The media’s been overwhelmed with handwringing over Facebook’s privacy changes, but I think this is simply a symptom of a larger problem. Zuckerberg and company are having a hard time figuring out what Facebook is going to be when it grows up. Sure, the firm brought in between $600 and 700 million in revenue in 2009. But at less than $2 per user, it falls far short of long term expectations for the company.
So the company that has grown to over 400 million active users (keep in mind that’s a lot larger than the total U.S. population) using a “play amongst yourselves” mentality needs to find itself a business model. There have been a set of changes over the past several months that seem to show a deliberate, if somewhat clumsy, approach to monetizing this user base more effectively.
- Apps can’t nag – As part of a series of platform changes in December 2009, Facebook cut back dramatically on the number of ways that applications could harass users’ network of friends. While we’re all grateful for this shift, it’s led to significant reductions in the number of players of popular Facebook games as the normal churn of users isn’t replaced through viral advertising.
Impact: App developers need to invest more aggressively in Facebook advertising to keep those player numbers up.
- Facebook credits – Facebook has its own currency, Facebook Credits. It’s a payment platform akin to Paypal through which app developers can accept payment in credits for premium options in their products. The trouble is that Facebook takes a 30% cut of those transactions, so most developers have opted to use PayPal instead. This was central in the recent spat between Facebook and top Facebook game developer Zynga.
Impact: Facebook is strong-arming app developers to use their virtual currency because the app developers are making more money through Facebook than Facebook itself. The reality is that they’re having some success. For better or worse, expect this to be a big part of the payment mix in the future.
- Dropping the walls on privacy – Facebook changed the way that it secured things within its network, effectively opening lots of information that was previously only available within individuals’ networks to the world at large. Zuckerberg has admitted that they made mistakes with the complexity of the privacy changes and has announced a simpler set of privacy controls, but his assertion that public information is the default seems to be the guiding philosophy.
Impact: Philosophy aside, I see this as a competitive move as Facebook attempts to counter the growing popularity of Twitter which it perceives as a threat to its dominance.
Like anything that’s gotten popular with a price tag of free and no strings attached, Facebook is going to get some pushback when it attempts to look after its own interests. Still, some of these moves feel particularly clumsy. For a platform that seems to stumble into successes almost accidentally, coming up with a well reasoned plan for profitability is a tough task, made all the tougher by a monstrous corporate ego and what’s evolving as a strong-arming, dictatorial style.
Facebook still hasn’t found the answer to this question of profitability, so expect more snafu’s as they continue to find their way.
If you’re wondering how private your Facebook information is, have a look at http://www.rabidgremlin.com/fbprivacy/
Not sure how to adjust your FB security, have a look at http://www.eweek.com/c/a/Security/How-to-Control-Your-Facebook-Privacy-Settings-225062/