Facebook is clearly bent on creating its own private Internet in order to own all social interaction (and data) and will do so at all costs, and today’s TechCrunch piece by Michael Arrington is the final piece of the puzzle for me.
I first took notice of this impending disconnect last Fall/Winter when, as Arrington spells out in his piece, Facebook began limiting what applications could do to communicate with its users and then Zynga launched Farmville.com - two separate issues where Facebook sent a warning shot about who owns the relationship with the user and Zynga decided to fire back regarding who owns the content that most of the users care about.
Then there is this piece about Facebook opening a game studio in China which further indicates that Facebook wants to own the content that users spend most of their time on. It’s clearly a not too subtle foray into the social gaming space and another challenge directed at Zynga’s dominance and one which I am certain they heard loud and clear.
Then there is today’s piece on TechCrunch talking about Facebook only allowing one payment platform, their Credits, and taking 30%. That is offensive to say the least. I know it’s the same number Apple charges to sell through the ITMS. 30% as a wholesale to retail markup is the number retailers strive for on the sale of an item unless it’s in electronics when that number has been driven down to near zero, and if you’re below 30 you had better be doing some serious volume to make up for it. Buying virtual credits is something else entirely, and Facebook should be charging a service fee, like getting cash at an ATM (which in NYC is in the $1-3 range per transaction), and not a markup. So, Service Fee vs Retail Markup, that works as a distinction for me.
I would suspect that if Facebook continues down this path there could be a DOJ investigation into anti-competitive practices – owning the ecosystem, the platform, the users, the sole payment mechanism, and taking a whopping 30% seems like a combination ripe for legal challenges. Please don’t even get me started on the slew of oncoming privacy lawsuits that 2010 and 2011 will bring since that isn’t the point of this rant.
That said, if this model is allowed to progress, I simply see transactions happening outside of the Facebook platform. All application developers will be happy to take their users off Facebook for a minute to complete a transaction then redirect; Paypal has proven that this design pattern hasn’t hindered the growth of online transactions. Imagine if the all the credit card payment processors took 30% or even 10% of every sale? I don’t think any merchant would be too happy about it and would simply resort to only taking cash or finding a card payment solution with a lower fee. We have already seen that in NYC with countless restaurants going cash only to avoid the 2.5-5% charges by Visa and AMEX.
The part in today’s piece which I found so repugnant and childish was regarding Facebook’s shutdown of Zynga’s feeds and threats to shutdown some games as a form of punishment. That is simply not acceptable; negotiations between entities can be ongoing and acrimonious but it is business and there are many more companies, partners and people involved than just Facebook and Zynga. Arbitrarily shutting down feeds and content as punishment should send a very loud and clear warning to everyone operating in the Facebook ecosystem that their businesses are at serious risk.
This issue sort of came up last month with Twitter prior to their Chirp developer conference but I believe that it was in a completely different context. Twitter was taken to the woodshed for purchasing Tweetie in order to fill a hole in their offering. Plugging holes in one’s offering is part of product development, either by internal development or acquisitions, so it was a perfectly understandable and expected action. That is what companies do, they continually seek to round out and enhance their offering for their customers. That said, the developer community was up in arms about how they felt they had been betrayed. The truth is that if you have a great product that fulfills a real need, you will have a customer base regardless of what Twitter does. If you have a product that fulfills a commodity service, and built on another company’s product, then you will fade away through that company’s standard core product development,. That is, unless of course you pivot to offer something new and compelling – as Bit.ly did by focusing on analytics and professional services when it was announced that link shortening on Twitter would be handled by Twitter itself.
Anyway, I digressed, the whole situation for the Facebook ecosystem is more dire as their behavior indicates a serious lack of emotional intelligence at the highest levels. Developers should expect to fall victim to vindictive business practices, or terms of services that can change regularly and potentially put your business model at risk, or the day when Facebook decides to turn off free access to their Open Graph and put it behind a paywall. You want access to a user interacting with your application? You want their email address? Their circle of friends? Sure no problem, but it will cost you and here’s the chinese menu. That sounds similar to some of the scenarios portrayed during the net neutrality discussions and ISP’s charging companies and end users based on usage and access.
All I can say to Zynga and to Mark Pincus is leave Facebook immediately, leave them with a gaping hole in their offering and don’t give them time to transition, or build up a game portfolio, or siphon off your users. Go ahead, rip the bandaid off and get on with it.
