Ning, the social networking startup co-founded by Netscape founder Marc Andreessen, gives individuals and companies the ability to build their own social networks using the company’s hosted platform.

Funded to the tune of over $100m on a half a billion valuation, Ning has been the subject of a considerable amount of hype.

Some of those who bought into the hype, including Ning’s investors, might be asking questions after Ning cut off one of its most popular “widget” providers.

Like many social networking startups today, Ning has bought into the notion that third-party developers should be able to extend and improve upon your platform.

To that end, Ning has offered third-party developers an API that enables them to develop applications, or widgets, that provide functionality that Ning does not provide natively.

One of the companies that seized the opportunity to create these widgets for commercial gain is an outfit called WidgetLaboratory.

The widgets created by privately-funded WidgetLaboratory are made available to the operators of Ning social networks for a fee and the company has reportedly become the most popular provider of widgets on Ning with thousands of paying customers.

On August 22, Ning removed WidgetLaboratory from its service and disabled all of its widgets. According to a post by a Ning employee named Athena:

“This morning we removed WidgetLaboratory, a third party application developer, from the Ning Platform for violating Ning’s Terms of Service. WidgetLaboratory provided independently developed applications that could be added to a social network on the Ning Platform by a Network Creator. While we try to be as transparent as possible, it’s our long standing policy not to comment on specific cases where we remove networks or third party developers from the Ning Platform so we will not be providing any additional details publicly.”

Needless to say, this did not go over too well with Ning users who are paying customers of WidgetLaboratory and who woke up to find that key parts of their Ning social networks were no longer working – all without any explanation as to which portions of its Terms of Service Ning believed have been violated by WidgetLaboratory.

All this appeared to have caught WidgetLaboratory off-guard, according to a blog post from WidgetLaboratory CEO Spencer Forman:

“As of this morning, August 22, 2008, we learned from our customers that Ning had unilaterally removed and all of its products. We have received no formal notice or explanation at this time. We have not violated any Terms of Service, nor have we violated any published ‘guidelines’ from Ning.”

“This action by Ning was completely without any notice, was without any merit, and in our opinion was done for the sole purpose of eliminating a company that had started to provide a useful and valuable service to all of you. We have a full and complete documentation of our relationship with Ning from the very first moment that we contacted them in November of 2007 and met with them subsequently to get their blessing for creating our company and products. The facts and details contained therein will substantiate our claims regarding Ning’s actions.”

In a later post, WidgetLaboratory claimed that Ning was not responding to its attempts to resolve the issue and that “Ning has removed all of our accounts and has blocked our IP addresses from using their servers at all, so that we cannot even follow the postings on the Network Creator’s Forum, let alone respond or give our own facts or details.

The only response WidgetLaboratory apparently received was from Ning’s general counsel, who reportedly informed it that:

“Unfortunately, this is a black and white issue of WidgetLaboratory violating our Terms of Service after multiple warnings and negatively impacting the Ning Platform. We had to act and did so…the answer won’t be to bring back WidgetLaboratory. Our Terms of Service are there for a reason. Please know we did not enter into this decision lightly.”

According to WidgetLaboratory, it was never informed that it was “negatively impacting the Ning platform” and claims that in the past, it had always worked successfully with Ning to resolve any technical issues.

According to TechCrunch’s Jason Kincaid, who spoke with Forman, some of the past complaints related to “network degradation” were oftentimes “actually a fault of Ning’s servers or setup.

On late Saturday, WidgetLaboratory decided to deal with the situation proactively by making the code for its widgets freely available under an open source license. It also indicated that it plans to release a migration tool so that Ning users can move their social networks elsewhere.

Forman also posted records of his communications with Ning in an effort to back his claims up.

While I find Forman’s emails to be a bit too confrontational and demanding, platform operators should not be so naive as to assume that all third-party developers are going to be pleasurable to work with.

Building a successful development platform is as dependent on being 110% committed to working with and supporting developers (who are normal human beings with unique personalities) as it is on providing an attractive platform and API.

Ning’s emails demonstrate, in my opinion, that the company was less-than-prepared to deal with “high maintenance” third-party developers and the early discussion of the possibility of terminating WidgetLaboratory’s accounts seem to indicate that Ning was already anticipating a negative outcome – something that is unhealthy in any “dispute resolution.

While it remains to be seen if and how Ning and WidgetLaboratory will resolve this drama formally, and which party is telling the “truth,” it’s not too early to use this incident to highlight a few key points.

