Monetizing Facebook applications

This is a guest post from Jawad Shuaib, co-founder Shuzak ("a social network for geeks") and, more recently, the developer of the Facebook application, "My Favorite Books".

With Facebook's new platform reportedly attracting 1,000 developers a day in its first month, I thought it would be interesting to hear one developer's story of the challenge faced when trying to generate revenue from a Facebook-only application.

Thousands of developers have signed up for Facebook's groundbreaking API's released just four weeks earlier. So far, popular applications have been mashups between user profiles and music, video, or just for fun applications (i.e. Free Gifts, Horoscope, Graffiti, etc). A handful of developers have managed to rake in hundreds and thousands of users, without any explicit marketing, due to Facebook's inherently viral platform. Majority of them, however, have not attempted to leverage their applications for earning opportunities. Seeing an untapped opportunity before us, a few have begun developing applications to monetize and build startups on top of Facebook's platform.

The opportunity to monetize applications was a result of Facebook's decision to allow developers to display unlimited advertisements. On par with advertising as a source of income, some developers, like myself, have come to prefer the use of affiliate links (finding leads for eBay, Amazon, etc) instead. Part of the reason is that Facebook does not allow developers to embed JavaScript within their code; hence making it difficult to enable Google Adsense for the content. Moreover, as is the case with MySpace, contextual advertising is not targeted enough to earn sizable revenues.

My own application is a mashup between Facebook and Amazon API's to recommend, share, and comment on books. The "My Favorite Books" application is designed to earn through the 4% profit earned off every successful referral to Amazon. Combine this with Facebook's 24 million active users and a business model instantly emerges.

Future plans for "My Favorite Books" could be to expand on the affiliate model by providing users the opportunity to monetize their own profiles through revenue sharing. Nevertheless, a healthy balance between providing users a much needed application and earning opportunities is required for it to grow by word-of-mouth. There are, however, a few concerns regarding building a business on top of Facebook. Developers worry that Facebook applications will lose their "hype" too quickly. Any new feature cannot remain viral indefinitely, and this is certainly the case with some people on Facebook who already feel overwhelmed with application invites. The setting is similar to MySpace wherein the hype around MySpace bulletin lasted less than three months. It is likely that as more and more companies develop applications for Facebook, the signal to noise ratio will become overwhelming for the users to spread applications by word-of-mouth.

There are other reasonable reasons to be concerned. Most developers, like myself, are single founders in their early 20's; the lack of experience combined with inherent troubles with expanding a business might be enough to discourage most developers later in the product development cycle. There are also concerns that Facebook might change its policies regarding affiliates, referrals and advertisements by cutting in on the profit, or even worse, deciding to develop their own competing applications.

Regardless of the potential downside, Facebook presents an untapped opportunity that will see increasing activity within the blogosphere for the coming months. Facebook's bacterial growth is predicted to someday surpass that of MySpace itself. For developers and businesses alike, this is an opportunity that is well worth exploring. Wish me luck.

Thanks Jawad, and good luck!