Healthcheck on the Facebook platform – negative outlook

A couple of weeks ago I wrote that Facebook is maturing as a platform – a post I wrote in response to uproar from the developer community about how Facebook was making life difficult for them. My point was that Facebook was right to make life more difficult for application spammers, and the uproar was best understood in that light.

I think it is helpful to see Facebook as an emergent system where as the community grows the rules need to evolve to maintain both the consumer experience and a healthy growth rate.

We are now witnessing a period where Facebook observed that application spam was ruining the consumer experience and is sensibly tinkering with the rules in response.

The question is whether the rule changes will have the desired effect – or whether they either fail to improve the customer experience or choke off growth.

Which brings me to the point of this post – according to data on 20bits the lead indicators are that developers are deserting the platform. Specifically, activity in the Facebook developers forums is declining rapidly.

Monthly Statistics for the Facebook Developer Forum
Posts per day 461 225 -51%
Threads per day 80 44 -44%
Highly active users 461 225 -47%

20bits also reports that new applications on Facebook are less successful than they used to be. Apparently apps launched at the end of January were 1.5 times more successful than new applications launched at the end of March.

The bull case for Facebook is that their actions have cut out low quality applications and that developer activity will rise again as they start producing better content. Three months is a long time in the social network world though, and I would guess they are a bit worried by these trends.

Further, Facebook won’t have helped itself by not playing fair:

This is not to forget mini-scandals like the Facebook/CBS partnership, where Facebook removed invite restrictions on CBS’ sponsored March Madness application, even though there were other, independent applications in the same category. It’s hard to say how this affected developer morale, but it showed that Facebook was willing to hurt independent developers when it benefited them.

All of this comes at a time when competition from other social networks is hotting up. Facebook needs developers to choose it’s platform in preference to Myspace, Bebo, OpenSocial and others. Right now the indications are that it isn’t doing a great job of that.

  • Probably 3 things going on:

    (i) After huge initial flurry, many developers exit. Most are long tail, so little real impact
    (ii) As people remaining go up learning curve, less chat & more action
    (iii) Shifts in the “ecosystem game” have made the payoffs for newer developers less than for initial ones – there is a strong probability that early entrants under the (now closed off) high viral game rules have got an unbreakable first mover advantage.

  • Probably 3 things going on:

    (i) After huge initial flurry, many developers exit. Most are long tail, so little real impact
    (ii) As people remaining go up learning curve, less chat & more action
    (iii) Shifts in the “ecosystem game” have made the payoffs for newer developers less than for initial ones – there is a strong probability that early entrants under the (now closed off) high viral game rules have got an unbreakable first mover advantage.

  • Nnamdi

    Hey Nick,

    I can’t help but be reminded of Umair’s thoughts on facebook from 6 months ago. I think he was dead right about the problem being down to facebook’s DNA. Excuse the long quotes, but I think what he wrote is very important to understand.

    “Almost all of today’s new market leaders, interestingly, share this trait: it is a deep genetic difference that underpins advantage. The deeply felt desire to change the world for the better is ultimately how radical innovators are able to explode value propositions, redesign value chains, etc.

    But that’s not what Facebook wants to do. Facebook wants to take over the world.

    See the difference?

    One is about improving things radically, about innovation: the other is about capturing rents, about scarcity and control.

    We can put this a bit more formally. Facebook wants to play games of coercion and domination: I threaten, you obey.”

    “It will take a long time – 6 months, a year – before they start to come down to earth, and see and understand these economic problems. ”

    http://www.bubblegeneration.com/2007/11/research-note-facebooks-evil-is-in-dna.cfm

    “Orthodox strategy teaches you to invest in complements if you’re a platform owner. Complements amplify demand – and if they’re free, you capture all the value.

    Now, that’s all well and good.

    But it masks a (much) deeper problem with Facebook – and gives us very strong clues about Facebook’s DNA.

    Facebook has lots of traction – but very little to show for it. That’s OK – unless you’re evil. Good beats evil in the edgeconomy.

    Now, think about all this strategically for a sec. Facebook – the hottest platform in the world – has to subsidize complements.

    Why? Well, the answer is hidden in plain sight. Because complement producers can’t make capture any value by making complements yet. If they could, you wouldn’t have to subsidize them.

