It’s Official. Facebook Is Running A Protection Racket On App Developers | Hacker News Reader

It’s Official. Facebook Is Running A Protection Racket On App Developers

techcrunch.com

30 pointsnickb28 comments

Here's why I don't like Mike Arrington's style of journalism. Earlier today, he was singing their praises ("One hell of a revenue model"): http://www.techcrunch.com/2008/11/17/facebook-rolls-out-veri...

It's great that he gets twice the hits for one story, but both pieces have been extreme in their expression to the point that I'd call them misleading.

Journalism?

Sensationalism.

The other article is actually much better, never mind the revenue model references.

while this smacks of other "rackets" like SSL certificates (especially when they used to cost hundreds of dollars and verification was dubious at best), this isn't that outlandish of a practice -- think MSDN subscriptions, apple developer network subscriptions, etc.

generating cash probably isn't the motive here -- rather it's putting a $375 hurdle in front of an app developer so that they only have to deal with reasonably serious verification requests.

(put another way, when you raise $500mm, and have a $15bn valuation, $10mm yearly revenue -- and that's assuming half of all app developers convert, which is extremely unlikely given that most have probably moved on -- is a drop in the bucket.)

if the $375 is really a pain for devs, they could probably come up with some non-cash hurdle (i.e. something that is just annoying/takes time, like an essay or a petition or something equally inane that's a pain to do but trivial to verify) for the cash-strapped

If the company is really worth 15bn then at a 10% ROI they should be making 1500million profit /year, 10mm yearly revenue would be ~.75% of that which is not a "lot" but it's still a useful number. At 30x it's 2.25% of revenue which is still valuable.

However, compared to their 500mm raised it could significantly increase their runway.

Suppose there is exactly $1,000,000/year worth of demand for product X.

If there are 20 teams creating product X and they all do reasonably good job then each one will make on average $50,000. This much money is not enough to invest into actually developing product only in sustaining it and doing small, insignificant improvements. So user will have to chose between 20 mediocre apps.

However, if there are only 3 teams going after the same market each one on average will make $333,000 and will be able to assign two full-time engineers to work on improving the product. Users will have 3 higher-quality products to chose from.

Now if there is exactly one team doing X they will capture entire $1,000,000 and do abslutely nothing as there is not competition to push them. That's bad for the users.

Therefore, a balance needs to be maintained to ensure optimal user experience. In real life economy this balance is maintained by boom-bust cycle where weaker business are regularly purged and consolidated. In fast markets like web boom-bust cycle takes far too much time and an artificial pruning mechanism is neccessary.

Of course if you do not believe in making money then none of these applies - you can have a thousand develoeprs chaising market of X and each one making only a thousand dollars/year. Since they will all have to take up day jobs they will end up spending only 5 hours a week to work on the app and you will have a thousand of half-assed apps. Kind of like on the iPhone.

A yearly fee may not be ideal pruning mechanism, but I can't think of anything better.

I'm glad they are putting this verification process in place, and I think it is fair that some of the cost of this process is borne by the developers. I'm not sure whether $375 is fair in that respect - I'd have to see the math.

But what I find disturbing (and inflammatory) about this post is the accusation of 'protection racket'. By Arrington's logic, the following would also be protection rackets:

1. The driving license assessment fee, for operating a motor vehicle on public roads.

2. Assessment fees and membership fees paid by professional coaches (e.g. to make sure your ski instructor is up to standard)

3. The requirement that porn stars have regular STD test to minimize infection. These are paid for out-of-pocket by the actor.

I am glad that we have all the above three, and am happy to see Facebook App verification added as a fourth.

It is however important to ensure that the cost is reasonable. Perhaps Facebook could allow developers the option of having their app verified by a 3rd party? That way market forces would make the pricing 'fair'.

> 3. The requirement that porn stars have regular STD test to minimize infection. These are paid for out-of-pocket by the actor.

Is that a law or is it just the way that reputable porn companies operate? If the latter (which I think is how it actually is), you're free to skip the STD tests - you just have to find folks willing to do the same.

"do it my way or do it with someone else" is not a protection racket.

I'm pretty sure that there's no law requiring "assessment fees and membership fees" for professional coaches either.

"> 3. The requirement that porn stars have regular STD test to minimize infection. These are paid for out-of-pocket by the actor.

Is that a law or is it just the way that reputable porn companies operate? "

"reputable porn companies" :-)

> "do it my way or do it with someone else" is not a protection racket.

I totally agree. Perhaps my post was ambiguous as this is exactly what I was trying to say.