  • While “software as a service” and “cloud computing” are sexy, running software and storing data in-house offer a number of advantages. Control is one of the greatest assets a company can maintain and while taking full control of your software and data is not usually without challenges, including greater costs, relying on a third-party to host services that are crucial to your business creates a major liability.

    Using a hosted third-party social networking service isn’t for everyone. I’ve called Ning the equivalent of “ezboard 2.0 or Yahoo Groups 2.0” and still believe that it is. In my opinion, that makes it a viable solution for hobbyists and enthusiasts – not for those looking to run businesses or build large-scale social networks. Yet from the comments on this situation, there are clearly people operating social networks on Ning that they feel are “businesses” and that are generating revenue.

    As I see it, this is not a good idea for obvious reasons, including the fact that there are no guarantees that Ning will always provide a reliable service or even remain in business.

  • There will always be some tension between platform providers and platform developers. While the idea of development platforms has been romanticized by the Web 2.0 crowd, it’s naive to believe that there aren’t conflicts between the interests of the platform providers and the platform developers.

    First, enabling third-parties to develop functionality and services that platform operators don’t offer can lead to lost business opportunities. For example, I recently pointed out that Facebook has essentially ceded its opportunity around music to iLike, a third-party.

    In the case of Ning, Ning and its investors should certainly have some concern that a third-party developer like WidgetLaboratory has been able to offer apparently compelling functionality to Ning’s users that Ning itself, for whatever reason, has not. And it has been able to build a nice little business doing so.

    In fact, according to Kincaid, WidgetLaboratory, which only has two employees, “may have been collecting as much revenue as Ning itself.” If that is true, it is a damning indictment of Ning as a business given the exorbitant amount of funding – and hype. And it could conceivably create the type of resentment or jealousy that would make a platform operator like Ning less-than-friendly in its dealings with a platform developer.

    Second, an “open” API like the one Ning offers creates a number of risks for Ning. Most notably, it certainly seems possible that some of the widgets created by WidgetLaboratory and others could strain Ning’s resources. Whether this is the fault of the widget creator or Ning doesn’t really matter – the outcome for end users is the same and everybody loses.

    Thus, I believe that in a rush to offer open development platforms, most operators of these types of platforms have set aside sane development practices.

    The bottom line is that companies like Ning place themselves and their users at risk the minute they give third-parties an open API without an explicit testing and certification process.

    In my experience, no matter how well-thought-out an API, there is usually some room for problems because relying on third-party developers to implement solid programming practices and to adhere to “the rules” is not a realistic solution.

    In this case, even if WidgetLaboratory’s widgets were becoming an undue burden on Ning, the buck stops with Ning because once a widget is made available to users, they realistically have no knowledge (and concern) about the implications for Ning so long as the widget “works” for them.

    Interestingly, one TechCrunch commenter claims that Ning has “MAJOR architectural issues” and that he’s been contacted by multiple recruiters working on behalf of Ning who are looking for “platform leaders” to “fix their problems.” If true, the buck really does stop with Ning.

At the end of the day, Ning’s actions vis-à-vis WidgetLaboratory have implications for everyone:

  • For users: outsourcing to third-party platforms anything important reduces control, increases risk and should not be done without great consideration.
  • For platform operators: offering an open development platform enables third-parties to extend your service, which has its benefits, but the risks created by involving third-parties with your technology and business often outweigh the benefits and can lead to ugly conflicts that hurt all stakeholders. This is especially true when the platform operator is not yet financially viable on its own and may be forced to change its policies later on because of its financial interests.

  • For platform developers: when you build a business entirely around developing for another company’s platform, you can lose your business in a heartbeat.

For all involved, perhaps Napoleon Bonaparte provided the best advice:

“I have only one counsel for you – be master.”

While it’s not always possible to “be master,” for current Ning users it is.

As I have argued before, social networking “merely represents the evolution of message boards and services like Geocities.”

Just as open-source message board software such as phpBB enables those with a modicum of technical skill to set up a message board community, an increasing number of open-source social networking platforms, such as Elgg, enable individuals and companies to run social networking communities in-house.

This significantly reduces the risk that they could fall victim to a situation like the one transpiring between Ning and WidgetLaboratory.

In other words, Ning, its drama with WidgetLaboratory and the increasing availability of self-hosted open-source social networking solutions highlight the fact that, in my opinion, Ning and services like it are no longer compelling solutions for anyone.

Needless to say, I think investors in the Legg Mason Opportunity Trust, one of Ning’s major institutional investors, will learn that the fund’s $44mn investment in Ning’s “scaling” and “infrastructure” might just as well have been invested in subprime.