While browsing through my RSS reader earlier, I came across an interesting post on PaidContent: a Facebook app called Second Porch raised $1m in funding from an angel fund.
I immediately scratched my head and asked myself: do most entrepreneurs behind individual Facebook apps like Second Porch really need to raise funding for their app businesses? It's a question that I think is increasingly important as more and more entrepreneurs launch their ideas on Facebook, not as standalone websites.
Second Porch allows property owners to advertise their vacation homes to vacation goers via Facebook. It's a simple app, and the business model is simple too: standard listings are free, a premium service costs $99. While it's possible that Second Porch has raised capital to expand its service outside of Facebook, it appears to have everything it needs to sink or swim: a finished product, real-world use, some favorable press and a business model. Which begs the question: where does the $1m come in?
While I can't answer that, I think there are three primary reasons why entrepreneurs building businesses around an individual Facebook app generally shouldn't be interested in raising capital:
- Facebook helps minimize the chicken/egg problem. The chicken/egg problem is one of the biggest and most costly challenges entrepreneurs face in building businesses, especially on the consumer internet. It exists on Facebook too (obviously you have to get Facebook users to install your Facebook app), but in theory building a user base on Facebook is a lot easier than getting internet users in general to use a website. Even if you advertise your app using Facebook's self-serve ads, those are generally a whole lot cheaper than, say, AdWords.
- You get to build on top of Facebook. I've helped build several Facebook apps, and through my experience, I found that designing for the Facebook user experience often results in applications that are far more simple than they might otherwise be had they been designed as standalone websites. When this happens, that's more than likely a good thing for application performance and the maintainability of code. For app developers who want their apps to use Facebook's standard styles, Facebook does a lot of the work for you. So even though building and hosting Facebook apps isn't free, I would argue that developing a Facebook app is more likely to be easier and less costly than developing a standalone website.
- Facebook is a great proving ground. Being able to tap into Facebook's massive audience means that entrepreneurs can often find out relatively quickly whether an idea is a hit or miss. If it's a hit, one would hope that the entrepreneur could develop and scale a business model without the need to tap outside capital. After all, if your app has 50,000 daily users and you can't figure out how to make money, raising $500,000 probably isn't going to do anything but pay salaries for a while. If an app is a miss, on the other hand, funding is probably of little use in building a real business as well.
In short, Facebook can be an internet entrepreneur's dream. Facebook comes with a built-in audience of consumers, a development platform that is easy to work with and when all is said and done and a product launched, makes it easy to find out if an idea is going to sink or swim. Plenty of individual entrepreneurs have cashed in (and are cashing in) on apps they've built. No funding necessary. Personally, I hope it will stay that way.
Photo credit: Nuebie via Flickr.