The Fragile Facebook Economy: Developers Struggle As Rules Change

Among the more than 650,000 developers who make a living in the ecosystem around Facebook, resentment is brewing. A redesign to the service several months ago has made it tougher to recruit new app users and make money. But Facebook says third-party developers will play a big role in the future.

By C.G. Lynch
Wed, January 28, 2009

CIO — Dave Morin, 28, sits at the epicenter of the Facebook Economy, and at first glance, the backdrop looks pleasant. Outside Facebook's headquarters in Palo Alto, gentle sunshine bathes the wine bars, sushi restaurants and coffee shops along University Avenue on a criminally beautiful, 70-degree Monday in January.

But Morin's job isn't so carefree. As a senior manager of the Facebook Platform, the technology on top of which people can build applications and games to run on the world's largest social network, Morin's decisions affect not only the marketers, advertisers and venture capitalists who have bet millions on Facebook's technology being the most important innovation in computing since the invention of Microsoft Windows, but also the fate of 650,000 third-party software developers who build Facebook applications.

"We were, and still are, completely humbled by the response to the technology," Facebook's Morin says. "We've had to learn how to scale and manage a community of this size."

A growing number of those developers say the complex Facebook ecosystem has hit real trouble, hurting large and small developers alike and dooming some shops that built businesses around the platform.

In the fall of 2008, a redesign that Facebook deemed critical for its 150 million users forced large companies with some of the most popular Facebook apps to immediately retool their strategies and tweak their product designs. Worse, the redesign eviscerated some small developer shops overnight as the Web traffic of their applications — and the subsequent money they made by selling advertisements on top of those apps — plummeted.

"It was pretty horrible for them, and most people would tell you the same thing if they were being honest with you," says Murtaza Hussain, president of Peanut Labs, a market research firm that has partnered with social networks (including Facebook) and application developers. "A lot of apps were lost overnight. Many developers hate Facebook for it because they left their day jobs, and they put a significant amount of their time and money developing stuff for Facebook."

Can the Facebook platform flourish despite the current developer dissatisfaction? Not everyone agrees. For its part, Facebook knows that the future of the Facebook Platform relies heavily on the input and innovations of the developer community, Morin says. That future centers around Facebook Connect, a project aimed at enabling users to take their Facebook identity along with them while visiting third-party sites. Connect plays into Facebook's desire to build a sort of Web-based operating system, to be the logical starting-point on the Internet for many users, just as Google would like to do.

Trouble Starts: Redesign Makes Developers Scramble

Ever since Facebook CEO Mark Zuckerberg ("Zuck" to Morin and other Facebook staffers) announced in May 2007 that the Facebook Platform would be open to developers all over the world, the evolution of the technology has been sporadic and unpredictable. A Wild West environment emerged in the first few months. Individual developers got rich overnight (at least on paper) as their applications spread across the social network in a matter of hours. Some entertained million dollar buyouts or took funding to grow into full-fledged start-up companies. Now, a year and a half later, critics say this community has been used by Facebook to buoy its own traffic growth and left with this rule of law: What the social network gives it can take away.

Not everyone wants to hear it, says Scott Rafer, a Silicon Valley veteran who has worked with blogging technologies and now runs Lookery, a company that does ad targeting for publishers on social networks including Facebook. Three months ago, speaking at a Facebook developer conference in Berlin, Rafer told members of the Facebook ecosystem that in his estimation, the Facebook platform was dead.

"A lot of people got screamingly angry," Rafer says. "I was talking to a crowd of folks that were looking into building more Facebook apps. I was like, 'Are you nuts?'"

Though he editorialized a bit, Rafer says he was simply sharing what he knew from cold hard numbers. The traffic on his clients' Facebook applications fell by nearly 50 percent after the redesign.

Blogs following the Facebook ecosystem and research firms support some of his conclusions, at least by the numbers. An analysis by Inside Facebook, an independent blog that follows the social network and its ecosystem, found that two of the top three applications on Facebook, built by Slide, declined in users in the first several weeks following the redesign going sitewide. One of Slide's apps, called FunSpace, fell sharply (by 37 percent) in monthly active users. The top app at the time, Super Wall (built by RockYou), held 18 million monthly users before the redesign. Today, according to AppData, it has 12 million. During the same first month after the redesign, Hussain's Peanut Labs estimated that 66 percent of the top 250 applications on Facebook decreased in daily users.

When the Facebook platform first launched, many successful applications appeared in small boxes (known in the social networking industry as "widgets") on a user's profile page, allowing that user's friends to engage with the apps upon visiting the page. Ideally, these friends would be compelled to install the applications themselves, increasing the app's pervasiveness across the network. When Facebook redesigned the site, the company sought to de-emphasize the profile pages and focus on the newsfeed — a column that runs down the center of a user's homepage and keeps the user updated on actions taken by their friends on the service, such as posting a picture, updating personal status or attending an event. Facebook moved the majority of third-party widgets into a new "boxes" tab.

"The redesign decreased the chance of serendipitous discovery of an interesting application," says Keith Rabois, VP of business strategy at Slide. "One of the best and most healthy ways to discover a new application is by seeing it on a friend's profile. Tabs are a very poor interface for discovering new things."

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