Should Facebook Charge App Developers?

by Gavin O'Malley, May 15, 2009, 3:22 PM

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"It might be time for Facebook to start charging rent," ContentNext Media research director Lauren Rich Fine suggests in a new report on the monetization of social media. The respected media analyst is not, however, referring to members of Facebook's vast community, but to the many application developers who have made it their home.

Fine warns that Facebook, which has yet to establish a successful business model -- at least to the degree that Google monetized search -- could be missing out on its single greatest money-making opportunity.

"There's a real danger that application developers who use the Facebook platform will become quite profitable, while the host corporation will not," says Fine.

"Advertising on social nets will never be commensurate with the amount of time people spend on them," Fine adds. "And Facebook has made several failed attempts at innovative marketing efforts that members loudly rejected."

What models should platforms like Facebook be emulating? Well, consider the success Apple has had with its iPhone app store.

"The merging of social and mobile is upon us," Fine says. "And there are proven successful strategies that social network companies can adopt from the mobile carrier model."

According to a recent Nielsen report, mobile is indeed playing an increasingly important role in social networking. U.K. mobile Web users had the greatest propensity to visit a social network through their handset, with 23% -- or roughly 2 million people -- doing so, compared to 19% in the U.S. -- or some 10.6 million people.

Facebook -- which has now surpassed MySpace as the world's most popular social network -- was visited monthly by three in every 10 people online across the nine markets in which Nielsen tracks social networking, according to Nielsen. That amounts to roughly 200 million users. While Facebook remains a privately held company, analysts estimate that it took in between $250 million and $400 million in revenue last year.

More broadly, over the last 27 months, there has been more than $25.5 billion in social media M&A and investment activity in 902 transactions, according to ContextNext.

Gaming -- apparently the largest subcategory in venture capital funding -- has accounted for more than $800 million. Outside of gaming, the excitement surrounding virtual currency could come to a screeching halt given the predominant "novelty" factor present in the enthusiasm, Fine warns.

In her recent analysis of the mobile industry, Fine warned not to expect mobile growth to be a panacea. "Concern and confusion over costs and hardware could mute near-term growth," she cautioned.

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