Delusions of Facebook – Should you be a Facebook Startup?

You can’t deny it: Facebook Applications have been a hot topic from the day the Facebook API was announced 5 months ago. Early success stories spread quickly, and the app-installation-fever that most users went through was overwhelming. Invitations to install this app and that one, we all had flooded inboxes.

Here in Toronto, FaceBookCamp 1 and FacebookCamp 2 were wild successes with over 300 people in attendance at each. There are no surprises when Facebook takes over any conversation, and certainly not one about startups. StartupWeekend here in Toronto is now Facebook Weekend.

I am a fan of Facebook, and have written my own predictions on how successful they will be.

So, should you consider building your startup as a facebook app. Or is that, should you consider building a facebook app as a startup?

I think there are a few fundamental problems with trying to do so, and I will try to explore those here. As a disclaimer: I have not tried to start a business on Facebook, I have just been an observer. I am also aware that there are some facebook apps which are doing quite well, and time will tell if they truly manage to cash-out.

You cannot build a business on someone else’s platform when they don’t see you as a partner.
This is the single biggest obstacle. Facebook does not see application developers as partners in any way. In fact, they forbid you from calling yourself a partner.

The implications of this might not seem so bad up front. You are still getting access to a great API, lots of community-based support and most of all, you have access to Facebook’s 40-50 million users.

The reality is more harsh however. You are putting yourself at the mercy of an organization that is growing at a phenomenal rate, you do not know what sort of value they prescribe to your, or any other, application and there are no guarantees about how long the platform will be as accessible as it is today.

To make money, you need to have your own customers.
To make real money, you need to have customers, even just users will do, but you have to have something.

When you are building your business on Facebook, you won’t get either one. You get visits. Brief interactions with someone else’s users, and you have no control.

Being able to move people from being visitors in to being customers is critical to building any sort of sustainable business. In order to generate any sort of sustained revenue, you need to be able to deliver ongoing value to your customer, so they can continue to either pay you, or click on your ads.

If they don’t innovate, you die.
You may or may not remember Compuserve, BBSs, AOL, and countless other internet beomouths. In their day, they were all the big thing, the had tens of millions of customers, doing billion dollar deals and they were bringing new customers in faster than you or I could count.

The one common theme between all their stories? They have all gone away slowly and painfully.

You may be able to build the most popular Facebook application there is, and you may be able to generate some cash through advertising or sponsorships, but one thing you won’t be able to do, when the time comes, is take your customers with you.

When Facebook’s day does come, and it will come at some point, it will be your last day too. You won’t have a hope in hell in getting contact information or any other sort of data about your customers, because they were never your customers in the first place.

This road has been travelled before.

Your business is their feature
The name Facebook Applications is misleading. You are building Facebook Features. Slideshows, Maps, Sticky Notes, all of it, they are all features.

I don’t have to tell you that a feature is not a business, because you already know that. Don’t you?

You have two options: Change or Die
You are building your, *ahem* business *ahem* under the Facebook Terms of Service. While they may be relaxed and manageable now, Facebook can change them at any time.

When that happens, you will have two options. You can do what they say and change your application, possibly removing things like advertisements, or you can go away and die. (And no, you can’t take your users with you).

Treat your own customers well, and they reward you. Treat someone else’s customer well, and they are rewarded
We have already established that you don’t have your own customers or users when building a Facebook Application. The kicker here is that you now have no incentive to enhance your ‘application’. The better job that you do, the more Facebook will benefit.

You may being saying “aha, that means what you said above is invalid”. Well, almost. You see, at some point you begin to provide a diminishing return to Facebook. Their users are spending too much time in your application. At this point, Facebook has more to gain by making sure that you are no longer the flavor of the month, and they gain by having their customers go to other applications. The more people move around in Facebook, the more they benefit.

Use Facebook as a conduit to your real business
Facebook has almost 50 million users. You can’t argue with those sorts of numbers. This level of access to so many entrenched users is unusual.

The opportunity is for you to extract a feature from your real business, and provide that feature as a Facebook Application. You can then try to link users through to your real website. If you are building something worthwhile, they will come there with you and you can focus on turning them in to real customers.

The fact is, as a startup you should be focused on building something that is useful on its own. You need to create value that people are willing to pay you for, either with their attention or their own money. Until you can do that, you do not have a sustainable business. You have an experiment, a feature, an idea.

