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Facebook is the Perfect Path to Profits for the Pluckiest Programmers on the Planet

EBay’s genesis story relates how Pierre Omidyar’s passion for his girlfriend led to the creation of the planet’s first person-to-person marketplace for purchasing Pez dispensers. Although this story is not true, it does capture the essence of eBay’s earliest usage as a way to find/buy/sell just about anything from broken laser pointers to used cars. In Pierre’s original vision, the site’s main users would be individuals periodically selling to one another using the auction model to arrive at a perfect market-clearing price for obscure, one-of-a-kind items.

However, this is not really what drives eBay today. Instead, eBay is a big business built on the backs of thousands of Power Sellers.  Pierre’s “little auction web site” has in fact enabled an entire group of individuals to exercise their entrepreneurial instincts and recast their expensive hobbies into profitable enterprises. Ebay’s elite group of Power Sellers have been able to inexpensively access eBay’s network of buyers and to conduct sufficient amounts of commerce to allow them to quit their day jobs.

In like manner, I believe that Facebook will be remembered as God’s gift to developers because developers can now convey their code to millions of consumers in a matter of days with no need to raise any VC money, hire a marketing team and/or spend money advertising their apps. This is the real reason for the excitement about Facebook opening up their HIGHLY EFFICIENT word-of-mouth engine to 3rd party developers on May 24, 2007.   While everyone knows that Facebook’s platform and their apps have been wildly successful, many do not know how much money is being made by and will be made by developers.

 Why Developers Have Rarely Made the Big Money From Their Creations

By their nature, most developers are proud of their programming but shy about their financial status. Unlike those sales and marketing types who tend to puff up how successful they are (in essence marketing themselves to the world), the best developers I’ve met would rather let their apps’ architectures and algorithms do their talking. In addition, many of these developers are a bit surprised that they actually get paid a reasonably high salary for doing something that is as much fun as programming.

In my experience, many developers would just as soon turn over the mundane aspects of monetizing their creations to someone else. A developer’s key payoff for the hard work of creating something new under the sun is the knowledge that millions of users are interacting with code they wrote and loving the experience. In the past, this has led to many developers not making as much money from their work as they should have. Instead the big money has been made by those who built the big teams of sales and marketing types that have historically been necessary to build a business around a piece of code.

However, something has been changing recently. Successful engineering-oriented, entrepreneurs have been able to take the money they’ve made in former ventures (e.g., like Peter Theil from PayPal) and provide the seed funding to the next wave of developers (e.g., like Mark Zuckerberg). In like manner, although not with his money but with his marketshare, Mark has now paid it forward by accidentally creating what I believe will become the biggest engine of wealth creation for individual developers ever. The key to this new opportunity for riches is the way in which apps spread on Facebook.

How Apps / Events / Photos / Groups / Ideas Spread on Facebook

Most folks understand that the best advertising in the real world is word-of-mouth marketing.  The reason is obvious.  Whenever a product is so REMARKABLE that a friend decides to REMARK about it you, you know by the very rarity of this type of recommendation to stop what you’re doing and pay attention.  The problem for most consumer companies who want to encourage word-of-mouth marketing is that their products are not really that remarkable and/or most consumers don’t believe their friends will want to hear about their recent, reasonably positive, purchase decisions. 

The reality is that if I had infinite time and I knew at some perfect level in which products all my friends were interested, I could  run around and play the role of marketing maven as they contemplate their purchases.  However, this push-oriented marketing approach is not only impossible but also impolite.  What the world needs is a pull-oriented marketing method that would allow my friends to notice my actions and decide which of these actions were noteworthy to them.  Fortunately, this need has been filled in the form of Facebook’s viral channels, such as Invites, Request, Notifications, Newsfeed Stories, etc.

Facebook is essentially a “Word-Of-Mouse” engine where almost ever action I take creates a little news item that some of my friends might be in the mood to hear about.   Although I can’t read my friends’ minds, Facebook’s algorithms know which of my friends have reacted in the past to which types of my actions.  For example, if every time a certain friend of mine is tagged in a photo, I go and look at this photo, then the Facebook newsfeed algorithms can reinforce this information flow and ensure that that this action is the one item reported to me out of the 499 other items that end up on the edit room floor.

Everything Big on the Web will be Reinvented and Reinterpreted in a Better Form on Facebook

Facebook’s system of trusted referrals that are created without my friend taking any other action than using the normal features of an app has led to certain applications from Facebook like Photos and Events being orders of magnitude bigger than their Web 1.0 competitors.   Even apps written by third party developers have grown to be almost as big as their web counterparts in a matter of months.  Examples include the Facebook versions of the web businesses of iLike.com, HotOrNot.com and BigDates.com.  In fact, BigDate’s Birthday Calendar app, which added 4 million users in 45 days, is already 2 to 3 orders of magnitude bigger than their web business and the company spent $0.00 to promote the app.

