Yesterday, November 12, 2008, MySpace COO Amit Kapur announced that his company is working on its own payments and virtual gift products that MySpace contributors will be able to add to their own apps. In the platform wars of social networking (Facebook, MySpace, etc.), the side that makes it easier for application developers to make the most money will most likely win. Advertising in social networks has always been problematic, and with our current recession continuing on a downward slope, the already- low ad rates are going to get lower, not higher.
Of course, the other way to make money on these platforms is to try to charge for apps themselves or sell things through the apps. But to do that developers first need a payment and billing system to tap into. Hence, this announcement by MySpace is a big one, especially to the investors. It’s not an original idea, more so the intrigue that it may actually happen sooner than later. Facebook has been rumored to be working on a payments system for a long time. They currently have their own virtual gifts , but have not yet opened that to developers. (Although there is a gift economy inside Facebook powered by other companies).
Many are following the example of iPhone’s App Store. It has proven that, at least on mobile phones, people are willing to pay for apps. Bringing that model to social networks could work if the quality of the apps goes up and the number goes down. One problem with Facebook and MySpace apps is that there are too many of them. Many people feel swarmed with the amount out there.
There are no barriers to entry and it seems that each “friend” is using a different one. Charging for apps, or trying to sell add-on services through them, would force the startups and developers creating them to build something that people are actually willing to pay for. The challenge to switching over to such a model from the current free-for-all is that the value of many of these apps is directly correlated with how many people use them. (More specifically, with how many of your friends use them).
Realistically, the minute someone charges for an app, the adoption rate goes way down. So some aspect of most of these apps will likely always be free. But the ability to charge for extras or for a more fully-featured experience might actually result in better apps being produced. In the effort to provide alternative revenue streams besides ads to app developers, the customers may just win with a better product. What a novel idea?!