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Social Media: Facebook commoditizing the social map June 13, 2007

Posted by jeremyliew in business models, Consumer internet, distribution, facebook, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
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Facebook is transforming a lot of social media companies right now with its platform release, and its getting a lot of well deserved coverage.

Marc Andreessen put up a good post yesterday analyzing the facebook platform . He comes up with a few interesting conclusions which I paraphrase below but you should read the whole thing.

1. (Open) Platforms always beat (closed) applications, therefore Facebook platform is a winner and an advantage over Myspace

2. Facebook did a pretty good job of it.
– Its technically sound
– Its highly viral
– Third party widget/app developers have economic freedom to keep 100% of revenues

3. If you’re not large or careful success can beget failure as usage volume overwhelms your servers

4. Underground apps are being released outside the Facebook application directory (due to issues or bottlenecks with application approval)

and they need to find an alternative way to seed their growth

On 1. and 2. I agree, but with a quibble. As Seth Goldstein points out:

In 1999 I sat down with Brad Silverberg of Ignition VC who Microsoft recruited out of Borland in the early 90’s to become the lead developer and project manager of Windows 95. Never has there been a more valuable platform. He described 3 things that platforms needed to have:

* wide distribution
* application developers making money
* good tools

Let’s test those three axioms against the preeminent platform play of our time, Google:

* Wide distribution? YES
* Application developers making money? YES (if you count all the adsense publishers)
* Good tools? YES (all the adwords and adsense self-service goodness)

Now let’s test these axioms against Facebook:

* Wide distribution? YES
* Application developers making money? NO (at least not yet, I will comment on 3rd party Facebook developers such as Slide, Rockyou, and AttentionSoft)
* Good tools? YES

Marc is right that app developers can keep 100% of the revenue that they make, but today that revenue isn’t much. As I’ve commented before, we need a standard for social network advertising, and until that standard emerges, ad revenue growth will be slower. But this will come in time, and so we can expect the Facebook platform to grow as well.

Unsurprisingly, the other big social networks (not just Myspace) have been rocked by the success of the platform and are all racing to build competitive responses.

On 3., where Marc seems to primarily base his conclusion on iLike’s experience, I side with James Hong who says:

I disagree with this. iLike’s application may have been particularly heavy, but it is not inconceivable (in fact I think it is more likely than not) that people will come up with massively popular apps that are not as machine intensive as ilike’s particular application might have been. Combine that with the fact that facebook allows advertising, and the fact that managed hosting companies exist, and i think it is quite feasible for 2 guys and an idea to scale.

Two of the companies I’m invovled in, Flixster and Rockyou, combined have four of the top twelve apps on Facebook. They have certainly worked hard to keep up with load issues, but none of them have struggled as much as iLike, partly because iLike has so many users, partly because they were already scaling outside of Facebook, and partly because their apps are lighter weight.

On 4. I think Marc overemphasizes the importance of being in the application directory. While we techcrunch readers obsess over the directory (I reload it at least once an hour when I’m at my PC!), the data I’ve seen suggests that the key drivers of virality are (i) profile virality (ii) invite virality and (iii) feed virality, with very little growth coming from the application directory at all.

However, to me, the most important part of the Facebook platform is that it commoditizes the social map. A lot of social media companies have built their value in creating a social map. For many broad based social networks, where communication and self expression are the key activities, the social map largely IS the value. When I was at AOL a few years ago and social networking was just beginning, we considered opening up the AIM friends list as an API to commoditize the social map and allow others to build on top of it (we didn’t do it in the end… sigh…). These companies are most threatened by a world of commoditized social maps.

What this forces social media companies to do is to build value on TOP of the social map. Yelp does a great job of this – the byproducts of their members communication are rated merchant reviews, information that has lasting value. For Flixster it’s movie reviews and ratings. For Rockyou, its photos. For iLike, music preferences and affinities.

Not all facebook apps build value on top of the map, and despite their virality, they are the ones that may be the most business model challenged on a standalone basis. Examples here include Slide’s Fortune Cookie, Rockyou’s “x me” and Graffiti. While these may have value for distribution or user acquisition, they don’t add much value on top of the social map, despite their popularity.

I’d be interested in hearing from readers examples of other apps that both DO and DO NOT add value on top of the social map.

Comments»

1. Social Media: Facebook commoditizing the social map  »Technology News | Venture Capital, Startups, Silicon Valley, Web 2.0 Tech - June 13, 2007

[…] Source:Lightspeed Venture Partners Blog Facebook is transforming a lot of social media companies right now with its platform release, and its getting a lot of well deserved coverage. Marc Andreessen put up a good post yesterday analyzing the facebook platform . He comes up with a few interesting conclusions which I paraphrase below but you should read the whole thing. […] Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. […]

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5. james hong - June 13, 2007

it commoditizes the social map at the point when facebook has an effective monopoly and dominates the world.

i’d give it about 2-3 years.