  • http://www.productwiki.com Omar Ismail

    You hit the nail on the head with your last two concluding paragraphs. Facebook is a tool that facilitates person-to-person communication. That’s it. Almost every kind of service or product can leverage person-to-person communication, but many of them don’t and shouldn’t rely on it exclusively. Smart startups will exploit the opportunity we have right now to get as much out of it as we can.

  • http://www.productwiki.com Omar Ismail

    You hit the nail on the head with your last two concluding paragraphs. Facebook is a tool that facilitates person-to-person communication. That’s it. Almost every kind of service or product can leverage person-to-person communication, but many of them don’t and shouldn’t rely on it exclusively. Smart startups will exploit the opportunity we have right now to get as much out of it as we can.

  • http://blog.jamiequint.com Jamie

    “15-20 million users”

    Facebook now has upwards of 50 Million users actually, still, mostly all valid points you have made.

  • http://blog.jamiequint.com Jamie

    “15-20 million users”

    Facebook now has upwards of 50 Million users actually, still, mostly all valid points you have made.

  • http://montrealtechwatch.com Heri

    i think of facebook as just a distribution platform for what you are doing on your main website, like widgets or RSS.

    The best example by the way is iLike, who are able to offer a great facebook app because they already have the data from their main website.

  • http://montrealtechwatch.com Heri

    i think of facebook as just a distribution platform for what you are doing on your main website, like widgets or RSS.

    The best example by the way is iLike, who are able to offer a great facebook app because they already have the data from their main website.

  • http://www.productwiki.com Omar

    You know, this whole concept that Facebook is a fad that will eventually die, just like all other social networks is pretty short sighted. I mean, in the 90s you could’ve looked at Google and said, “oh, there’s just another search engine, it’ll die just like Excite and AltaVista.”

    But they’d be wrong. Because there was something different about Google. Something that had staying power. The excitement around Facebook is that people are seeing that same kind of staying power. Applications will only improve the Facebook website. Just like AdSense has become a standard, Facebook’s platform is becoming the standard for social software. You’ll have your website, you’ll monetize off of AdSense (hopefully not if you want to make anything respectable) and you’ll use FB as your User system.

    Facebook is continuing to open up the platform and making it more useful for developers. I mean, just look at them opening up the mobile platform, that’s huge! People expecting them to open up EVERYTHING at the beginning are being naive. This is new ground for everyone, and it’s all about taking baby steps and learning as we go along. But eventually, and you can see the goal in sight, the platform will be open, and they’ll be the standard. The writing is on the wall.

    So if you decide to write off Facebook because you consider it another fad, then be aware of the risks involved. The tone in this blog post I think is a bit too marginalizing of FB’s impact on the web.

  • http://www.productwiki.com Omar

    You know, this whole concept that Facebook is a fad that will eventually die, just like all other social networks is pretty short sighted. I mean, in the 90s you could’ve looked at Google and said, “oh, there’s just another search engine, it’ll die just like Excite and AltaVista.”

    But they’d be wrong. Because there was something different about Google. Something that had staying power. The excitement around Facebook is that people are seeing that same kind of staying power. Applications will only improve the Facebook website. Just like AdSense has become a standard, Facebook’s platform is becoming the standard for social software. You’ll have your website, you’ll monetize off of AdSense (hopefully not if you want to make anything respectable) and you’ll use FB as your User system.

    Facebook is continuing to open up the platform and making it more useful for developers. I mean, just look at them opening up the mobile platform, that’s huge! People expecting them to open up EVERYTHING at the beginning are being naive. This is new ground for everyone, and it’s all about taking baby steps and learning as we go along. But eventually, and you can see the goal in sight, the platform will be open, and they’ll be the standard. The writing is on the wall.

    So if you decide to write off Facebook because you consider it another fad, then be aware of the risks involved. The tone in this blog post I think is a bit too marginalizing of FB’s impact on the web.

  • http://socialwrite.com Jevon MacDonald

    Omar: That’s a Red Herring and you know it. I never mentioned Google once in my post. In fact, I do think that google is different from Facebook, and it’s why I didn’t bring them up.

    I am not marginalizing Facebook, I am turning the light on the sustainability discussion and trying to offer some decent insight to anyone thinking of putting all their eggs in the Facebook basket. There are so many hyper-active discussions going on about FB that I think some would-be startups are wasting too much time trying to borrow customers from someone else.

