The platform should be making more than Facebook--for now

That Facebook's third-party developer platform reportedly outstrips the social network in revenue shouldn't be a surprise; Facebook hasn't yet put a monetizing strategy in place.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
3 min read

You'd think, based on what the blogosphere is saying about dual sets of numbers in Advertising Age and VentureBeat, that Facebook has a new reason to freak out about revenues. Namely, signs point to the fact that the third-party developer platform that Facebook launched two years ago now collectively makes more money than the social network itself.

Well, of course it does.

From some of the headlines, you'd think that it were some sort of Silicon Valley equivalent of humans creating robots that eventually outstrip them in intelligence. While it's sort of amusing to think about Facebook CEO Mark Zuckerberg battling evil robots (cue up some Flaming Lips here), this actually should be a pretty unsurprising conclusion. Estimates indicate that the platform applications put together may make as much as $500 million in 2009, with the advertising-based Facebook pulling in $350 million to $500 million depending on who you ask. (It's a private company. They're allowed to answer that question with nothing more than sneaky smiles.)

Let's look at the latest (vague) figures. When Facebook announced the debut of its long-awaited "verified apps" program last week, the company said there are now more than 52,000 applications on the third-party developer platform--and counting. That's a lot. In other words, if the Facebook platform were a standalone business, I should certainly hope it would rake in a significant amount of money.

Granted, we'd have to crunch a lot of numbers and deal with a lot of variables in order to figure out the exact operating expenses and headcount of the platform. Some applications are created by lone developers living rent-free in a basement, whereas others are created by app development companies that employ dozens of people and pay hefty amounts of cash for office space in those trendy post-industrial lofts in dot-com-friendly neighborhoods.

It gets more complicated. Some apps are the Facebook-inhabiting arms of much bigger social media companies, or are branded advertising or marketing campaigns on behalf of corporations that otherwise have zilch to do with tech. Then there are the development firms, consultants, agencies, and countless investors who also have a stake in it. Facebook itself, last time we checked, still had fewer than 1,000 full-time employees.

Conclusion: I don't know how many people and companies can claim to be on the Facebook platform's payroll, but it's a lot. And considering the platform as a whole has been much more adventurous with revenue strategies than Facebook itself has, I should certainly hope it's been raking in the cash for some time now.

So then there's the assertion brought up by AdAge's Michael Learmonth, that Facebook is pretty much sitting on a goldmine here. Which brings back the evil-robot thinking. Once again, Facebook is dealing with a massive and extremely diverse set of individuals and companies here. Social games manufacturer Zynga may be rolling in cash, but there are loads of other apps on the platform that don't make a cent. Has Facebook let the platform get too big and too amorphous for it to wrangle decent revenues out of it? ("I'm sorry, Mark. I'm afraid I can't do that.")

Which is why there are two things to watch here. One is the rollout of Verified Apps, which may have some unannounced or even under-the-table benefits that Facebook hasn't hinted at yet. Facebook's key terms for Verified Apps acceptance are "trustworthy" and "meaningful." But I wouldn't be at all surprised if "can make money, and can help us do so, too" is an unspoken criterion. Verified Apps will give Facebook the opportunity to work closely with a much more uniform and manageable set of developers and companies who have already shown a decent degree of loyalty to the social network.

Second, there's Facebook's finally-coming-soon (or is it?) Holy Grail of revenues, which is either a virtual currency system for developers or a PayPal-like transaction platform, or maybe a bit of both. The latest signs indicate that Facebook will be expanding the "credits" system it uses for its in-house Gifts application to select developers. Beyond that, it's not clear how it will expand.

With both a potential monetization strategy in place, and a policy (Verified Apps) to keep it from turning into a free-for-all that could start eating up cash rather than pulling it in, Facebook is all set. Or, if you prefer the hyped-up version, it almost has the arsenal in place to take on those evil robots.