The Wall Street Journal, in today’s print edition page C8, has an article headlined Facebook’s software boon. [The link should lead to a summarised version of the article that has not yet been paywalled.]
The article discusses the purchase of Where I’ve Been (a Facebook application) by Expedia (or, more accurately, Expedia’s TripAdvisor unit) for $3m, or $1.30 per Where I’ve Been ‘customer’. Which is all very fine and dandy. But it then goes on to discuss something else. I quote:
What’s in all this for Facebook and its youthful founder Mark Zuckerberg? When a company pays a college kid in his boxers a few million to acquire his creation, no money lands in Facebook’s coffers. And when the application is rebranded it effectively becomes free advertising for which Facebook, again, gets nothing.
It’s not yet clear how Facebook will exploit this bonanza. Charging software developers some sort of advertising fee to promote their wares on the site may prove irresistible. The worry is that this might change the character of the site. One of Facebook’s attractions is that it’s more collegiate and less overtly commercial than Rupert Murdoch’s ad-filled MySpace.
One solution that would allow Facebook to capitalise on the ferment would be for the company to take equity stakes in the applications in exchange for allowing them on the site. In so doing, Facebook would have an incentive to promote them without cluttering up its interface. Now there’s an application Facebook’s own developers should be designing.
I think two of the sentences above are telling.
“What’s in all this for Facebook….?”
“It’s not yet clear how Facebook will exploit this….”
These are the wrong questions to be asking, questions that are typical of Web 1.0. Questions that show a lack of understanding of The Because Effect.
We have to move away from the mindset in the article, which represents the economics of scarcity, to one which represents the economics of abundance. We have to move, more particularly, away from models which create artificial scarcities in order to support economics-0f-scarcity structures.
Facebook will actually make money on a double Because Effect. Because Of the people who use Facebook, and Because Of the applications they use.
Because Of is the answer, not With. Any specific application is a model of scarcity in this context, and the application developers can make money With the application. The ecosystem of applications, the open multisided platform, is a model of abundance, and the ecosystem providers need to base their business on that abundance basis.
From what I’ve seen, the guys at Facebook understand all this, so I do not expect to see artificial scarcities created. Instead, I will expect to see advertising-driven revenues. I will expect to see transaction fees, but more on an all-you-can-eat basis rather than a dish-at-a-time basis. I may even see vanilla-for-free and sophisticated-at-a-premium models. Or maybe a combination of these.
Taxing the application developer is the equivalent of American Idol having entrance fees and making voting free. There are smarter ways to make money. Facebook needs the app developers. The app developers need Facebook. It’s a symbiotic relationship, a community.