Facebook wrongfoots its competition Monday, June 04, 2007

The recent announcement by Facebook regarding their Developer API was greeted with delighted, astonishment and horror by different constituencies.

Facebook with its 20 million+ users looks to be a heavenly place in which to build a business, and is reminiscent of the early days of the AppExchange from Salesforce. It too launched with what was then a free and open API with few restrictions on what use developers could make of this service.

However, as Ivan points out on Vecosys, the T&Cs raise some potential issues that could be exploited down the line

1. Facebook can limit you or terminate you at any time at their sole discretion (Section A.3)
2. Facebook reserve the right to impose fees at time and in any manner (Section 3)
3. Facebook can copy and distribute your Application, and analyse the content in order to target advertising (Section 4)
4. Facebook may create similar applications to yours, with no obligation to you (Sectition 4)
5. You can’t use any name or domain name address containing ‘facebook’, even at the third level, eg.g “facebook.xxx.com” (Section 6. C)
6. Be careful what ID you use for your developer account - IDs can’t be transferred or sold on, but nor do there seem to be corporate IDs. (Section 7)
7. Facebook can change the Terms and Conditions at any time, your only recourse if you don’t like this is to STOP USING THE SERVICE
(all sections below)

A cynic might suggest that Facebook could exploit the R&D being undertaken by developers and simply replace the most popular widgets with Facebook ones, and thus avoid their own experimentation. Obviously this might create a serious backlash, but as you may recall it didn't stop MySpace turning off Photobucket widgets recently, albeit as a device during negotiations to buy Photobucket.

Certainly, and as I forecast at its launch, Salesforce has now commercialised the AppExchange and shares in the revenues generating by those offering services on it. For Facebook, why shouldn't they share in the success of those companies that might make great revenues within their realm?

In the meantime, the most immediate question for other social network sites is how to respond - should they maintain "walled gardens", copy Facebook or muddle on with ad-hoc arrangements/facilities. Whilst the first of these provides maximum control, it may leave their users disappointed / frustrated with the offering. The second leaves them looking "me-too" like yet will require considerable effort to implement in most cases, whilst the third suggests lack of managerial vision/clarity (not a quality investors generally seek). A couple of such sites I've spoken to since the Facebook announcement privately concede they were caught on the hop and have yet to determine their strategy.

Do Social Networks really need to engage in an arms ("widget") race? Will users be likely to hop networks for better facilities? Certainly there are barriers to migrating (getting your friends to move too), but increasingly, and as I found recently on Facebook, most people already belong to many such networks and so there's a good chance that you'll find many of your friends already belong to "better" sites.

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posted by John Wilson @ 5:56 PM Permanent Link ,

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Salesforce to make money from AppExchange finally Thursday, January 25, 2007

6 months after posting about Mark Benioff's ("evil") plans to get rich from AppExchange, I learnt this week from a couple of companies on the Exchange that Salesforce will be introducing consolidated customer billing and simultaneously introducing a revenue rake off of what I understand to be 20%.

To my surprise, there hasn't been more comment about this and I am still searching the Salesforce site for the details of the arrangement. Nonetheless, it's beneficial for customers since they now only have one invoicing supplier to deal with rather than many.

As for developers, clearly handing over 20% when you didnt before may feel like a drawback, but I think the early days were simply the free trial and 20% still represents considerable benefit - think of the costs of selling outside of the AppExchange with its' prebuilt distribution channel.

I'm intrigued as to whether Salesforce will simply book the commission or take the whole 100% to top line revenues and show the 80% as a cost of sale. Much will depend on the presentational impact on the absolute values and the ratios in terms of the materiality of the change this introduces.

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posted by John Wilson @ 1:33 AM Permanent Link ,

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