Umair Haque / Bubblegeneration

Wednesday, September 19, 2007

Facebooked Redux

Lots of heat about my Facebook post yesterday.

Let me try and clarify by distilling a few key points.

1) What is the F8 platform? I'm not sure. Why? Because, from an economic pov, Facebook already has a platform; a multi-sided asset. There are two sides of users already: connected consumers, and advertisers. By seeding a widgets ecosystem, Facebook is adding a third side.

Very few players in history, as far as I know, have had three sided platforms. That's not to say it can't be done.

But it does beg the question: why? How does adding a third side to the platform create value?

2) Because unless either connected consumers or advertisers are willing to ultimately pay for widgets, this is not a rational strategy.

3) Do widgets (really) add value to Facebook? Look, I agree - they're cool. But where are the ouctomes? The marginal benefits are likely very small - something like maybe on the order of 10% extra consumption (ie, time spent, engagement, page views, whatever).

And remember - if we're rational, it's the margin we're interested in.

4) Now, the point is, who should pay for that marginal value creation? Venture funds, angel investors - or advertisers?

If the value created is really that small, widgets paid for by advertisers are a far more efficient outcome.

5) Facebook, I think has gotten wrapped up in econ 101 games of network strategy. You know, commoditize your complements, etc, etc.

But instead of seeing widgets as a separate, third side of the platform, and then subsidizing them, Mark Z should have realized that widgets and advertisers are one and the same side of the platform.

That is, widgets from advertisers are really the second side of it's platform: advertisers will subsidize widgets, because they have a massive incentive to build widgets that create value.

See the convergence? Here, we begin to see a redefinition of marketing: 'ads' that benefit people.

But now, Facebook's platform - and it's ability to create value - is wierdly fragmented. Obviously, Facebook could still do something interesting - an open platform for advertisers to subsidize widgets, etc. Now that would be cool.

-- umair // 10:34 AM // 3 comments

Comments:

Umair, thinking that the addition of widgets to the Facebook ecosystem will only result in an "on the order 10% increase in consumption" will prove to be a error on your part.

I can personally tell that the use of widgets has increased my time spent "on platform" (i.e., lending my attention, which Facebook and widgeteers can tax as they determine) by far more than 10%.

And if you're wondering what the platform is about: tt's about strangling potential attention diverters in their cradle, by bringing them onto the platform where Facebook can share in the attention they capture.

E.g., Mark Pincus launched a Poker application that you ties in to the facebook platform. This has effectively dampened the ardour of the marginal entrepreneur to say "Hey, all these poker sites like Party Poker do a crap job of letting you leverage your social graph to play your friends and enjoy poker playing..." and proceed to build that web app, which would then compete with Facebook for "share of waking attention."

The facebook platform, by being "good enough", like MSFT before it, has strangled a lot of probably better pure-play applications in their infancy.

Case in point: I can post my vacation videos to YouTube, or I can post them to Facebook. I choose to do so to Facebook because i know that my friends will get instant distribution of them in their feeds, that commenting is based on a robust identity system, thereby preventing in large part the bile-laden, neanderthal commenting that anonymous commenting typically produces (see YouTube and Digg), and that, guess what, I was already on Facebook when the idea to upload them from my machine hit me.

Sure, I don't think that the Video application yet offers embeds for other sites, and that's a marginal debit compared to YouTube.

But guess what: it's good enough.

Just watch. The hyper-verticalized ad network that MySpace just demod in the NYTimes? Facebook's cooking up the same thing.

Want to pay $100 CPM to deliver a message to Ivy-league grads working who live in San Francisco? Guess who can offer that? Facebook can.

You're VMware and you want to deliver a recruiting video to fully vested Google, Paypal, and eBay engineers living in the Bay Area who are ages 26-34? What sort of CPM are you willing to pay? $200? What's your alternative? A room full of recruiters fully burdened at $50 an hour, scouring linkedin and dialing for resumes? Paying $.20 a pop to get your message to those guys? Or do what Google did: rent a billboard on 101 with a math problem on it for god knows how much a month, in hopes of getting 100 engineers who could answer it? Same outcome. Which one is more effective?

There's a lot to be done here, and Facebook has a lot of brainpower and capital behind it to do it.

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Pete Kazanjy // 5:19 AM

aaahh this post is a lot easier to digest I like your insights on the marginal benefits of the widgets. If the margins are so small why in the world try to push them? An added incentive to align the interests of widget makers and advertisers should fuel more creative and sustainable productions.

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sinjin lee // 9:29 PM

Great Post Umair

You hit the nail on the head in relation to advertisers subsidizing applications - we're doing that right now with advertisers - we are providing the applications on a shared risk/reward model.

Talk Soon
Fergus

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fergus Burns // 5:46 PM