6. Dave McClure - June 13, 2007

great post jeremy.

it’s amazing to me that Google & Yahoo & Microsoft didn’t figure out the opportunity here first, but there’s no doubt that Facebook has totally beaten them to the punch.

most people think about Facebook as an underdog against MySpace that’s catching up… but the real story is they’re about to kick the big 3 in the ass as the dominant web service / platform.

i agree with Marc… Facebook Platform is a WATERSHED event in the overall history of the web. total gamechanger, and people are just starting to wake up to the potential here.

the next few years are going to be fun to watch😉

7. Anil - June 13, 2007

Jeremy – you made your most important point right at the end. Would love to read a more detailed post on that. Apps like XMe, graffiti, etc. are what I term “toys”. They add “amusement value for 2-5 days and then they get boring. The real apps are ones like iLike or Flixster that provide real value on top of the social graph.

I have now noticed people removing these apps from their profiles. Another thing to consider when building platforms is which of your current apps will get cannibalized. For ex. FB seems to have accelerated the death of its gift product with the launch of Free Gifts.

8. Alan - June 13, 2007

Please forgive me if this sounds a little naive, but given Yahoo’s userbase and content offerings, which includes music and photos, wouldn’t it make sense for them to create a social network for their registered email users? I tend to think that Yahoo’s email user base would have take such a function easily since most of their contacts are friends and families. Thoughts on this would be great.

Thanks!

9. Andy - June 14, 2007

Totally agree on this Jeremy. A few months ago I wrote a post on my blog about why I was long a site like Yelp but short Facebook – because Yelp provided value INCREMENTAL to the network itself. There is a good article on this written in 2004 from when Yelp came out from an obscure site in the UK of all places…

http://www.theregister.co.uk/2004/10/13/viral_yelp/

The article argues that the problem with an online social network is that once you and I are connected in the real world, we don’t really need the network anymore. (That’s why I interact the least in a social network with people who I see normally the most.)

That totally changed with F8 – for all of the reasons that you point out. They’re now going to build the ultimate social network – because the value will begin to depart meaningfully from just the social graph itself. For example, I now no longer need to look up concerts coming through town because of iLike. Soon, I will know what all of my friend’s restaurant recommendations are instantly.

Speaking of which – my question is this: why isn’t Yelp building an application on top of Facebook? I think the dominant local search company may now be built on top of the network.

I also don’t totally agree that 100% of revenues derived should go to the developers. Shouldn’t there be some kind of economic rent for the value of the social network? Alternatively, if the advertising is going to be that good, maybe they’ll be okay in the long run.

I think Facebook will be $8 to $15 billion in market cap in five years, and has a tiny chance of breaking out beyond that.

10. Chris - June 14, 2007

Anil, I was just about to mention Free Gifts.

Let’s not forget that commoditization means lower margins. The PC is a commodity, but what runs it (Windows) is not. Facebook would be better off as the primary enabler of commodity.

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12. jeremyliew - June 14, 2007

James – word

Anil – you presume that I have more detailed thoughts to give! Flattering but sadly not currently true

Alan – I think you should watch Y! closely as I suspect that they will be looking to build off of existing maps (email, groups, IM etc)

Andy,

Yelp does have a small app on FB. The apps that have grown fastest on FB have been viral on invite and on widget view, whereas Yelp is viral on SEO, so it may not be the perfect fit

13. deepforest - June 15, 2007

check out Connections,
one of the more sophisticated facebook apps:

http://apps.facebook.com/connections/

14. Chris - June 15, 2007

You argue that the true value in social-networks is building value on top of the commoditized social map. However, something you don’t mention is the fact that building application after application on top of the social map can deplete its value — the potential of the social map deteriorates, as well as the value created by these applications. This is something I explore on my blog (linked) if you’re interested.

15. sam - June 15, 2007

Great post Jeremy but I think you’ve got the wrong term in the title – I see Facebook Platform as ubiquitizing the social map, not commoditizing it.

I take commoditizing to mean that many companies will “own” a map and thus there will be no inherent value in such a map. But in the case of FB, they’ll own THE map (maybe, eventually the Only Map).

However, this map will be accessible through many different applications, and thus, social map-enabled apps will become ubiquitous.

I feel that another result of this is that non-Facebook social maps will become far less valuable, especially ones built for a specific purpose, be it travel planning, dating, business networking, stock picking or fantasy sports. The “cost” of a user maintaining multiple social maps simply isn’t worth it (maintaining one is hard enough!)

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20. somayeh ameri - November 11, 2007

dear/sir
hi i am student . I need some information and index about “social map” in countries can you help me?
You know I did some research on the Net but I couldn’t find any useful and information on it.

You’re sincerely
Somayeh ameri from Iran.

21. Monty - September 11, 2008

Check out the Corporate Social Map example and download the whitepaper at http://www.aheadoftime.de/2008/09/09/corporate-social-map/


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