This story was originally published on July 10, 2007.
Sensing opportunity on the social media frontier, Bay Partners is planning to formally launch an “AppFactory” Wednesday to fund software coders who can push out programs that ride on the back of the newly open Facebook platform.
The venture capital firm, based in Menlo Park, California, has cobbled together a business plan that calls for “tens” of investments in the $25,000 to $250,000 range—far lower than the typical early stage venture round, which typically starts at several million dollars.
Though other venture programs like HitForge, backed by VC and entrepreneur Navil Ravikant, have moved toward a studio model by making small investments to jumpstart web 2.0 companies, AppFactory is unusual in that it focuses explicitly on the Facebook platform.
“Last month Facebook opened up its application programming interface so anybody could write applications,” said Salil Deshpande, a partner at Bay Partners. “This makes Facebook more than a social networking site, but it becomes a platform.”
Though News Corp.’s MySpace, the No. 1 social networking site, also has announced plans to open its site to outside programmers, it has offered no timetable. Facebook not only has invited software coders to build programs—sometimes called widgets--for users, but also is allowing developers to make money from them.
Mr. Deshpande said that while Facebook has embraced its new role as a “platform” on which other programs can reside and make money, MySpace has yet to demonstrate the same commitment. For instance, shortly before acquiring Photobucket in May, MySpace abruptly, but briefly, blocked the photo-sharing company’s access.
“MySpace hadn’t made the mental and emotional decision that they were a platform,” he said.
Facebook’s traffic has soared in recent months, with 26.6 million unique visitors in the United States coming to the site in May, an 89 percent increase over the year-ago period, according to comScore. Contributing to the increase was Facebook’s move in September that eliminated rules largely restricting registration to college students.
Facebook could offer more profit opportunities as its audience widens. Angela Strange, senior associate partner at Bay Partners, business networks already are cropping up on the site.
Mr. Deshpande said early efforts to create simple widgets have gained traction on Facebook, but that more sophisticated programs are on the horizon.
“There are a number of applications spreading virally very fast,” he said. “A lot of them aren’t monetizable, at least not yet. Going forward, the applications will not be the fun, simple applications people are using now. They will be monetizable in the same way web 2.0 sites are monetizable. Some are just toys. Others are very highly monetizable.”
Partnering with Bay Partners on AppFactory is the development community Ajaxian, recently acquired by publicly traded TechTarget. Funding requirements for budding software companies like those backed by AppFactory typically are modest, with one or two programmers working to pump out a program that will be marketed virally by users.
Though Bay Partners, whose investment include Riya and Microsoft spinoff Wallop, may be the first to fund programmers as they seek Facebook riches, Mr. Deshpande said it won’t be the last.
“We expect others to do so,” he said. “We think it’s so logical.”