    That is, there is little incentive – beyond traction – for complements guys to be interested in the first place. They certainly, at the moment, can’t make any money.

    The point is that Facebook’s CEO and investors should not be investing in complements before they’ve found a working business model.

    Because the two are in conflict. The more Facebook and it’s investors subsidize complements, the less pressure there is on Facebook to actually discover and experiment with a working business model.

    Conversely, one can run this pseudo-pyramid scheme for as long as there’s (a sucker’s) money in the bank – but when the money runs out, without a business model, everyone will head for the exits.”

    http://www.bubblegeneration.com/2007/09/research-note-pride-goeth-before-fall.cfm

    As advertisers buy into Facebook – no one will be better off – except Facebook.

    http://www.bubblegeneration.com/2007/11/research-note-lord-of-flies-or-shape-of.cfm

  • Nnamdi

    Hey Nick,

    I can’t help but be reminded of Umair’s thoughts on facebook from 6 months ago. I think he was dead right about the problem being down to facebook’s DNA. Excuse the long quotes, but I think what he wrote is very important to understand.

    “Almost all of today’s new market leaders, interestingly, share this trait: it is a deep genetic difference that underpins advantage. The deeply felt desire to change the world for the better is ultimately how radical innovators are able to explode value propositions, redesign value chains, etc.

    But that’s not what Facebook wants to do. Facebook wants to take over the world.

    See the difference?

    One is about improving things radically, about innovation: the other is about capturing rents, about scarcity and control.

    We can put this a bit more formally. Facebook wants to play games of coercion and domination: I threaten, you obey.”

    “It will take a long time – 6 months, a year – before they start to come down to earth, and see and understand these economic problems. ”

    http://www.bubblegeneration.com/2007/11/research-note-facebooks-evil-is-in-dna.cfm

    “Orthodox strategy teaches you to invest in complements if you’re a platform owner. Complements amplify demand – and if they’re free, you capture all the value.

    Now, that’s all well and good.

    But it masks a (much) deeper problem with Facebook – and gives us very strong clues about Facebook’s DNA.

    Facebook has lots of traction – but very little to show for it. That’s OK – unless you’re evil. Good beats evil in the edgeconomy.

    Now, think about all this strategically for a sec. Facebook – the hottest platform in the world – has to subsidize complements.

    Why? Well, the answer is hidden in plain sight. Because complement producers can’t make capture any value by making complements yet. If they could, you wouldn’t have to subsidize them.

    That is, there is little incentive – beyond traction – for complements guys to be interested in the first place. They certainly, at the moment, can’t make any money.

    The point is that Facebook’s CEO and investors should not be investing in complements before they’ve found a working business model.

    Because the two are in conflict. The more Facebook and it’s investors subsidize complements, the less pressure there is on Facebook to actually discover and experiment with a working business model.

    Conversely, one can run this pseudo-pyramid scheme for as long as there’s (a sucker’s) money in the bank – but when the money runs out, without a business model, everyone will head for the exits.”

    http://www.bubblegeneration.com/2007/09/research-note-pride-goeth-before-fall.cfm

    As advertisers buy into Facebook – no one will be better off – except Facebook.

    http://www.bubblegeneration.com/2007/11/research-note-lord-of-flies-or-shape-of.cfm

  • Pingback: Facebook’s stricter app regulations are a good thing! « Life at Playfish()

  • nic

    Thanks Namdi, and sorry for the slow response. I’ve still to make my mind up on whether DNA is as important as Umair makes out. For sure being perceived as having ‘good DNA’ will help with brand value, but I wonder if good and evil is too simple and the extent to which it is possible for big companies to manage in this way. E.g. nobody thinks that Google isn’t evil any more.

    Then again, maybe I’m behind the curve ๐Ÿ™‚

  • nic

    Thanks Namdi, and sorry for the slow response. I’ve still to make my mind up on whether DNA is as important as Umair makes out. For sure being perceived as having ‘good DNA’ will help with brand value, but I wonder if good and evil is too simple and the extent to which it is possible for big companies to manage in this way. E.g. nobody thinks that Google isn’t evil any more.

    Then again, maybe I’m behind the curve ๐Ÿ™‚