1/30/2008

The Facebook Economy

The popular social networking site, Facebook, has enabled third party developers the chance to get easy advertisement, publicity, and money. Facebook's CEO, Mark Zuckerberg, announced in May of 2007 that third party developers would be allowed to add applications to the site, and that they would be able to keep all the revenue they generated from the affiliated ads. After only eight months, there are already more than 14,000 applications on Facebook. Many third party developers have found that they are generating much more awareness by being on Facebook than on some random site on the web. These developers don't have to spend any money on advertising – they just build “requests” into their application that encourage the Facebook user to invite their friends to use the same application. Social networking is certainly spreading the word fast.

8 comments:

Emma said...

I think that this is a great way to advertise. However, the advertising should not be free. There needs to be some sort of regulation of these Facebook advertisers. Allowing the use of Facebook for gain in customers is unethical in my eyes. Facebook needs to come up with a better regulated website so that third parties cannot take advantage of free advertising.

Reagan said...

Another issue to address is the type of advertisements people are bombarded with when advertising is free. Just look at the issues that Craigs List has faced because of their free advertising. Financial scams, prostitution, herbal enhancements, MLM schemes, and other questionable businesses all thrive in this type of advertising environment. If Facebook is not addressing this issue they will be forced to eventually because of the complaints that Facebook users will have. In addition I believe reputable companies will not advertise on the same web page as these other companies decreasing the value of Facebook.

Dr. Tufte said...

This is a network externality: the more people on Facebook, the more valuable your advertisement/widget.

This is fascinating. In ManEc, we've been focusing on network externalities in products for about 10 years. But, this is not in products but in advertisements (which is a sort of product). I think the same ideas probably apply.

As to the internal regulatory aspects, I think Emma and Reagan are right. Facebook needs to tread carefully here.

Gavin said...

Extra Credit - Dr. Tufte
These externalities will likely create dependencies and eventually Facebook will be able to charge a premium. I also agree that the type of advertising can have positive or negative externalities and should be watched closely.

Trinity said...

Dr. Tufte- I agree that Facebook should be very careful offering an open invite to any type of application on the site. This could be very dangerous to its image if something questionable were to be added.

An interesting tidbit- I recently did a paper about Facebook being used by corporations as an informal information grapevine. Some figure that employees are on it all the time anyway and might as well post company news etc to inform the employees more quickly.

William said...

Dr. Tufte,
I agree with your statement that Facebook must be careful in who it allows to advertise on its site. I think with its current growth this could potentially be slowed down if it is not careful. I know for myself I have an account on Facebook and if I saw advertisements that I strongly disagreed with I would no longer be a member. I think in the long run if they are not careful in regulating they could potentially lose a lot of their growth and viewers.

TheFindlay said...

Dr. Tufte
The biggest externality of this network is that they have to watch out or Microsoft will buy them out, just like the destiny of Yahoo!. If Facebook stays away from vulgar and offensive advertising they will be ok because everything on Facebook is done by voluntary, self-censoring adults. If we don’t like what we choose to view maybe we need to look introspectively before we start blaming.

Dr. Tufte said...

Read your stuff - but nothing new to add.