In financial disclosures, Facebook has warned investors that a fundamental challenge in its business model is finding the balance between the “frequency, prominence and size of ads and other commercial content we display” with its user experience. While Facebook is under intense pressure from Wall Street to turn its massive audience into growth in advertising revenue, a lot of the changes that rattle firms like Viddy seem to be more related to Facebook’s attempts to retain users.
Viddy’s implosion has been spectacular – it fell from 35 million monthly users at its peak last year to half a million recently, according to Appdata.com, a tracking service.
But the collapse is not unique. Branchout, a business networking service built on top of Facebook, raised $25-million last April from A-list backers including Accel Partners. But now it languishes with just 100,000 monthly users on Facebook, down from a high of 39 million, after Facebook limited the automatic notifications that Branchout used to attract users.
The poster child for fallen Facebook stars has been Zynga Inc., the game publisher that shot to popularity, and a lucrative IPO, with viral Facebook games like FarmVille that distributed a deluge of notifications about virtual farm animals before Facebook clamped down.
Zynga, whose shares are trading two-thirds below its IPO price, has since announced that it would loosen its ties with Facebook and develop its own network for gamers. Zynga declined to comment for this article.
The fate of Facebook apps have drawn attention to the perennial push-and-pull between large technology companies and smaller developers. Like tech industry heavyweights before it, Facebook recognizes it can expand its market power and offer new features by fostering a thriving ecosystem. But those relationships have historically been fraught.
In the 1990s, the Windows operating system rose to dominate personal computing, but its maker Microsoft Corp was accused of favouring its own browser and word processor over its competitors’ offerings like Netscape and WordPerfect.
Similarly, Apple Inc.’s iPhone dominated smartphone sales 15 years later with the help of third-party apps – but it, too, has periodically attracted attention from the Federal Trade Commission over whom and what it lets into its App Store and iTunes platforms. Recently, Twitter has also clashed with some third-party developers.
Facebook first opened its programming interfaces to outside developers in 2007. The company later rolled out log-in credentials for third-party sites and then the powerful “Open Graph” protocol, which gives apps developers access to troves of data.
The company said it expects developers to contribute interesting content – rather than game the system for growth.
“Facebook is a story-telling device,” said Purdy, the Facebook executive. “Driving millions and millions of installs is not why we built it.”
“There are always going to be players who, for whatever reason, aren’t seeing what they want or feel disenfranchised,” he added. “But when we look at the totality of the ecosystem, it’s never been stronger.”
And current and former Facebook employees argue that the company has sought to communicate to its developers that they shouldn’t be over-reliant on Facebook.
In Zynga’s early years, for example, Facebook employees advised Zynga CEO Mark Pincus on renaming Zynga’s highly successful “Texas Hold’em” poker game on Facebook to “Zynga Poker,” in order to strengthen Zynga as an independent brand and differentiate it from competing gaming companies, people close to the situation said.
But there are signs that Facebook may not be as collaborative as it once was.
In January, Tom Katis, the chief executive of Voxer, a voice-messaging app that has raised $30-million from Institutional Venture Partners and Intel Capital, received an email from Facebook representatives requesting a phone call. Facebook told Katis that it intended to cut off Voxer, which had used Facebook’s log-in credentials for over a year, from accessing Facebook’s friends data because it did not share its own data with Facebook – and because Voxer replicated communications features that Facebook wanted to build itself.
Katis has brushed off the incident, saying he is confident Voxer will continue to grow swiftly independent of Facebook.