A Reason Why Facebook Viral Channels Could Make a Comeback in 2011

Over the course of the last four years, Facebook has made a series of changes to its “viral” communication channels to try to find the right balance between providing distribution opportunities for developers and creating the most engaging user experience.

In the beginning, Facebook’s communication channels – invitations, notifications, and the news feed – were very open and ungoverned, and developers fought for growth and retention by sending a lot of messages through those channels. Over time, Facebook added a series of checks and balances, including algorithmic allocation limits and a growing policy enforcement team to handle the more subjective cases, and changed the functionality of the channels as well to limit decreased user engagement due to too many “spammy” messages.

Ironically, even though social games will generate over $1 billion in primarily virtual goods-based revenue this year, there was no one at Facebook in 2007 whose job was to create a gaming platform. As a result, because Facebook was optimizing for many variables and lacked granular insight into the effects of its viral channel changes on the dynamics of developers’ businesses during the two years after the Platform launched, the Facebook Platform developed a reputation for being a high flux environment in terms of distribution and cost of user acquisition. And over the last year and a half, Facebook’s overall tightening of its viral channels has made it harder for developers, especially small developers, to get the kind of distribution they saw in the past, strengthening the distribution advantages of scale enjoyed by Zynga and other large developers.

However, with the Credits rollout over the last year, the Facebook Platform has reached a new level of maturity. While requiring developers to use Credits a year or two ago would have caused an uprising, developers now are more amenable to having a direct economic relationship with Facebook. And while that definitely means a loss of some individual developer freedoms — like direct billing relationships with users, and all the other benefits of owning the payments flow — one thing it does mean is there is now someone at Facebook (actually a team) looking at dashboards that have a Credits revenue gauge on them. And that means Facebook is only more likely to become more knowledgeable about and concerned with the overall health of developers’ businesses over time.

What could that mean for overall trends in Facebook’s viral channel products? Generally, it should mean that Facebook is now even less incented to make changes that could make a traumatic impact on application distribution, and more incented to make changes that benefit engagement and retention. As Facebook gets more “hooked” on Credits revenues, it’s going to be harder to wean off of them, unless games for some reason are creating larger problems for Facebook as a whole.

Already, we’ve started to see some new viral channel functionality go live in the last three months, like Facebook beginning to deliver application invitations via the notifications channel. It wouldn’t be surprising to see Facebook add more features and functionality over the remainder of the year.