    Why not offer an argument to disprove my points Omar?

  • http://socialwrite.com Jevon MacDonald

    Omar: That’s a Red Herring and you know it. I never mentioned Google once in my post. In fact, I do think that google is different from Facebook, and it’s why I didn’t bring them up.

    I am not marginalizing Facebook, I am turning the light on the sustainability discussion and trying to offer some decent insight to anyone thinking of putting all their eggs in the Facebook basket. There are so many hyper-active discussions going on about FB that I think some would-be startups are wasting too much time trying to borrow customers from someone else.

    Why not offer an argument to disprove my points Omar?

  • http://assetbar.wordpress.com Israel L’Heureux

    Omar, the top Facebook “applications” are just the same slide and rockyou widgets that have been available on myspace for years. Oh, and a vampire.

    Facebook is maligning the meaning of the words “platform” and “applications”, and is just building hype.

    Too many people are drinking the kool aid, so thanks to Jevon for articulating some clear points.

    Don’t forget that facebook themselves aren’t even making money. All the users in the world, and they’re just at break even. That ain’t no adsense or Google, baby: http://assetbar.wordpress.com/2007/10/10/secrets-how-to-make-money-with-facebook/

  • http://assetbar.wordpress.com Israel L’Heureux

    Omar, the top Facebook “applications” are just the same slide and rockyou widgets that have been available on myspace for years. Oh, and a vampire.

    Facebook is maligning the meaning of the words “platform” and “applications”, and is just building hype.

    Too many people are drinking the kool aid, so thanks to Jevon for articulating some clear points.

    Don’t forget that facebook themselves aren’t even making money. All the users in the world, and they’re just at break even. That ain’t no adsense or Google, baby: http://assetbar.wordpress.com/2007/10/10/secrets-how-to-make-money-with-facebook/

  • http://www.productwiki.com Omar Ismail

    “You cannot build a business on someone else?s platform when they don?t see you as a partner” – the reasons why they don’t let you call yourself a partner is because they don’t want to officially endorse any 2-bit application. Think of Windows. OSX. Even Linux. All of those have applications developed for them, even though many of the same risks you outlined, and the whole “no partner” thing exist there as well. The fact of the matter is that yes, there are risks with developing for a platform, but there are huge benefits as well. People have seen huge success when developing for other platforms, and there’s the potential for huge success for developing for Facebook.

    “If they don’t innovate you die” – true. But that’s the genius of the apps. THEY don’t have to innovate. They let YOU innovate for them, and as you said later on in your post, the better your apps are, the happier their users are. Well their users ARE your users. So if applications are coming at a pace that lets FB stay ahead of the game, then they’ll always be ahead of the game. It’s a win-win situation for devs, and for FB.

    “Can’t take customers with you” – StyleFeeder’s app is one of the most popular on FB and it REQUIRES that you sign up for their site. They are getting 10s of thousands of users a day purely through FB. And these are real users with full contact info, etc. Smart companies will be able to leverage FB success into real success of their full business.

    As for your comment Jevon, I don’t know who said “put all your eggs in one basket”. Actually, that’s precisely what I’m trying to say! Facebook is another very exciting basket, and people should try as many baskets as possible. In terms of ROI, FB is one of the best places to experiment and open up an ADDITIONAL growth path.

    Now maybe this is all coming back to Village Toolbox which I claimed should be a set of FB apps. The real answer is far more involved and complex than “just facebook”. But essentially the best START to a Village Toolbox-like application is through FB. And then expanding to other social networks, and then creating a central site that connects everything. THAT would by my overall strategy.

  • http://www.productwiki.com Omar Ismail

    “You cannot build a business on someone else’s platform when they don’t see you as a partner” – the reasons why they don’t let you call yourself a partner is because they don’t want to officially endorse any 2-bit application. Think of Windows. OSX. Even Linux. All of those have applications developed for them, even though many of the same risks you outlined, and the whole “no partner” thing exist there as well. The fact of the matter is that yes, there are risks with developing for a platform, but there are huge benefits as well. People have seen huge success when developing for other platforms, and there’s the potential for huge success for developing for Facebook.

