Tuesday, February 1, 2011

Tension in the shift from application to platform

Facebook announced that all Facebook games must use Facebook Credits starting July. This is mandatory, and I am sure there are great reasons for the standardization of its proprietary currency on its proprietary platform. To somewhat ameliorate the pain, and as a carrot to match its stick, Facebook will offer prominent placement on the games dashboard as an incentive to make the switch.

From an economic perspective, and similar to the tax paid to other proprietary platforms (e.g. App Store), Facebook takes a 30% share of all purchases. Some key games are not yet using the credits system as Zynga’s CityVille (100MM users), has its own in-game currency. Time will tell if this will become an exception, or a war.

Few software companies, led by MSFT, have navigated the tricky waters around the shift from offering mostly solitary applications to offering a platform integral for other vendors to build upon. Facebook made this transition in record time with the introduction and rapid adoption of the Open Social graph. It has been a stunning success as within nine months thousands of companies have written their applications to tap into Facebook's data flow and add value to tens of millions of users. This transition firmly established FB as the defacto standard for social computing; its Operating System...it's 'dial tone' is now unique and unchallenged.

With this success comes a fundamental cultural issue for FB and its ecosystem. Now, instead of concentrating its efforts solely upon the satisfaction of its users (and customers), FB has a litany of 3rd party developers, serving as a proxy for millions of their users, to satisfy. As the shifting sands of 'interests' between FB and its ecosystem change, tension will arise. For example, it's not at all unlikely, in fact highly probable, that FB will emerge as the most acquisitive software/internet company of this decade. With so many broad and mostly untapped markets (e.g. social commerce to name one) available, it is natural that the company's growth focus will shift from garnering more users, to monetizing them. This shift, or flashback from application to platform to hybrid model, will place FB in direct competition with its ecosystem.

FB Credits comes on the heels of Facebook Messages, a unified application which links texts, chat and email together. Perhaps, of great utility for its users; certainly a great threat to independent vendors. For those of us who watched the MSFT 'movie' and are witnessing Apple's ascent, all should expect FB's platform to expand wider, eclipsing many adjunct segments.

Back to Credits, Zynga may have sufficient critical mass to withstand the assault today, perhaps, it should be the foundation of an application arm within FB in the not too distant future? In any event, I expect prudent CEO's to build applications, and investors to concentrate diligence, on whether there is expected to be sufficient value for members, whereas an independent company can they build its own social graph; yes, connected to FB, but wary of its intent.

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