Recently, Bill Gurley of Benchmark wrote a great piece on how platform companies like Facebook, iOS, Android, eBay, and others manage the ecosystem around them. It's an important essay and I'd recommend you all read it. I found myself nodding my head as Facebook was discussed. In recent conversations with fellow entrepreneurs in Silicon Valley, it's become a common belief that Facebook has become an undesirable platform for a startup to build their company.
Last month, I even heard one prominent VC even went so far as to say:
If your audience comes primarily from Facebook, that's just uninvestable.
That's a big shift from just 3-4 years ago when everyone was building Facebook apps and deeply integrating it into their products. I remember visiting a floor of an incubator where the head guy proudly said, "Everyone on this floor is working on Facebook apps." And everyone thought that there was going to be a new thing, the "social OS" that was going to be the next layer of the internet.
So what happened? Why have developers soured on the Facebook platform?
Multiple factors in this analysis
The summary of the reasons why developers have increasingly left the Facebook platform for other platforms:
- Lack of virality
- Higher ad rates
- Constant retooling
- The feed is finite
- Mobile platforms are the new sexy opportunities
Lack of virality
When the Facebook Platform first launched, it was the Wild West. You could do almost anything. I remember hearing that a lot iLike's growth at the launch of the Facebook platform was because they figured out you could set up an invite screen with all your friends' names pre-checked, and people would just click OK. It'd invite all of their friends, and the apps grew very fast. Turns out that sucks for UX, and it makes total sense for Facebook to turn that off, even if developers would rather have it there. Same with Zynga, and same with Viddy.
But now that those channels have all been dialed down, mostly for very legitimate reasons, it's hard for even app that's a "good actor" in the ecosystem to achieve sustainable viral growth. Many of the channels that existed last year no longer exist today, and they were taken out without replacements. So now that the excitement has faded, we're back to launching mobile apps on Techcrunch and hoping to ride the iOS charts- that still seems to work for some people, and developers have started focusing there.
Higher ad rates
One way to view acquisition on Facebook (and Google, for that matter) is that there's a organic marketing channel (via feeds and search results, respectively) and a paid channel, that blends paid content into the organic stuff. Back a few years ago, there was a ton of undervalued ad inventory on Facebook and a lot of companies went nuts on both the organic and paid channels. This was because Facebook took the long view in building up their ad infrastructure, and let people bid it up over time rather than sticking AdSense on all their pages. Facebook does a trillion pageviews a month, so it turns out there was a lot of cheap ad inventory. A lot of developers and advertisers were able to buy a ton of traffic cheaply, and arbitrage it against their virtual goods or ecommerce businesses.
That arbitrage began to fail as ad rates went up. And with decreased virality, the effective cost per customer also went up, because you were getting fewer "free" users as well. So now in 2013, that arbitrage is a lot harder to do profitably. In many ways, you can look at Zynga and Groupon as very successful one-time arbitrages on Facebook's 1 trillion pageviews/month. They were able to buy 100M+ customers a few years back, but now that new user acquisition is much harder, they have to look elsewhere.
I've heard the joke that the "Developer Love" email is scariest email you can get from Facebook, because it's the one that tells you that your app needs to be substantially updated for a new set of APIs. Facebook has an amazing engineering culture driven by "Move fast and break things" but that means some of those things are often their developer partners' apps. And you need to move as fast as Facebook to keep up. Just look at the Developer Changes page to see how often new things are released.
Part of this retooling means that there's a maintenance tax on whatever app has been created on the platform, since you have to pull your prized engineers off their projects to do constant maintenance and reintegration into the new viral channels. That's just to keep up. It also means that what works today may not work tomorrow. If you are making important decisions on staffing, business models, financing, then a lot of uncertainty is introduced because your business might get disrupted by platform changes happening in a few months.
It also turns out that at least for some categories of services, Facebook actually thinks about the competitive aspects of their product and it's not just a completely open platform. If you talk with folks who are working on messaging or photos or even walkie-talkie apps, you'll hear stories about how apps have been shut down. Turns out, especially because so many folks are working on mobile these days, that a lot of overlap gets created. I've even heard that Facebook isn't letting some messaging apps buy advertising on their platform â€“ not just turning off the APIs, but actually refusing to accept money for ads. Pretty interesting stuff.
The feed is finite
Many of the distribution issues on Facebook have to do with the fact that the feed is finite. A person will only look at the first 10 or 20 stories on any given visit, and anything you put into that grouping takes something out. This leads to all sorts of problems, because as users spend more time with Facebook, all sorts of new activity increases:
- They "like" more pages
- They add more friends
- They "subscribe" to more celebrities
- They try more apps
- They sign into more apps with Facebook
Mobile platforms are the new sexy opportunities
And finally, the very obvious thing is that developer attention has shifted over to mobile because that's where the new successes live now. You might have read, for example, of Supercell's recent $130M raise valuing the company at $770M. When's the last time we heard about that for a Facebook app? And how many investors are willing to fund "Facebook apps" now? In my conversations with people, there's still a lot of perceived opportunity in mobile, and people feel like there's enough stability.
What's next for the Facebook Platform?
The Facebook Platform has been an amazing success, in a lot of ways. No other company, with maybe the exception of Google, has given away so much free traffic to developers while asking for very little in return. So let's not all be whiners here. Years after the platform launch, a lot has evolved, and as a community we've all learned a lot. One of those lessons: What makes developers happy and what makes for a great UX are very different things. Same with what makes Facebook a good business, rather than a platform for developers to suck out users.
Can Facebook regain the excitement around the platform that they had years ago? I think the answer is yes, but I think they have to figure out what kinds of apps they want build up on their platform, and really make those partners successful. Show us the existence proof that you can build something big and sustainable on there. Microsoft was an incredible platform because it spawned multiple public companies that built upon them â€“ regardless of the fact they'd chase you down once you proved there was a billion dollar opportunity. I think if the developer and startup community starts hearing about big successes on Facebook again, people will try it out. But in the meantime, the attention has shifted to wear big opportunities are now, and that's iOS and Android.
(Andrew Chen is an entrepreneur and blogger based in Palo Alto, CA. He blogs here.)
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