MySpace and Facebook struggling with social network business models

MySpace is now saying in a Financial Times story that they will follow Facebook's lead and allow developers to build widgets and apps for their platform...and consider allowing the developers to get some advertising revenue.

But all is not well in Facebook land. Over at Valleywag an anonymous developer complains that Facebook changed the rules on them. Facebook has made it much harder for users to virally spread widgets and apps. The developer says;

Facebook made a small tweak in this process that has had dramatic effects in stunting the potential viral growth of apps - they started preventing users from inviting more than 10 friends to the app in any given day. This seems like a small deal, but it is enormous in its impact. Most people on Facebook have over 100 friends, and were inviting all of these to the service. Now, with the restriction of inviting 10 friends, the barrier to going viral on Facebook is exponentially higher (particularly because in general only 10% of people join a service when invited, meaning that exponential growth of the sort seen by the first few dozen apps on Facebook is nearly impossible).

MySpace and Facebook are struggling with explosive growth and how to monetize that growth while building a sustainable ecosystem. They want thousands of hackers and developers to build cool widgets and apps for their platforms, but they want to maintain their control over the platform, and keep all the revenues for themselves. Nice try!

Facebook says they will allow widgets and apps to include their own advertising. My guess is that will change when Facebook sees how much potential ad revenue they are losing. MySpace has refused to let widget developers do their own advertising. I wrote a while back that "Free services come with strings attached" meaning, they can change the rules at any time. Free services layered on top of other free services is not a sustainable business model.

In another post, The Remora Business Model, I talked about four different business models these widget/app developers could use. They are; Freemium (up sell), Sponsorship, Revenue share with host, and Syndication network. I discuss each model in more detail in that post. The point is that the traditional advertising model will probably not work for small widgets or apps, especially when they are tied to social network hosts.

Facebook and MySpace will eventually figure out a way to create a viable revenue model for widget/app developers. They need the developers to sustain their rocket ride growth. They will figure it out, but until they do developers like the one on Valleywag will get whip-lashed around. Many will be very disappointed. Proceed cautiously.

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Comments

[Jan]

Sites Like this Helps Businessman to post their ads on the net wasting few dollars. It provides options for businessman to maximize their profit with less capital, nice. Exchanging ideas would be better. Godbless.

[Lloyd Budd]

"all is not well in Facebook land"?

"with the restriction of inviting 10 friend", that sounds like a better experience for Facebook's customers including myself.

[Ian Smith]

Consumer-to-consumer social networks have no sustainable value other than a moment-in-time potential for advertising, which can get wiped out in an instant. For social networks to be enduring they have to have real value between networkers. Last year it was MySpace, this year Facebook, what next?

You can't build a high tech business of enduring value unless you have something of measurable, sustainable value inherent within its core. Building Internet businesses exclusively on advertising revenue is ultra high risk. It has all the characteristics of the last tech bubble.

We haven't even scratched the surface on social networks and it takes a lot more than a buch of PHP code and a chaotic ecosystem of hackers to create a business of lasting value.

As the US and European consumer boom wanes, a return to rational thinking will mean that the Web 2.0 winners will be firms who focus on products and services that have value in their own right - not a momement-in-time landgrab that attracts short-term ad revenue.

[WizCoder]

facebook is the king of SN now.