which Facebook Connect powers communication for websites like Facebook powers communication for Platform applications today. In a Facebook Connect-enabled web, a large portion of message volume that is presently delivered through traditional channels like email or public bookmarks (or is never sent at all) is delivered over Facebook distribution channels like notifications or feeds. For some websites, Facebook invitations or feed stories may become a primary source of both new and returning traffic, supplementing or in some cases even replacing Google. At that point, Facebook becomes a vital partner for many webmasters who are then dependent upon Facebook for user authentication, communication, and marketing.

If Facebook is able to drive a significant volume of traffic to a large number of websites, it will then be able to start generating significant revenue by selling increased distribution through its communication channels. Not a paying customer? Your feed stories may get shown to a few users per day. Want 100% of your feed stories to get published to all your users’ friends’ News Feeds? Facebook will be happy to sell you increased distribution. Its only constraint will be preserving the overall quality of the user experience – but most users won’t notice if stories from friends about certain websites never show up.

At that point, Facebook starts to look like a much more powerful player on the web. Google AdWords sit between queries and results, but Facebook sits between people and their friends. That’s where the money in Facebook Connect is.

What kind of websites do you think have the most to gain or lose in such a world?

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