Tuesday evening I went over to PARC to attend a BayCHI program featuring student projects from a Stanford class co-taught by DD Old Friend and Stanford prof BJ Fogg and Valley entrepreneur and gadfly Dave McClure. This was, of course, the pay-off to the much blogged student projects building persuasive Facebook apps.
The results were impressive. Of 25 apps put up by teams from the 100 person class, five achieved over a million downloads in a few short weeks (most apps didn't hit the Facebook system until early November), and six are getting an average of over 100,000 daily users. Apparently a few of the teams have been given purchase offers (reputedly in the eight cent per user range), or have incorporated themselves. There was also a great deal of cross-pollination among teams, and quick exploitation of lessons learned from early successes and failures. How many classes have their own dedicated metrics analyst?
So before getting into my own take on the meanings of the results, here's a big tip of the hat to BJ and his teaching team and class: That was an awesome job, and a stellar example of what the Valley does so well - mixing up young energy, experienced entrepreneurs, some minimal and fast process, and getting out there and testing with real users. The presenters were impressive in keeping their talks short and focused, sharing the credit around, and often working in humor with a point. Even those whose accents said they didn't grow up here have been acculturated into Valley pitching. Well done, Stanford!
That said, the results don't make me keen on investing in Facebook apps.
Let me start with a little clarification for the other Old Farts out there: A Facebook app is nothing like the heavyweight applications of yesteryear. If you're thinking about word processors, graphics editors, or e-mailers, you've got the wrong picture. The only sense in which the old and the Facebook senses of 'app' meet is that both use the services of an underlying platform.
You're better off thinking of a Facebook app as a virtual form of social stroke, a sort of networked take on what we called New Games once upon a time. "Here, have a hug, pass it on." Indeed, among the most successful of the Stanford apps were hugs, kisses, send Love, and a pillow fight. There were more complex games and multi-user projects, but those were the teams that found they needed to simplify and/or restart with a new application to attract an audience. The summary learnings of the class were simple and to the point: Start simple, go viral, then deepen the engagement - before attempting to monetize. Watch your metrics and learn fast - teams were iterating versions on 12 to 48 hour schedules.
While this was a great learning experience for students, it should also make it clear that Facebook apps are perilous ground for investors. I've never seen a more obvious and provable instance of low entry barrier. Three to four students, six to eight weeks, no capital equipment beyond their own notebooks, in and out, win or lose. Those who win the viral lottery can then attempt to retain the audience gathered, either for their existing app or others they promote to the users. I'm hoping that BJ and team continue and publish the on-going download and user records for the projects. Some of the graphs shown, even for the most popular apps, showed a fall off in rate or acceleration of downloads, and recent downturns in ongoing users. From here, it's hard to distinguish 'app' from 'fad'. Maybe worth a flutter for an angel with five figures to invest, but not really a game for someone with a fund to manage.
In similar circumstances, previous markets around low-rent platforms have converged on a de facto studio system, where those who capture an early audience and become adept at directing it towards new properties they own or distribute turn out to be the long term winners. Those who have taken an early lead in gaining Facebook audience can now attempt to move in a similar direction, gaining conversions to fresh apps or even to services off of Facebook. Not so coincidentally, folks from Slide and others were involved with the Stanford class' teams. But note that, also as in earlier markets, the prerequisite to play is not access to capital, but prior success in winning the audience game. Those who are already winners in the viral lottery may be forgiven for driving hard bargains, if and when they need funding.
