Mark Zuckerberg announced today at the TechCrunch40 conference that Facebook, Accel Partners and The Founders Fund (the latter two are the main investors in FaceBook) have teamed up to start a $10 million dollar fund specifically targeted at those startups that are building FaceBook apps. The fund will invest anywhere between $25,000 to $250,000 in said startups.
Now do not get me wrong, I think it is fantastic that there are more funds being created to provide financial support for more startups, I mean the more the merrier, bring them all on. With that being said, I have to raise question as to what the monetization model is for this startups that are specifically building Facebook apps. On the surface, I completely understand why it is important to businesses to have a Facebook app, it provides a solid distribution channel for you to get your product out there. If implemented properly, it will drive traffic back to your site, thereby increasing your revenues (whether you are a CPM business or a premium services business). But for a company to funded solely for building a Facebook app makes me scratch my head.
If I am not mistaking, to date, no one has really turned a profit from any Facebook apps, aside from those that have sold themselves off to larger corporate entities (I believe that one was sold to a travel company for $3 million, man I would have loved to have been part of that). Aside from that, no one else seems to have found the silver bullet. Now I know that the F8 platform is still in it’s infancy, and Facebook itself is still trying to figure out how best to monetize what they have, but I cannot help but to be a bit pessimistic on companies getting funded that’s sole purpose is to build a Facebook app. Perhaps they know something that the rest of us do not, only time will tell. I wish both the investors and all the companies that they fund the best of luck and I hope that they prove me wrong.
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Will Kern's take on life, liberty and the pursuit of happiness. Not really, but it is my take on startups, the web, life and everything in between. Have a question or just want to shoot me an e-mail: kernwill [at] yahoo dot com.
A few app developers are making upwards of 20k/month - it’s all a matter of who you’re talking to. With THAT many applications, it’s a given that only a teeny percentage could be profitable, but it’s definitely happening.
(and the tripadvisor thing was just a rumor)
@Stephanie,
A couple of points on the 20K/month: First, I would venture to guess that that number is an exception and not the norm. Secondly, 20k is a very good revenue stream for an individual, but from a business perspective, it is not very good. Based on the investment range of the fb Fund, 20k a month would not even generate a 10x multiple on the minimum investment amount based on revenues, not to mention actual profits. From an investor standpoint, this would be a bad move for them and from a business standpoint, they would not be able to sustain very long at that monthly revenue stream.
True, but the majority of facebook developers are very small companies, if not sole individuals. To them, 20k a month is a fortune.
If you’re looking at this from the perspective of a large company, then I totally agree with your statements - I don’t believe it’s a viable long term business plan.
@Steph,
True, 20k to an individual or even a team of 2 is a fortune. I am looking at it from an investment perspective, even in a small company, 20k a month would not provide enough return on their investment for it to be worth their while.
Like you said, it is not a long term business plan on it’s own.
It’s a $10M fund with investments ranging from $25K - $250K. For that kind of money, $20K/month would qualify for sufficient ROI I think.
Also the value for facebook and its investors is mostly strategic - they can now get people excited about funding for building apps and bring them closer to the mothership with funding from inhouse investors. It’s not a large price to pay to sustaing the momentum they now have with app developers.
And I’m not sure it’s not a long term business plan on it’s own. Look at myspace and photobucket /flektor for example. Sometimes, one of the players in your ecosystem become important enough for you to go out and get it.
@Venkat,
I do not think that 20K a month (240K annual revenue) provides the kind of ROI that investors are looking for. Those numbers do not even present a 10x multiple on revenues, not to mention actual profits.
As far as it being a strategic move for FB and their investors, I completely agree. It is a small price to pay for them to get people more excited. I mean it is not a far stretch to say that it is a 10 mil marketing plan that nets not only more interest, but also potentially some interesting apps.
As for a long term business plan, I agree that it could be as long as their is a solid product that is outside of the FB app that the app would actually drive traffic back to. That is where their monetization will truly take off.
Will,
The $3MM sale to TripAdvisor was a rumor that was put out which was later proven to be not true. TripAdvisor has denied that it happened and TechCrunch removed the post.