Posted by: Douglas Macmillan on April 27, 2009
On Monday, the world’s largest social networking site opened parts of its code to the public. Now, third-party developers can build Facebook applications that will let users post status updates, share pictures and links, and interact with most other elements of the site without ever visiting Facebook.com. Apparently, the company is prepared to lose gobs of traffic and, in turn, revenue from display ads on the site.
Using the new Facebook Open Stream API, hundreds of software developers are likely to build thousands of different Web sites, desktop clients, and mobile apps that will function as personalized windows into the Facebook universe. Hardcore users will get a real-time feed of status updates from their friends; photo-lovers will find new ways to tag and geo-locate images; news hounds will be able to see a list of the most popular articles shared amongst their friends. “You’re going to see people creating a lot of different means of interacting with what is ultimately this incredible engine of communication which is Facebook,” says Mashery’s Oren Michels, who has helped companies like Best Buy open their own platforms to third-party developers.
Sound familiar, Twitter users? An open platform for most of its three-year history, the popular microblogging service has cultivated a colorful ecosystem of third-party applications, from desktop program Tweetdeck to investor community StockTwits. With so many great apps available to them, Twitter users now post messages using these services with greater frequency – 55%, according to one estimate – than they do on the Twitter.com site itself.
Outsourcing so much traffic may work for Twitter, a company which has hinted it doesn’t intend to base its business on ads placed on its home page. But at Facebook, display ads on the home page make up a bulk of the $300 million the company is projected to take in this year. If a slice of the site’s 200 million active users start relying on some third-party app rather than visiting Facebook.com, revenues could take a hit.
Ethan Beard, Facebook’s director of platform marketing, disagrees. “What this will do is increase the amount of sharing, and give [users] the control and ability to share anywhere,” he says. An overall increase in the amount of sharing, he argues, will drive more visits to the home page and user profiles. “That drives advertising,” he adds.
But reading into what Facebook executives have said about the future of advertising on the social network, it appears that the company is planning to replace the revenues it will lose from banner ads with a new type of revenue: in-stream ads, which would appear alongside status updates and other “news stories,” even on third-party apps. “I think that’s their plan,” says Loic Le Meur, the entrepreneur behind Seesmic Desktop – the first application to take advantage of the Facebook Open Stream API. He adds that this is his personal belief, and not based on inside discussions with the company. (David Swain, a Facebook spokesman, says “we have no current plans” for pushing ads to third-party apps.)
During her recent visit to New York, Facebook COO Sheryl Sandberg told attendees of the AdAge Digital conference that banner ads “interrupt your experience,” and shared with BusinessWeek editor-in-chief Stephen Adler that text ads “are really part of the search experience.” While the social network does carry both banner and text ads, the company has recently experimented with campaigns from Honda and Ben & Jerry’s, which saw users voluntarily interacting with those brands and posting “news stories” about them in their activity streams. “So the advertising experience itself is very integrated into the Facebook experience,” Sandberg told Adler.
For the reasons Sandberg outlines, in-stream ads are intriguing – even more so if they could be pushed to a network of hundreds of Facebook applications. But is there any market for them? eMarketer senior analyst Debra Aho Williamson is doubtful. “If Facebook is smart, it’s going to make sure there are ways to keep people coming back to the site,” she says. Williamson suggest that the company could find other ways to profit from outside developers, such as charging them a fee or allowing marketers to search and analyze conversations happening on their applications.
It may take a year or more for third-party applications to siphon off a significant portion of Facebook traffic. And by that time, advertisers may be keener on experimenting with in-stream ads.
Then again, the site may not have so much time before third-party apps come into their own: Only hours after Facebook announced the Open Stream API, four Twitter developers told me they were already thinking about how they can use the Facebook code, including the makers of Tipjoy, Twittervision, http://www.twitterhawk.com/, and Bit.ly.