    “If they don’t innovate you die” – true. But that’s the genius of the apps. THEY don’t have to innovate. They let YOU innovate for them, and as you said later on in your post, the better your apps are, the happier their users are. Well their users ARE your users. So if applications are coming at a pace that lets FB stay ahead of the game, then they’ll always be ahead of the game. It’s a win-win situation for devs, and for FB.

    “Can’t take customers with you” – StyleFeeder’s app is one of the most popular on FB and it REQUIRES that you sign up for their site. They are getting 10s of thousands of users a day purely through FB. And these are real users with full contact info, etc. Smart companies will be able to leverage FB success into real success of their full business.

    As for your comment Jevon, I don’t know who said “put all your eggs in one basket”. Actually, that’s precisely what I’m trying to say! Facebook is another very exciting basket, and people should try as many baskets as possible. In terms of ROI, FB is one of the best places to experiment and open up an ADDITIONAL growth path.

    Now maybe this is all coming back to Village Toolbox which I claimed should be a set of FB apps. The real answer is far more involved and complex than “just facebook”. But essentially the best START to a Village Toolbox-like application is through FB. And then expanding to other social networks, and then creating a central site that connects everything. THAT would by my overall strategy.

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  • http://www.thusenth.ca Thusenth

    This is a really interesting post on a topic with lots of uncertainty surrounding it. Facebook has tons of applications on it now. It’s becoming clearer that many have built up a defense against installing new applications due to the loads of requests they get on a daily basis for shit application installs. Facebook should carefully take a look at the developers on it and start cutting out most.

    Facebook is not the new Windows, OSX, etc. Those platforms took off because of their complexity in a time where making an OS was difficult, and it still is. To say that Facebook is the equivalent is not right, as the complexity behind the application isn’t there – hence the whole NASN issue people bring up.

    My personal opinion on the Facebook Platform is that it is a great extension to any freestanding Web site where sharing information is at the core business. The platform is not advanced enough yet to create the same experience within Facebook itself.

  • http://www.thusenth.ca Thusenth

    This is a really interesting post on a topic with lots of uncertainty surrounding it. Facebook has tons of applications on it now. It’s becoming clearer that many have built up a defense against installing new applications due to the loads of requests they get on a daily basis for shit application installs. Facebook should carefully take a look at the developers on it and start cutting out most.

    Facebook is not the new Windows, OSX, etc. Those platforms took off because of their complexity in a time where making an OS was difficult, and it still is. To say that Facebook is the equivalent is not right, as the complexity behind the application isn’t there – hence the whole NASN issue people bring up.

    My personal opinion on the Facebook Platform is that it is a great extension to any freestanding Web site where sharing information is at the core business. The platform is not advanced enough yet to create the same experience within Facebook itself.

  • http://www.protagonize.com Nick Bouton

    I completely agree with Jevon here.. I’ve written about this in the past as well ( http://www.nickbouton.com/archives/2008/01/28/facebook-applications-use-or-be-used/ ) and this tact is exactly what I’m trying to accomplish by building a Facebook application for Protagonize ( http://blog.protagonize.com/2008/03/10/protagonize-weekly-roundup-march-10-16-2008/ ).

    I can see the immediate appeal of building a FB application to cash in on the huge user base and limited attention span-driven application hopping, but it’s not a long-term solution and you’re much better off trying to leverage Facebook’s reach and dedicated user base for building your own site or product.

    As Jevon said, take a feature from your site and extend it into Facebook. You gain the same reach, but you don’t have the same dependencies; that way, you lose nothing if Facebook makes wide/sweeping changes to their TOS or goes under at some point.

  • http://www.protagonize.com Nick Bouton

    I completely agree with Jevon here.. I’ve written about this in the past as well ( http://www.nickbouton.com/archives/2008/01/28/facebook-applications-use-or-be-used/ ) and this tact is exactly what I’m trying to accomplish by building a Facebook application for Protagonize ( http://blog.protagonize.com/2008/03/10/protagonize-weekly-roundup-march-10-16-2008/ ).

    I can see the immediate appeal of building a FB application to cash in on the huge user base and limited attention span-driven application hopping, but it’s not a long-term solution and you’re much better off trying to leverage Facebook’s reach and dedicated user base for building your own site or product.

    As Jevon said, take a feature from your site and extend it into Facebook. You gain the same reach, but you don’t have the same dependencies; that way, you lose nothing if Facebook makes wide/sweeping changes to their TOS or goes under at some point.

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