Image via CrunchBase
One of the topics we frequently talk about at Mashery is "how does a company monetize its API?". More often than not, the answer is that the API is a new distribution channel for the company's core service, and as such is monetized however the core service is.
So if you are a content company, you monetize your API through driving more traffic to your site (as the New York Times does) or through including advertisements with the content served over the API (as the Guardian does).
If you sell monthly subscriptions to movie rentals like Netflix, you monetize your API by improving the subscriber experience, so your subscribers get more value from your service. Churn goes down and revenue goes up.
Or if you sell access to specialized data like Urban Mapping, you monetize your API directly by selling access to a premium API.
So where does this leave facebook?
So many pundits are scratching their heads about facebook's new activity stream API.
"They are going to lose so much traffic!"
"How will they sell ads?"
"Isn't facebook giving away a potentially valuable source of revenue?"
Take a deep breath and think, everyone.
I think we can all agree that facebook's core competency is not around creating a universally acclaimed user interface. What they have done is created a sharing and communications engine accessible in a variety of ways that, for a variety of reasons, two hundred million people find to be compelling and useful. Along the way, they have gathered a ton of really useful information.
Google claims that their mission is to "organize the world's information and make it universally accessible and useful". Lovely, laudable and largely true. But when it comes to information about individuals - what and who they are passionate about; self-reported demographic info; social graph; employment and job title; you name it - facebook has organized a ton of information that Google can't offer.
It is this information that is facebook's core asset, and their sharing and communications engine that will ensure that the value of this asset continues to grow. It's true that at this point, facebook monetizes that asset by running ads on its site, but the API unlocks many more ways to generate revenue - and to grow a lot faster.
Advertisers buy ads on facebook because they're not just buying keywords - they can buy people who work at specific companies, or like specific movies, or have specific demographics...or all of the above. That won't stop; plenty of people will continue to buy ads on facebook.com because many people will continue to use facebook.com as their primary means of accessing facebook.
But just as Google brought us Adsense, so will facebook be able to monetize the users who access facebook through third party sites and apps. Except rather than being the mess that Adsense has evolved into - many advertisers have found that spending money on the "content network", as Google refers to Adsense publishers, is not nearly as effective as buying the Adwords that are displayed in google.com search results, and smart publishers are able to manipulate their sites and pull in spam links to attract the appropriate ads and clicks - the facebook network will be every bit as effective for advertisers as facebook.com.
So how can facebook monetize the activity stream API? Here are a couple ideas...
- Adsense 2.0 - people place ads with facebook with the same ultra-tight-focused targeting that they can on facebook, and facebook pushes those ads to the third party sites or apps and shares revenue
- Facebook sells the targeting data itself through an API, and the third-party apps/sites can query the API to figure out the appropriate ads to serve. Facebook either shares revenue or gets a CPM fee for access to that API that is lower for basic demographics and much higher for more specialized information (employer, job title, university, favorite movies, etc, etc). One opportunity with this model is that not only can the developer serve standard ads, but they can also do a whole range of enhanced sponsored experiences that could generate significant revenue. This is especially true with third-party apps that would be freed from the constraints of the browser.
And I think we'll see even more creative ideas as people begin to understand the power of the API.
But whatever happens, it will be based on facebook's core competence, not on what can happen within the constraints of the www.facebook.com website.