My comment was not about the law it was about rules set by private institutions - Facebook are not making any laws. I do not know whether (2) and (3) are required by law, but it is irrelevant to the point I was making, which is: Arrington's definition of 'protection racket' would clasify lots of rules that we consider beneficial to society as 'protection rackets', therefore his accusation is unfair.

You're quite right in saying that "..you just have to find folks willing to do the same..", this applies to (2) (3) and Facebook. I.e. the analogy holds: Just as a porn-star can look for work where STD tests are not required#, developers can choose to not develop for Facebook (or be unverified). If the market of non-STD-requiring-studios / webapps-outside-facebook proves too small to be viable for them then they have to get-the-test/ get-the-app-verified. It's no different. It seems to be that in both these cases the person would be best served by paying the cash to get verified, but it is a free world, so they can choose to do whatever they think best for them. (# - even if it is the law, they can always go outside the US)

> I'm pretty sure that there's no law requiring "assessment fees and membership fees" for professional coaches either.

There is no law that I am aware of. But the professional bodies of which I am a part all have rules that do involve the payment of fees for accreditation, and I'm glad they do.

I find it strange that it's $375/yr as opposed to a smaller amount per change (that's per app change and per significant change to APIs etc.)

I think the idea is to prune deadwood - apps which are no longer maintained and just sit there occupying the virtual shelf and distracting users.

best opinion i've heard all morning regarding this. thanks for the thought.

It makes sense to you because you're an ecnomically-minded person judging by your other commetns. A lot of hackers get offended when presented with unpleasnat but economically sound theories like this and start downmodding.

It upsets me some because I want to be heard and understood, but then it also gives me an edge. Funny how that works.

i'll take that as a compliment. thanks.

do facebook apps make any money? Seems like you'll be paying to improve facebook's product.

What do you gain really from the verified status? If you have a good product people will install it anyways, whether its verified or not. And if your product is crap, you just threw away good money, that could have been spent better on ads

What is the difference between this and tech crunch selling advertising on their site? Both offer access to a market for a fee. Paying for job listings seems to fall in the same bucket.

To me, this is no different than Facebook charging users for features they already got for free. For example, "pay us $5/month or your feed items will always show up at the bottom of your friends lists" or "pay us $1/month or your news feed of your friends' activities will be delayed by 48 hours" or some crap like that. They'd still be giving your feature, technically, but they'd be limiting it unless you paid instead of giving you something EXTRA if you paid.

In this case, they created an API for developers that brought thousands of developers and a whole lot of user traffic to their system when they didn't have a clue how to monotize it. Now, after all the work has been done by developers, they are imposing limits than can only be removed by paying instead of adding NEW VALUE to those developers who pay.

The whole point on having a Facebook app is to make money eventually so if $375 gets better placement in their app index and separates your app from the riffraff then it's worth it. I don't understand how anyone expects to make money in web 2.0 when everything is expected to be free.

I think this is a good compromise and much better way of doing things than App Store.

I thought I read this somewhere before...

http://www.theregister.co.uk/2008/10/27/dziuba_apple_app_sto...

Guess Arrington still has a man-crush on Dziuba. Rip-off post is full of fail.

I like it. Hopefully users will be more likely to try the apps when there are fewer and of higher quality. Therefore I consider writing an app now with more enthusiasm than before.

Why do you think paying will equal higher quality? This, IMHE, will just rank higher more applications coming from random aspiring entrepreneurs hiring people in rent-a-coder doing one time lol-apps, instead of passionate skilled developers who might already have a day job or are students.

One of the typical killers for corporate software projects is too much budget. I remember reading studies about project size and budget vs. delivery.

The fewer developers compete for the attention of fixed number of users, the more resoruces each developer can dedicate to further development. Too much competition == race to the bottom.

If they we're charging their end users a fee, in order to guarantee they won't use and "bad" applications, while allowing the bad applications to exist, then that would be considered a protection racket.

Charging the applications to be certified sounds like good business.

ehh. you think people are going to waste effort and verify everyone's app for FREE?

there has to be some kind of lockout involved or every piece of crap will have to be picked apart.

this is assuming they actually run checks to make sure the apps are secure, useful, and genuine (not cons)

375$ per year IS steep, however

i would never pay that

there has to be some kind of lockout involved or every piece of crap will have to be picked apart.

It's not clear to me from the article whether the fee is paid as part of the submission process or after the app is verified. If it's the latter, then the verified apps are paying the burden of cost for those that fail verification. If the fee is not part of the verification submission, then every POC app will have to be picked apart, and I'd guess the process wouldn't be too rigorous.

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