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7.5 F8—Facebook as a Platform

Learning Objectives

After studying this section you should be able to do the following:

  1. Understand how Facebook crated a platform, and the potential value this offers the firm.
  2. Recognize that running a platform also presents a host of challenges to the platform operator.

In May 2007, Facebook followed News Feeds with another initiative that set it head and shoulders above its competition. At a conference called F8 (pronounced “fate”), Mark Zuckerberg stood on stage and announced that he was opening up the screen real estate on Facebook to other application developers. Facebook published a set of application programming interfaces (APIs)Programming hooks, or guidelines, published by firms that tell other programs how to get a service to perform a task such as send or receive data. For example, Amazon.com provides APIs to let developers write their own applications and Websites that can send the firm orders. that specified how programs could be written to run within and interact with Facebook. Now any programmer could write an application that would run inside a user’s profile. Geeks of the world, Facebook’s user base could be yours! Just write something good.

Developers could charge for their wares, offer them for free, and even run ads. And Facebook let developers keep what they made. This was a key distinction; MySpace initially restricted developer revenue on the few products designed to run on their site, at times even blocking some applications. The choice was clear, and developers flocked to Facebook.

To promote the new apps, Facebook would run an Applications area on the site where users could browse offerings. Even better, News Feed was a viral injection that spread the word each time an application was installed. Your best friend just put up a slide show app? Maybe you’ll check it out, too. The predictions of one billion dollars in social network ad spending were geek catnip, and legions of programmers wanted a little bit for themselves. Apps could be cobbled together on the quick, feeds made them spread like wildfire, and the early movers offered adoption rates never before seen by small groups of software developers. People began speaking of the Facebook Economy. Facebook was considered a platform. Some compared it to the next Windows, Zuckerberg the next Gates (hey, they both dropped out of Harvard, right?).

And each application potentially added more value and features to the site without Facebook lifting a finger. The initial event launched with sixty-five developer partners and eighty-five applications. There were some missteps along the way. Some applications were accused of spamming friends with invites to install them. There were also security concerns and apps that violated the intellectual property of other firms (see the “Scrabulous” sidebar below), but Facebook worked to quickly remove errant apps, improve the system, and encourage developers. Just one year in, Facebook had marshaled the efforts of some four hundred thousand developers and entrepreneurs, twenty-four thousand applications had been built for the platform, 140 new apps were being added each day, and 95 percent of Facebook members had installed at least one Facebook application. As Sarah Lacy, author of Once You’re Lucky, Twice You’re Good, put it, “with one masterstroke, Zuck had mobilized all of Silicon Valley to innovate for him.”

With feeds to spread the word, Facebook was starting to look like the first place to go to launch an online innovation. Skip the Web, bring it to Zuckerberg’s site first. Consider iLike: within the first three months, the firm saw installs of its Facebook app explode to seven million, more than doubling the number of users the firm was able to attract through the Web site it introduced the previous year. iLike became so cool that by September, platinum rocker KT Tunstall was debuting tracks through the Facebook service. A programmer named Mark Pincus wrote a Texas hold ’em game at his kitchen table.Jessica Guynn, “A Software Industry @ Facebook,” Los Angeles Times, September 10, 2007. Today his social gaming firm, Zynga, is a powerhouse, with over three dozen apps, over sixty million users, and more than one hundred million dollars in annual revenue.M. Learmonth and A. Klaasen, “Facebook Apps Will Make More Money Than Facebook in 2009,” Silicon Alley Insider, May 18, 2009. Some of Zynga’s revenues come from apps that run on MySpace or other networks, too. Zynga games include MafiaWars, Vampires, and the wildly successful Farmville, which boasts some twenty times the number of actual farms in the United States. Seth Goldstein, the CEO of SocialMedia, which developed the Food Fight app, claimed that a buffalo wing chain offered the firm eighty thousand dollars to sponsor virtual wings that Facebook users could hurl at their friends.Lindsay Blakely and Michael Copeland. “The Facebook Economy,” Business 2.0, August 23, 2007. Lee Lorenzen, founder of Altura Ventures, an investment firm exclusively targeting firms creating Facebook apps, said, “Facebook is God’s gift to developers. Never has the path from a good idea to millions of users been shorter.”Jessica Guynn, “A Software Industry @ Facebook,” Los Angeles Times, September 10, 2007.

Figure 7.1

Farmville is just one of the dozens of Facebook apps offered by Zynga, a profitable Facebook app specialist with more than $100 million in revenue.

I Majored in Facebook

Once Facebook became a platform, Stanford professor B. J. Fogg thought it would be a great environment for a programming class. In ten weeks his seventy-three students built a series of applications that collectively received over sixteen million installs. By the final week of class, several applications developed by students, including KissMe, Send Hotness, and Perfect Match, had all received millions of users, and class apps collectively generated more than half a million dollars in ad revenue. At least three companies were formed from the course.

