If It Feels Wrong, It Probably Is

-Tightrope Image-The past two years have been an interesting ride as the Facebook Platform has become more restricted in order to protect the user’s experience. When Facebook first opened up there were countless ad networks and developers looking to seize the opportunity to make millions. Many have generated large sums of cash and a few continue to be extremely profitable to this day but what has been most interesting is watching Facebook carefully navigate the gray policy areas.

Millions Are Made In The Middle

Thousands of developers rushed to the platform in the first land grab opportunity since the early internet days and there were instant fortunes generated for a few. Facebook was able to release a platform and build the number of developers quickly by avoiding all the issues that they have hashed out over the past two years. Unfortunately much of the information being accessed rapidly began shifting hands between companies, primarily between ad networks and developers.

I remember one person telling me months after the platform launched that “There’s what’s technically possible and then there’s what’s permitted by the Facebook terms.” Many of the companies were opting for what’s technically possible in order to squeeze out as much money as possible but unfortunately this wasn’t a long-term business plan. Most businesses naturally find the quickest path to revenue because it’s what’s most easy and because there are many other pressures that force us to take aggressive action (investors, bills to pay, etc).

Generating Revenue

Unfortunately the quickest path to revenue is not often a legitimate way but when there aren’t rules saying that you’re doing anything wrong, is it? Mark Zuckerberg welcomed developers to the Facebook platform with open arms and told them to figure out how to generate revenue, it would be free to play on the platform. For many developers that involved pushing the limits but Facebook is finally being forced to turn up the pressure on developers and ad networks and that means a new ecosystem lies ahead.

The issue for Facebook however is not that developers won’t build applications but that there are so many other platforms to build on. For developers looking for the “quickest path to revenue” is Facebook the best solution? Users come to the site for free and expect to continue enjoying a free experience for the most part, although a few still purchase gifts and other virtual goods. In app virtual goods sales are a huge business but many developers have been monetizing through random banner ads and just looking for ways to increase the number of pageviews.

For those applications (and developers) who aren’t truly adding value to the ecosystem, I would argue that your days are numbered. Why on earth should someone make millions of dollars from selling fake IQ quizzes? If rational economic theory doesn’t justify a company’s existence then it probably shouldn’t exist. Fortunately for these companies, the market isn’t rational and a lot of money can be made while an ecosystem figures its way out.

Facebook’s Tight Rope

Facebook is navigating through some muddy waters right now but one hopes that a wide open ocean is ahead. With user growth continuing it’s not difficult to predict that Facebook will end up a winner. What’s a bit more complicated is the gray area that still exists. When Facebook decided to open up their own ad network to aggressive affiliate marketers, their revenue jumped and it still continues to grow.

The muddy waters that the company just navigated were filled with companies similar to those that build “flogs” around the web. It’s a problem that Google continues to deal with but it still generates a lot of revenue. Google has a disincentive to block flogs because they are so profitable for the company. In a similar way, Facebook has a disincentive to block aggressive affiliate marketers because it’s big revenue as well.

The issue of generating substantial revenue is a challenging one even for Facebook and the internal debates happening at Facebook are the same ones happening at the development companies that were “pushing the limits”. It’s difficult for Facebook to enforce that developers not pass on data because it will hurt the ecosystem in the short-term. However it’s time to clamp down on scammers and businesses that are crossing the line as it will most definitely benefit the whole ecosystem and there’s nobody that will disagree about that.

Do you think Facebook’s new policies (the updated terms are supposed to be released today) are good for the overall app economy? If you are a developer would you rather build on Facebook or are there other platforms that are more attractive (iPhone, etc)?