I’m in San Francisco, where the Facebook F8 conference is about to begin, thinking about the Facebook platform and its developer ecosystem. In trying to assess the platform and its impact, I find it useful to compare it against another highly visible and popular platform, that of the iPhone OS (iPhone, iPod Touch, and iPad).
Obviously, these are very different platforms, with very different companies behind them and different business models. But from a developer perspective, there are attributes that both platforms share:
- Both are new (relative to well-established platforms like Java and .NET). Facebook launched its platform in May 2007, while the iPhone SDK was introduced in March 2008.
- Both allow developers to reach a large population of users and grow user-base quickly
- Both offer opportunities to monetize with much less friction than older platforms
The common appeal to developers is supported by the observation that there are developers who switch from one to other (I have seen the search for greener pastures go in either direction).
One area where the platforms differ is that the iPhone platform seems to enjoy more positive aura than Facebook. A root cause is the compelling design and superb user experience of the device, which obviously has garnered a strongly loyal and growing population of users. The Facebook user experience, while more appealing than its competitors (MySpace, LinkedIn, etc.) does not seem to elicit as strong a feeling of loyalty as the iPhone platform. Also, Facebook has recently dampened the viral mechanisms that contributed to strong growth of apps in the Facebook ecosystem.
So there is a long-standing perception in the market that the iPhone App Store represents a gold-mine opportunity for developers. This perception is not only found in the developer community, but among the broader audience of consumers and also investors, contributing to a high stock-market valuation for the platform owner.
However, the gold-mine perception seems to me to have aspects that are more illusion than reality.
Consider the #1 selling app in the AppStore, Doodlejump. If you don’t know this game, it is a simple but very charming “platform jumper” game in which a cute alien creature has to jump from one floating platform to another. I highly recommend this game if you have small children that need a playtime distraction. Over the past year, this app has gotten between 3 to 4 million downloads, which Business Insider estimates at about $2.7M in revenue.
This is a great situation for the two-person family team that is behind this one app. But what does it tell us about the iPhone ecosystem, if the top-selling app can only sustain a two-person business, one that is working out of a modest-size apartment (i.e., without a real office)?
Yes, there are firms in the iPhone economy that have more than one title, a portfolio of small hits. But consider the #1 iPhone software publisher, Tapulous (another company that makes fun, compelling apps that I highly recommend). This well-known company does have a real office, but has a modest staff size of 20 employees. (My local pizza restaurant has more staff than that). The annual revenues of Tapulous are likely less than $35M.
And those are the success stories of the iPhone economy. Studies of the iPhone app ecosystem have shown a steep power-law distribution. Most apps get a small number of users, and are used only for a couple of days before being set aside.
Now consider the Facebook developer ecosystem. The #1 app development firm in the Facebook ecosystem is Zynga, with more than 1000 employees, $400 million in revenues, and dozens of open job reqs, and an estimated company valuation that may approach $3 billion, with the possibility of an IPO over the next year or two. And this is not the only example of a company with real possibilities for substantial monetization. The #3 player in that category was acquired by EA for $400M.
Given this perspective, things become more clear around the motivation behind Section 3.3.1 in the iPhone 4.0 beta developer agreement. This section draws a line in the sand, and forces developers to make a choice (to write code in the native language of the iPhone platform). This means that established game companies like Zynga have to either ignore the iPhone platform, or allocate resources to reimplement successful titles on iPhone, or leave a window open for competitors. What technology, you might ask, are all the successful companies in the Facebook ecosystem using on top of the Facebook APIs? The answer should not come as a surprise: Flash.
- At this point in market evolution, the Facebook ecosystem can sustain multiple, real, venture-fundable, IPO-able businesses
- The iPhone economy for third-party developers, by contrast, is roughly equivalent to a small chain of pizza restaurants, at this point in time.
- The situation is obviously fluid. The iPhone platform has a 10-month timeline lag compared to Facebook. New releases of the iPhone SDK will continue to add capabilities that enable social connections (and the potential for viral growth). At the same time, Facebook seems to be going in the opposite direction of restricting viral-style communication in favor of a better user experience.
- Among the trends and counter-trends, there is a plausible scenario in which iPhone developers realize that they are contributing significant value to the platform owner, without receiving sufficient benefit in return. If this were to happen, the competitive dynamics of the major mobile/social platforms could shift significantly.
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