How To Make $500,000 A Month On Facebook

The answer is simple. First, create a Facebook application; next, all you need is one person to like it, then their friends find out and it spreads and soon you will be making $500,000 a month. What’s the catch? It could you up to 2 week to start making $500,000 a month. That is what Chamath Palihapitiya, the company’s vice president of marketing told attendees at a conference two weeks ago. He went on to disclose that about 33 percent of Facebook application developers reported profits of up to $500,000 a month. At last count there were 200,000 developers evaluating the Facebook platform.

He said Facebook’s platform is turning the company into a sort of “cable company” for the internet and this plumbing is creating huge opportunities for entrepreneurial plumbers who are willing to work with the pipes of Facebook’s application platform. He said, “all you need is one person to like it, one person to be an advocate of it, and then their friends find out and engage in that.”

Sounds too good to be true? We set out to investigate. We spoke to over 30 Facebook app developers and nothing could be further from the truth. But first for the premise to be even plausible we did a quick calculation and the numbers don’t add up. Facebook would have to payout $3.3 billion monthly on revenue of $15 million a month. Even if 1 percent of the developers made $500,000 per month, then Facebook would still be paying $15 million more than they take in. Here is how we got the number.

Developers    Percent     Payout       Payments            Revenue
200,000       33%         $500,000     $3,333,000,000      $15,000,000 

Individual vs. Professional Developers
Of the Top 10 Facebook applications, perhaps the Top 3 have apps that make $500,000 a month or more, however, these entities have also raised in excess of $15 million each. These are companies are Slide and Rock You which are under tremendous pressure to increase revenues. So much so that they are starting to compete with the very same advertisers that advertise on Facebooks. They are staffed by digital-ad sales executives that used to be with Google, Yahoo, AOL and other ad agencies. While there are opportunities for individual app developers on Facebook the odds favor the professional developers that have the ability to move inventory in mass across many verticals.
Confessions Of A Facebook Developer
The low barriers to entry and dreams of quick riches has led to a flood of Facebook applications. One developer that I spoke with invested $150,000 in 3 Facebook apps and has made approximately $2,000 in three months. His advice is “Don’t develop unless: you’re a student and want to build an app to learn and add to your resume. Or, you have a particular vertical expertise that you can leverage to an off-facebook site”. Facebook’s users say that it has become a platform for “spam“, and the measures taken by Facebook to prevent this has made it more difficult for applications to achieve viral growth.

The Hype Has Worn Off
According to Jesse Farmer of Adonomics, a site that tracks Facebook applications, the hype has worn off for application developers. He says, “the activity level of the Facebook forums is a fraction of what it was at the beginning of 2008“. In April, there were 51% fewer daily posts, 29% fewer daily signups, 44% fewer daily threads, 27% fewer active users and 47% fewer highly active users than there were in January. In fact, the valuation of the professional developers has dropped considerably since we started working on this story despite the fact that they have more installs and or more users. Figures is green mean an increase and red are a decrease.

Rank Company             Installs         Active Users      Valuation

1    Slide               89,675,650       4,312,214      $413,612,129
1    Slide               99,265,744       3,662,673      $324,135,448

2    Rock You            83,808,230       2,384,565      $259,379,647
2    Rock You            94,379,420       2,406,267      $251,213,915

3    Social Gaming       45,939,652         807,337      $88,348,254
3    Social Gaming       50,659,650         729,471      $83,150,109

4    Zynga               43,657,806       2,034,789      $110,832,266
4    Zynga               44,005,306       1,915,308      $98,620,166

5    Blake Commagere     26,265,200         262,647      $38,438,720
5    Blake Commagere     22,802,300         228,020      $37,888,153
 
6    Chainn Inc.         23,174,125         498,951      $48,163,700
7    Chainn Inc.         20,899,817         416,270      $44,915,552

7    42 Friends          19,010,950         360,576      $32,047,589
8    42 Friends          19,310,467         354,377      $28,523,564

8    Flixster            17,467,000         524,010      $48,448,127
6    Flixster            21,374,800         427,496      $46,387,451

9    Watercooler         16,058,900         201,939      $16,351,744
9    Watercooler         15,873,253         184,443      $15,374,382

10   iLike               14,118,850         282,377      $35,650,374
10   iLike               15,060,600         301,212      $32,802,945

Facebook needs developers to continue to buy the hype so that they can keep developing apps for free and continue to build the user base. Facebook depends on them to justify its high paper valuation. Recently, the company raised another $100 million, which the company stated was for servers for hosting the apps developers were building. Other sources said a large chuck of the funds were used to settle with Facebook’s original founder. Many developers we spoke with said app fatigue has set in and adoption rates are dropping. Maybe $100 million worth of servers will end up on eBay or Craigslist soon.

Meanwhile, Farmer has some advice for developers dreaming of making $500,000 a month in 2 weeks. He said, “It boils down to this: investing most of your man-hours into Facebook at this point in time is a mistake. The potential return on that investment, a year after launch, is a fraction of what it once was. And the fact that Facebook continues to change the rules and selectively break them for their own benefit means the risk is comparatively higher”.