Developers' Big Decision: Whether to Bet the Farm on Facebook

Today's developers are all too aware of the dangers of vendor lock-in when choosing an application platform. Want to write apps for Apple iOS? Better learn Objective-C and the terms of the iTunes App Store. Android? That'll be Java coupled with Google's online infrastructure. Windows? Get ready to go exclusive with the likes of .Net, Visual Basic, and C#. None of these platforms makes it easy to port software to the others.

Now a new kind of development platform is emerging, one that takes the "walled garden" concept to a whole new level. Social networking sites, which are rapidly supplanting search engines and Webmail services as the home pages of the typical consumer, offer unique new opportunities for developers to tap their vast, interconnected audiences.

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The most prominent is Facebook, which already has more than 200,000 registered developers and nearly 60,000 apps available for its platform, according to the analytics consultancy Adonomics. Google has no similar program for its brand-new Google+ service as yet, but it says to expect developer tools in the near future.

It's not hard to see the appeal of these platforms for developers. Facebook claims more than 750 million active users, while Google+ reportedly pulled in 10 million users in just two weeks, despite its status as an invite-only field trial. And as anyone with a Facebook account can attest, social network users love apps. The typical Facebook news feed is awash with game status updates, surveys, quizzes, ratings, and tie-ins to other services. Adonomics values the total Facebook apps market at $269 million.

But how good an opportunity are social networking apps really? If the thought of being rejected from the iTunes Store rankles, consider how much more control Facebook wields over its ecosystem. Platform functions can be withdrawn, terms of business can change, and access to data can be limited or curtailed, all at Facebook's sole discretion. Any one of these changes could pull the rug out from under a well-conceived business plan. It's enough to make you wonder: Are social networking platforms worth the risk?

Facebook holds all the cards
The ultimate litmus test is already under way. Zynga, developer of the popular Facebook games FarmVille, FrontierVille, and Mafia Wars, among others, is a current darling among the latest round of high-tech IPOs. In its pre-IPO filing with the SEC, Zynga revealed it earned almost $600 million in revenue from its games in 2010, and $235 million in the first three months of 2011 alone.

More startling, however, the game maker admitted that it generated "substantially all" of its players and revenue through Facebook. Ties between the two companies are so close, in fact, that Business Insider goes so far as to say Facebook basically owns Zynga.

Further examination of Zynga's amended SEC filings reveals that its relationship with Facebook does indeed seem unusual. For one thing, as part of its dealings with the social network, Zynga has agreed to have Facebook be the exclusive social platform for its games, both on the Web and on mobile devices. In addition, every Zynga game player must have an active Facebook account.

In exchange, Facebook has agreed to some revenue-sharing opportunities from advertising, as well as facilitating some user-personalization capabilities for Zynga games. Most significant (to Zynga as well as other game makers), Facebook is forbidden from developing and deploying games of its own. The full nature of the relationship between the two companies remains secret, but it's clear that each has made significant commitments to the other, at least through 2015.

Facebook also makes the rules
None of this bodes particularly well for smaller developers. Even given the special relationship between Facebook and Zynga, a close read of Zynga's SEC filings gives the impression that the scales are tipped significantly in Facebook's favor. That goes double for any developers whose relationship with the social networking giant isn't quite as cuddly as Zynga's, based on Facebook's past handling of its developer program.

Zynga derives the largest portion of its revenue from sales of in-game items. In the past, that meant players could purchase items either via direct credit card sales or through various third-party payment processing companies. (In 2009, Zynga was PayPal's second largest merchant.) But that all changed in 2010, when Facebook told developers they would need to transition to the social network's proprietary Facebook Credits currency as their exclusive payment system. Zynga completed the transition in April.

The upside is that the new scheme dramatically reduces developers' payment processing costs by cutting down the number of payment vendors. The downside is that Facebook skims 30 percent off every Facebook Credits transaction. In other words, Facebook now lays claim to 30 percent of the revenue of any developer that relies on in-app sales.

But suppose you want to monetize your apps in different ways, such as advertising. Facebook retains the right to decide how you can do that, too. In March, it published an exclusive list of ad networks that had agreed to a 12-point list of terms. Among those excluded under the new rules was AdSense, the ad network operated by Facebook archrival Google.

Facebook has demonstrated a similar willingness to change or withdraw platform features unilaterally. For example, in 2010 it did away with a method for apps to send notifications to their users -- to let you know when it's your turn at Scrabble, say. And every Facebook user knows how frustrating it is when Facebook rolls out yet another UI overhaul, out of the blue.

Is the game rigged?
All of these factors suggest a fairly volatile market for independent developers, and that's to say nothing of the volatility of the Facebook platform itself. Remember MySpace? Or Friendster? Big social networking sites are still a relatively new phenomenon on the Web, and history suggests users are a fickle bunch. For Facebook, the most obvious cloud on the horizon is Google+, but who knows what next month may bring?

For now, all signs point to a successful IPO for Zynga. What lies beyond that horizon is anyone's guess. Although some analysts have scoffed at what appears to be Zynga's "utter dependence" on Facebook, another interpretation is that Zynga has inked deals that restore at least some semblance to stability to what otherwise seems to be a very shaky marketplace. It may in fact make sense for Zynga to place all its eggs in Facebook's basket -- at least until its contract with Facebook runs out in 2015. Smaller developers who aren't in a position to forge similar partnerships, however, would be advised to tread very carefully -- especially considering they will have to compete with the likes of Zynga.

This article, "Developers' big decision: Whether to bet the farm on Facebook," originally appeared at InfoWorld.com. Read more of Neil McAllister's Fatal Exception blog and follow the latest news in programming at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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