Building a Business on Facebook: The Trust Factor

I was amongst the more than 400 people who attended the first FacebookCamp yesterday night in Toronto. You could feel the excitement in the room and there were many interesting insights for anyone interested in Facebook (who isn’t these days!) that I’ll cover in the next few days in this blog.

Before I get into specific details, and even though I’m very excited about the potential of using Facebook to build a business, I’d like to write about something that’s been on my mind about Facebook the company and its potential future strategy. With the launch of their F8 platform, they have become the playing ground for a lot of new social applications. Some of them have seen tremendous traction, revenues are starting to be generated and entrepreneurs are launching businesses that rely completely on Facebook. Some VCs are even funding companies that focus only on Facebook apps.

The real value for social apps developers is the fact that Facebook has a large existing user community. The viral tools embedded in Facebook make it easier to propagate an application within your network of “friends” and leverage the network effect. It’s obviously easier to build something in Facebook, build on the existing community instead of starting from scratch with your own destination site. But the fact that they are a closed network has pros and cons. The major pro is that you have access to a large community where everything is standardized and in a controlled environment. The major con is that you don’t control your destiny.

Why is that? It comes down to the following question: is Facebook a platform or a media company? I’m not sure they’ve clearly stated what they were and where they were going with this. From a strategy point of view, if they are a platform, they’ll continue to focus on making it easy to create apps and content within their site. They’ll build even better user-relevant viral tools. Their business model will consist of wrapping their ads around the various apps & profile pages and they also might charge a developers fee for usage of their site (pay-per-install, etc.). The fact that they’re shutting down Facebook Courses in favor of the developers community makes me think they might be embracing that vision.

But, if they are a media company, nothing prevents them from looking at the best money-making apps out there (remember, they own all the data) and replicating those themselves. Companies built on Facebook might crumble the same way that web sites built only on SEO and keyword arbitrage do as well.

Facebook should make a statement about who they really are before this things gets too big and businesses get hurt. Until then, as an entrepreneur, you want to make sure you hedge your bets and not live your life only on Facebook. To build sustainable businesses with a large partner, you need to trust them and I’m not sure we can fully trust Facebook yet.

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