The portion of the world’s social graph currently represented by Facebook is 70 million active users strong and will grow to 200+ million by the end of 2008.   To be counted, an active user must have visted the site in the past month.  The amazing fact is that half of Facebook’s active users visit the site EVERY DAY.  While on the site, these active users follow certain routines which expose them to countless actions of their friends.  Curiousity and/or Boredom leads these users to try new things that their friends are finding to be fun, unusual, useful and/or entertaining.  In this process, developers have a chance to get their creations onto the profile pages and computers of literally millions of users.

Unlike a standalone web site or simple download of a new piece of software, a Facebook app doesn’t start at ground zero in its quest to provide the user with a payoff worthy of the time it takes to add the applicaiton.  A Facebook developer can exploit all the information that Facebook knows about you and all of your friends to create an user experience that is instantly familiar and functional.  As Edward Tufte would say, “the computer admistrative debris” is minimized.  As an example, the stunning, instant-on, simplicity of Birthday Calendar is achieved because it is immediately useful without the need to type in all of their friend’s birthdays (which is what the Web 1.0 site requires).

How Developers Can Get Rich On Facebook

The key to real wealth is ownership of assets that passively churn out money.  A Facebook app that is popular with users and is properly monetized is just such an asset.  If you owned a house that rented out for $9,000 per month, you’d make $100,000 per year in passive income.  If you had the ability to build a number of such houses for next to nothing in your own spare time and effort, you would be foolish not to do so. That is the HUGE OPPORTUNITY staring developers in the face on Facebook.

Likewise, to make $100,000 per year in advertising-related income on Facebook, an app would need make $300 per day (i.e., $9,000 per month).  Assuming a $3 RPM (Revenue Per Thousand Page Views), an app would only need 100,000 Page Views per day which at a rate of 10 Page Views per Active User works out to 20,000 daily active users.  This type of app is not that rare within Facebook and we would hear more about Facebook app developers making $10,000 per month from their hit apps if they took the monetization of their apps as seriously as they should.

Hosting services, like Joyent’s, provide a scalable infrastructure that Amazon spent billions on in the Web 1.0 timeframe for monthly fees that are substantially less than 10% of an app’s earning potential from advertising.  Ad networks, like RockYou, SocialMedia, Lookery, AdBrite, AdSense, etc., provide the beginnings of a monetization method that a developer can exploit within minutes.  The barriers to owning, writing, popularizing, scaling and monetizing an app have never been lower.  So, now is the time to start drilling for the ‘black gold, texas tea, oil that is’ that has the potential to make almost any developer a millionaire.

Deciding Which App to Build

If you wanted to be an eBay Power Seller, how would you decide which products to sell?  The smart move would be to study the folks who came before you and apply their success patterns to your venture.  After you’ve grounded yourself in what makes a popular app by looking at what is already popular in Facebook, you need to look elsewhere for inspiration.  Trying to compete with Blake Commagere by building Vampires II is probably not going to work.  Blake owns that franchise and unless he ignores his users for a sustained period of time, I’m confident that he will own it for years to come.

A better strategy is to look in the offline world and in the Web 1.0 online world.  The activities that people spend time doing in these other venues are likely to be similar to what they will want to do inside of Facebook.  While the Facebook platform allows new levels of efficiency and single user reach, the underlying activities of sharing photos, planning events and meeting new people are still an important part of life.  These areas are already represented by some of the killer apps on Facebook.  So, what is missing?

If I were an app developer, I would be building Lead Gen applications.  The act of selecting an app to install on Facebook demonstrates at least as much intent as clicking on a search result on Google.  The key difference is that on Google this act of clicking on a link costs an advertiser between $0.25 and $25.00.  Major brands and Web 1.0 advertisers will happily spend significant development dollars and CPA fees for an app that spreads virally through the Facebook ocean of fish and hooks just the ones that want their product or service. 

Another way of pursuing this LeadGen strategy is to first build an app that attracts a highly targetted following and then offer this app for sponsorship by the primary advertisers interested in your app’s demographics.  To ensure you pick a topic area that advertisers care about and to inform you who you should seek for sponsorship revenue, my recommendation is to build an app that is similar in focus to one of the hundreds of magazines available at your local bookstore.  In the back of each magazine is a list of the advertisers who might pay you $10,000 to $100,000 per month to sponsor your app.

In Facebook: Developers Rule

If you are a developer, now is your time to shine.  Our goal at Adonomics is the help you claim the birthright that is yours.  In the same way that eBay has helped some entrepreneurial individuals to make tens of thousands of dollars per month, Facebook can help the motivated developer achieve a level of financial independence and personal wealth that no other platform provides.  The suite of services we offer are designed to let you do what you do well (i.e., write code), while we do what we do well (i.e., monetize code).  We look forward to working with you to create something great and to make you wealthy along the way.

Thanks,

Lee Lorenzen
CEO, Altura Ventures — the First Facebook-Only VC
(c) Copyright 2008, Altura Ventures LLC.