Is Facebook Killing The Goose That Laid The Golden Egg?

Recently TechCrunch published a blog by Alex St. John, the President of Hi5, entitled “Social Gaming Market Reaches Its Final Stage”. Alex describes how Facebook’s recent strategic changes are killing off social games within Facebook. He talks about the end to viral features and the draconian 30% take of virtual goods transactions that Facebook extracts from Facebook game operators using Facebook credits. He also talks about Facebook’s cut of the advertising revenue generated by Facebook social gaming operators. Alex has concluded that this means the death of social games in Facebook as we know it. The game operators will have to operate on margins similar to non-Facebook online game operators if they want to survive.

Alex certainly has an axe to grind. Hi5 has been undermined by Facebook. Facebook has taken much of Hi5′s social networking clientele leaving Hi5 as a much smaller social networking game platform. He certainly would like to see Facebook game operators convert to Hi5. Despite this potential underlying motivation for the article, Alex has a very real point. His intense interest in Facebook, because of their competitive position relative to Hi5, has made him keenly aware of the dynamics of social networking monitization, customer acquisition and customer retention.

I agree with Alex that Facebook has made some interesting moves to raise their own revenue and to stem the tide of member loss. It is no secret that Facebook is not growing like it used to and has to figure out how to protect its installed base.

What Alex does not mention is how these polices will impact all Facebook application providers. This is not just about social gaming application providers. If Facebook’s application provider community realizes that Facebook economics do not work for them will they be forced to pull out of Facebook? I already know several non-gaming application developers that are concerned over the impact of Facebook’s new policies. The diminishing viral effect is a very real concern. Add to this the increasing importance of virtual goods and currency to traditional business models and you start to see the new Facebook policies as a real turn off to businesses.

If Facebook applications begin to disappear because of the new policies will people continue to stay in Facebook? If I was a Facebook executive I certainly would be watching this. We have all seen social networks come and go at a blink of an eye. Are Facebook’s recently introduced policies making us all think about the new and improved social network of the future?

Is Facebook Killing The Goose That Laid The Golden Egg?