Some of the folks developing Facebook applications have serious geek cred. Max Levchin, who (along with Peter Theil) founded PayPal, has widely claimed that his widget company, Slide, would be even bigger than his previous firm (for the record, PayPal sold to eBay for $1.5 billion in 2002). Legg Mason and Fidelity have each already invested at levels giving the firm a five-hundred-million-dollar valuation.Jessi Hempel and Michael Copeland, “Are These Widgets Worth Half a Billion?” Fortune, March 25, 2008. But is there that much money to be made from selling ads and mining data on SuperPoke? Levchin’s firm is working to craft new advertising measures to track and leverage engagement. Just what are users doing with the applets? With whom? And how might advertisers use these insights to build winning campaigns? Levchin thinks Slide can answer these questions and capture a ton of business along the way.

But legitimate questions remain. Are Facebook apps really a big deal? Just how important will apps be to adding sustained value within Facebook? And how will firms leverage the Facebook framework to extract their own value? A chart from FlowingData showed the top category, Just for Fun, was larger than the next four categories combined. That suggests that a lot of applications are faddish time wasters. Yes, there is experimentation beyond virtual Zombie Bites. Visa has created a small business network on Facebook (Facebook had some eighty thousand small businesses online at the time of Visa’s launch). Educational software firm Blackboard offered an application that will post data to Facebook pages as soon as there are updates to someone’s Blackboard account (new courses, whether assignments or grades have been posted, etc.). We’re still a long way from Facebook as a Windows rival, but F8 helped push Facebook to #1, and it continues to deliver quirky fun (and then some) supplied by thousands of developers off its payroll.

Scrabulous

Rajat and Jayant Agarwalla, two brothers in Kolkata, India, who run a modest software development company, decided to write a Scrabble clone as a Facebook application. The app, named Scrabulous, was social—users could invite friends to play, or they could search for new players looking for an opponent. Their application was a smash, snagging three million registered users and seven hundred thousand players a day after just a few months. Scrabulous was featured in PC World’s 100 best products of 2008, received coverage in the New York Times, Newsweek, and Wired, and was pulling in about twenty-five thousand dollars a month from online advertising. Way to go, little guys!Heather Timmons, “Online Scrabble Craze Leaves Game Sellers at Loss for Words,” New York Times, March 2, 2008.

There is only one problem: the Agarwalla brothers didn’t have the legal rights to Scrabble, and it was apparent to anyone that from the name to the tiles to the scoring—this was a direct rip off of the well-known board game. Hasbro owns the copyright to Scrabble in the United States and Canada; Mattel owns it everywhere else. Thousands of fans joined Facebook groups with names like “Save Scrabulous” and “Please God, I Have So Little: Don’t Take Scrabulous, Too.” Users in some protest groups pledged never to buy Hasbro games if Scrabulous was stopped. Even if the firms wanted to succumb to pressure and let the Agarwalla brothers continue, they couldn’t. Both Electronic Arts and RealNetworks have contracted with the firms to create online versions of the game.

While the Facebook Scrabulous app is long gone, the tale shows just one of the challenges of creating a platform. In addition to copyright violations, app makers have crafted apps that annoy, raise privacy and security concerns, purvey pornography, or otherwise step over the boundaries of good taste. Firms from Facebook to Apple (through its iTunes app store) have struggled to find the right mix of monitoring, protection, and approval while avoiding cries of censorship.

Key Takeaways

  • Facebook’s platform allows the firm to further leverage the network effect. Developers creating applications create complementary benefits that have the potential to add value to Facebook beyond what the firm itself provides to its users.
  • There is no revenue-sharing mandate among platform partners—whatever an application makes can be kept by its developers.
  • Most Facebook applications are focused on entertainment. The true, durable, long-term value of Facebook’s platform remains to be seen.
  • Despite this, some estimates claimed Facebook platform developers would earn more than Facebook itself in 2009.
  • Running a platform can be challenging. Copyright, security, appropriateness, free speech tensions, efforts that tarnish platform operator brands, privacy, and the potential for competition with partners, all can make platform management more complex than simply creating a set of standards and releasing this to the public.

Questions and Exercises

  1. Why did developers prefer to write apps for Facebook than MySpace?
  2. What competitive asset does the F8 initiative help Facebook strengthen? For example, how does F8 make Facebook stronger when compared to rivals?
  3. What’s Scrabulous? Did the developers make money? What happened to the firm and why?
  4. Have you used Facebook apps? Which are your favorites? What makes them successful?
  5. Leverage your experience or conduct additional research—are there developers who you feel have abused the Facebook app network? Why? What is Facebook’s responsibility (if any) to control such abuse?
  6. How do most app developers make money? Have you ever helped a Facebook app developer earn money? How or why not?
  7. How do Facebook app revenue opportunities differ from those leveraged by a large portion of iTunes app store apps?