Weekly Poll: Will APIs Drain Facebook’s Revenue?

Matt Asay equates APis to open-source. The more open the code, the more difficult it can be to sell the software. The new generation of Web players like Facebook are taking a similar approach with their APIs. Facebook, for instance, is giving significant access to its platform in exchange for all the data they can gleam from sites with the Facebook icons and gadgets on their Web pages.

But due to its openness, the question becomes how the revenue can well surpass the certain costs that come with serving the Facebook developer army.

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But do service providers like Facebook really have any other option? The need is for better distribution, not just to the browser but to apps of all varieties on mobile devices, tablets and other platforms.

The bet they are making is that they can offer free APIs to developers. Those developers spread Facebook to the far reaches of our distributed economy. Over time, Facebook can leverage all that data and make a profit, too.

That can be a risky bet. Asay points to David Hansson of 37Signals, a skeptic of Facebook’s strategy.

Hansson writes:

“Maybe Facebook just needs to mature, you say. If we give them just a few more years, the profit fairy might drop by and sprinkle her billions all over Facebook and its shareholders. I call fat chance.
Facebook has been around for seven years. It has 500 million users. If you can’t figure out how to make money off half a billion people in seven years, I’m going to go out on a limb and say you’re unlikely to ever do.”

Asay goes on to point out that it’s how companies parse the data that determines success. Twitter, for instance, now has its own URL shortener to track all kinds of information across the Web. That’s a big deal for advertisers who are trying to define the value of advertising through an activity stream.

Next Big Future compares Facebook to Google. Facebook, from their point of view, has a long way to go:

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…Currently, Google makes fourteen times as much revenue per impression as Facebook. Currently, Facebook has 7.07% of Internet traffic. To increase revenue by 14 times, they would need to serve 98% of today’s web traffic. Admittedly, web traffic will increase but it still requires Google to push less than 7% of Facebook traffic to equal the same revenue.

The reason for the lower revenue per impression is that people surf Facebook for friends and social and not to buy. That is why Facebook Marketplace failed.

What may set Facebook apart is the data that comes with social interactions. That can sometimes be converted more easily to virtual currency than real cash. Gestures provide ways to reward people. Those rewards may create the drive in demand for a variety of services that can be traded like tokens. Social games, for instance, can have complex reward systems. These currency systems have their own sets of value that may help Facebook make a significant return on the investment it is making in opening its API.

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