Look Out New Economy, Here Comes The New New Facebook Economy

Posted on July 10, 2007
Filed Under VC Insanity |

The New Economy revolutionized the world during the first .com boom. The traditional rules of business were overturned. Renegade nerds made billions of dollars. The world became a different place. Oh, and lots of people lost shitloads of money.

But apparently Bay Partners, a Silicon Valley venture capital firm, never got the memo that the New Economy was a farce. According to Bay Partners:

When Facebook announced its platform, a set of application programming interfaces (APIs) and services that allow outside developers to inject new features and content into the Facebook user experience, Facebook, in essence, became the Social Operating System. Historically, the creation of an operating system, or a platform, has led to a new economy which includes a marketplace of applications.

Social operating systems. New platforms. Feature injections. New economies. Marketplaces of applications. Oh my!

Yes, if you want to build an application for Facebook’s platform and be part of the New New Economy, Bay Partners will consider giving you $25,000 to $250,000 to build your killer Facebook application as part of its new , which it bills as a “fast-track program supporting entrepreneurs dedicated to developing applications for the Facebook Platform.”

It gets even better. You won’t just get cash:

In addition to the dollars, Bay commits technical and business resources, and a community of “Factory Entrepreneurs,” all part of a program designed to ensure the business success of these application entrepreneurs.

Designed to ensure the business success of these application entrepreneurs? I was always under the impression that there are no guarantees of success in business, but then again, I’m only an entrepreneur, not an application entrepreneur. Application entrepreneurs apparently thrive in the New New Economy, which is a place I don’t dare venture.

Of course, if any of this sounds ridiculous to you, it sounds equally ridiculous to me too, and following the insane valuations given to Geni and Ning, I was left with no choice but to create a new category for some of my posts entitled “VC Insanity.”

There’s clearly a lot of hype around Facebook’s platform, and maybe even some potential, but for a venture capital firm to start a program like this for a nascent platform that has yet to prove that it is capable of enabling the creation of tangible enterprises seems like a sign of irrational exuberance. Why? Five obvious reasons:

Facebook may be the best thing since sliced bread, and maybe it will even turn out to be the very bread that holds the peanut butter together, but any venture capital firm eager to mention a “new economy” has a lot of chutzpah. Personally, I run away from new economies, because I know that my money is safer in my Austrian Sparbuch account. Limited partners in some of these firms might want to consider that. When it comes to the New New Economy, I defer to George W. Bush.

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4 Responses to “Look Out New Economy, Here Comes The New New Facebook Economy”

  1. Jay (living in First Life) on July 10th, 2007 11:48 am

    I love you Drama. Here’s my recent TC comment below yours:

    Sail, I think you’re missing the real problem with Facebook apps. They are getting too crowded. When you’re one of a few, attention is easy. When you’re one of a thousand, attention is hard. Facebook apps have the same problem that all the Web 2.0 companies with baby toy names have - it’s very, very difficult to build a large enough community that you can build something worth monetizing.

    Let’s for a second assume that you invest in an “apps” company that employs 4 engineers and 1 business person (if there’s no business person involved, I hope your LPs don’t commit any further funds to your firm). Let’s assume you low-ball on salaries because the engineers are all co-founders and you get them to work for $40,000/year. Make that fully loaded and you’re up to about $60,000/year. For the sake of argument and simplicity, let’s assume the business guy comes at the same price so we’ve got 5 people at $60,000/year fully loaded. That’s $300,000/year in H.R. costs. Now add in $100,000 for using Amazon’s EC2 and S3 and $50,000 for office and $50,000 for legal. You’re up to a $500,000 per year cost structure.

    If we are to believe Andrew Chen at Mohr Davidow (http://www.insidefacebook.com/2007/06/24/vc-perspectives-on-the-facebook-platform-andrew-chen-mdv-eir/), we see that Facebook app CPMs should be somewhere around $0.01/CPM.

    Now, just to cover the operating costs of the business, we have to hit 50 milion CPMS which is 50 billion views.

    Let’s say the average app user logs in 300 times per year (I think I’m being quite generous here), then you need 166 million app installs to just cover costs.

    Please do enlighten me how your “portfolio apps companies” plan on getting 166 million Facebook users to install the app given Facebook doesn’t even have that many members?

  2. on July 12th, 2007 10:48 am

    […] a way to “officially” participate in Facebook has developers clamoring to build, and less-than-prudent VCs clamoring to invest. Developers will go where the users are, and if MySpace implements an API, developers will be […]

  3. on July 13th, 2007 3:23 pm

    […] from widgetry to Nielson sobering up over pageviews (think engagement), and while some call it insanity…these dozens of fast-tracked, micro-investments are a pittance compared to what really sits […]

  4. Play Poker, Win VC Funding : The Drama 2.0 Show on January 21st, 2008 11:46 am

    […] inner circles by playing poker. His new startup, Triggit, just raised $500,000 from Bay Partners, the firm that never received the memo announcing that the New Economy was a […]

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