Seth Goldstein

Concomitant with the debate about Facebook’s valuation ($5… $10… $15…$100b…?) is a somewhat more restrained discussion about the value of applications being built on Facebook’s platform and the value of the users that interact with these apps. Despite the fact that more than 40 million people use Facebook– 50% of them daily– there remains skepticism about the long term value of these users to advertisers.

Historically, Social Networks have generated tons of page views but have had a hard time monetizing these impressions. “Professional” content properties focused on deep verticals, such as C|Net and BabyCenter.com, regularly attract $20+ CPM ad rates, whereas “amateur” social media sites like Digg, MySpace and others are lucky to generate CPMs above a few dollars with any consistency.

Three primary critiques have emerged in recent months that call into question the viability of social media being produced on top of open social platforms, exemplified by Facebook:

1. Facebook apps are not real media

A few weeks ago Kara Swisher dismissed Facebook apps as a “children’s hour:”

And if that is all there is, can Facebook really build a viable and long-lasting business on what is essentially a bunch of games that will ultimately become wearying for users? Doesn’t it need more robust apps that actually are useful and relevant and make Facebook the service that Zuckerberg has often told me was a “utility”?

Kara suggests that real social media apps would be robust, useful, and relevant; not the inane, ephemera of super poking, graffiti walls and food fights. Despite the apparent lack of utility of Facebook apps, they are exceedingly popular. Take Slide’s suite of apps (led by TopFriends), or Rockyou’s, or Grafiti, or the hundreds of apps across our Social Media network- together all of these apps are generating hundreds of millions of page views each day. And none of them existed six months ago. It is curious to think whose media is being displaced by all of this new attention: Are people turning fewer pages on MySpace? Spending less time reading blogs in their feedreaders? There is little doubt, in 2007, that MySpace (Fox) and Blogs are legitimate forms of media. Which begs the question: is media defined based on something innate in terms of its form, or is it instead defined based on its usage?

There are interesting parallels to Facebook apps t0 be found in the recent history of blogs. In 2003 and 2004, blogs were dismissed by traditional Internet media as being nothing more than narcissistic ruminations about the vagaries of everyday life. After all, who really cared about what Fred Wilson listened to at his Amagansett beach house? Flash forward a couple of years and blogs have become big business. Although my blog and your blog together might only generate a few dollars a month via AdSense, “professional” blogs such as Huffington Post and Engadget are generating millions of dollars of revenue and taking reader-share from NYTimes, MSNBC, and others. John Battelle and his team in Sausalito are building a viable media franchise representing premium blogs such as BoingBoing to advertisers looking to participate in “conversational media.”

Just like the post is the expression of the blogger (and the article is the expression of the journalist), so the app is the expression of the developer. Unlike blogs and traditional Internet media sites, however, apps do not provide content. Instead, they provide a structured, social environment where content can be created. The media, in this case, only comes to life through the social interaction of two people. Facebook’s open social platform is a printing press not a book. The app is the book in the social media universe. Just as with books, apps focus on certain themes and relate to specific audiences. The author of the app- ie the social media developer- publishes code that facilitates a certain kind of collaboration among a target group in her social graph.

The first products of this new kind of printing press may well end up looking trite and ephemeral, with the benefit of some longer historical perspective.  But so were most of the first books, and Internet sites, and blogs.  But there is no doubt as to the viability of even these early experiments as legitimate media properties.

Coming next:   #2: “Facebook apps are all head, no tail.”

At the end of July, roughly two months following the opening of Facebook’s social media platform, I wrote that “Closed is the New Open.” I anticipated that Facebook would enable tremendous innovation by virtue of how few options it provided for expression as opposed to how many. In the roughly two months since, developers have harvested the Facebook social graph to create a veritable rain forest of myriad applications.

The original sin of social media may be remembered by future generations as the moment when poke and wall exposed themselves at the Facebook Platform F8 event in SF on May 24, 2007.  Against the backdrop of an open social graph API, these core functions suddently enabled 3rd parties to create entirely new forms of social interaction: “Who do you want to XXX now?,” “Wanna send a XXX to your friend?,” “Who is XXXer?,” “What do you want to draw on your friend’s XXX?”

Platforms

A platform’s success is based on its generosity: how many sustainable applications have been built on said platform?

For an embodiment of a successful platform, cf Dave Morin, the authentic leader of Facebook’s technical platform. When you sit down with him, you are struck by his commitment to openness and providing all applications with a level playing field. He combines the intellect of an economist with the empathy of a sociologist. Any fear a developer may be wrestling with in terms of whether to base their business on Facebook, melts melts away in Morin’s disarming presence. You think to yourself, “Geez, sounds like these guys at Facebook are genuine- the platform is open.”

Applications take what the platform gives.

Applications

The success of an application is based on its ability to consume, to take, information from a platform and interpret it specifically for a user’s benefit. In media futures speak, the Facebook platform exposes an API which creative developers use to infuse their apps with a certain alchemical magic, otherwise known as engagement.

Perhaps the best personification of a successful application is Max Levchin, the intense, “nothing will stand between our engineers and N consumers” CEO of Slide. Slide is the biggest application suite on the Facebook platform. Max wastes little time at conferences educating others, as he seems to prefer notating on a whiteboard about optimizing viral growth paths. If Morin is like Jeff Sachs the world economist– working hard to reassure countries that he will promote free trade– then Levchin is like Dmitri Balyasny, the hedge fund trader who stays under the radar while managing vast money flows.

Advertising takes what the applications give.

Advertising

While apps take from the platform, they give to advertising. The 10-year procession of online advertising models from when banners first appeared in 1995 to today’s behavioral targeting, can be seen simply as an emerging ability for web sites to share more about what they know about their users with the advertisers that want to reach those same users. This is the apogee of what I shall describe as personal advertising, which is all forms of advertising that try to market to you based on who you are, what you have done, and what your commercial intentions may be. All advertising today, more or less, falls under this umbrella.

Recently, I have been working on a different kind of advertising, social advertising. This is when the ads you see aren’t simply influnced by your behavior, but in fact are driven by the behavior of those in your “friend group.” This was never possible before a social network such as Facebook enabled new kinds of applications that could carry social graph information up into the advertising layer of the online media stack. These kinds of ads take the value of rich data about social influence (which is extracted from the applications) and pays this value back to the underlying platform, which benefits in the form of increased CPM. I will have much more to show and tell about social advertising next week at the Web 2.0 conference. One thing that should be self evident is that the only forms of advertising that work inside of social media are social advertisements.

The most desperate attempts that personal advertising continues to make in order to capture my attention not withstanding:

* For a powerpoint-icized description of Social Advertising, see the brief presentation I gave at Dave McClure’s excellent Graphing Social conference this week

Check out Justin Smith’s live blogging at InsideFacebook