The Catalyst Code

Facebook developers did some whining at the Web 2.0 Expo, according to a report in TechCrunch titled “Facebook Platform Faces Rough Road Ahead, Despite Successes.”

The session started off with a disagreement over how much money developers are actually making through Facebook … Joyce Park of Renkoo and Matt Sanchez of VideoEgg predicted revenues as low as $10-35M this year.

All panelists agreed, however, that CPM rates on Facebook are miserably low, perhaps averaging 15 cents. Developers have begun experimenting with other sources of revenue … but advertising still generates more than 80% of the platform’s revenue.

The problem: the developers aren’t making much money yet from ads. But of course, neither is Facebook. There hasn’t been much progress made on figuring out how to make money from social networking sites where traditional online display advertising, and contextual ads don’t have a natural fit.

Innovation and experimentation will likely solve that problem, and that’s why outside investors are placing such huge valuations on the Facebook community. Developers who are seeking a quick source of revenue aren’t going to find it in ads. They will need to find another revenue stream if they want a quick hit.

To be really successful, though, developers and their backers are going to have to take a long view with Facebook—focus on applications that will generate their own positive feedback effects, so that they can make their money over the long haul.