Just over 24 hours after Facebook turned off application notifications, developers are reporting a dramatic decrease in traffic. Speaking to a number of developers, we’ve heard traffic has decreased in the range of 10 to 50 percent, depending on the application, most hovering between an 18 to 27 percent decrease. While our poll sample was small, Facebook developers are now entering the “post-notifications era”. So what does this mean?

There are a number of theories about why Facebook would kill off notifications but ultimately there were two primary routes for Facebook to take:

• Facebook fights spam - One option for Facebook to take was to increase spam filters which block out aggressive notifications. The benefit here is that the platform remains more open, however it requires Facebook investing resources in an area that doesn’t directly drive revenue to the company.
• Facebook makes things more controlled - The alternative is for Facebook to reduce viral channels slightly, in exchange for a better user experience. This will reduce traffic to “junk apps” and reduce total page views on the platform in the short-term, but it will enable Facebook to have greater control over distribution channels. It will also lead to more revenue through two channels: credits and ads.

Facebook’s Revenue Channels Drive Changes

Given that Facebook’s largest chunk of revenue comes from performance advertising, this is clearly going to be a major focus for Facebook. With an estimated $350 million in revenue last year from performance advertising, Facebook is heavily focused on this space. However, virtual goods are also an area which Facebook is hoping to experience a large amount of growth.

While it’s not known whether or not Facebook will force developers to use their Credits platform, there’s a very good chance Facebook will become the primary payment provider of all virtual goods on their site. This means Credits could very well become a business worth over $300 million a year if the platform is expected to generate over $1 billion in revenue each year.

These two revenue channels will become increasingly integrated into the overall Facebook experience moving forward, and that means any platform changes will most likely take into consideration ads and credit performance.

Facebook Is Now Pay To Play

While virality is possible within applications, it is no longer a given. There are two parties now who are “paying to play”: developers, who will now purchase more ads to drive traffic to their applications, and users, who will increasingly pay for virtual goods in games. While it appears that application requests and other channels still drive traffic, developers have become one of the largest buyers of Facebook ads.

Whether intended or not, this has pulled Facebook closer to many of the game developers and it has also given Facebook much greater control over platform developers.

The Life Of A Developer

Unfortunately as platforms of the past, the Facebook platform is not completely open. As Mitch Kapor, the developer behind the original Lotus notes, told a group of Facebook developers back in October of 2007 “innovations in the application space tend to migrate into the core platform”. In other words, developers serve as the R&D for Facebook.

In contrast to platforms of the past which often started from a more closed position and eventually opened, Facebook has moved in the opposite direction: slowly limiting the viral channels to developers and increasing their control over each channel. For the developers, these changes create ongoing tension with the platform providers (in this case: Facebook).

As I wrote in the “Social Web Economy: Developers“, platforms are the primary source of tension for all developers.

While developers have tension resulting from numerous sources (bugs in their applications, tight deadlines, etc), in the social web economy, the primary source of developer tension is the platforms. When a platform decides to revamp their entire system, or make sudden changes resulting from user feedback or malevolent actions by another developer, the rest of developers are impacted. On the Facebook platform the result was developers waking up at 3 am to fix their no longer functioning applications. Occasionally teams of developers worked around the clock in response to complaints from Facebook about terms of service violations.

Clearly Facebook needs to generate a relatively healthy environment for developers. Otherwise, developers will run off to other platforms, such as the Apple iPhone. As such, Facebook has launched a roadmap, a migration tool, and other features to increase transparency. That transparency continued as Facebook has made the shift away from notifications. Unfortunately for Facebook, despite transparency, there will continue to be some resentment from developers who prefer a completely open platform.

Where Is The Middle Ground?

Ultimately, one could hold the view that Facebook is an “evil participant” in the ecosystem, only looking to make more money as they move toward an IPO. By killing off notifications, Facebook forces developers to spend more money on ads and increasingly takes a cut of app developer revenue with Facebook Credits.

At the other end, Facebook is simply making adjustments that improve the overall user experience, making the ecosystem a more valuable environment overall. The company is improving the system and figuring out the most effective balance which takes into consideration the needs of platform developers as well as the company’s business objectives.

My guess is that Facebook is balancing the needs of both parties but ultimately they will always have the ability to make adjustments that benefit themselves more than the developers. That’s just what developers have to deal with. There is rarely an instance in which the owners of a platform will but the developers’ objectives ahead of their own business objectives.

The only case in which the developers get to make the final decision is open platforms like Linux, where developers can contribute to improving the overall platform. The business model for the licensed platform providers in such an ecosystem is a service-based one and Facebook has made it pretty clear that they don’t want to get into the services business.

For now, developers will have to deal with the short-term implications of the removal of notifications and figure out ways to regain traction, as they always do. The entire time it’s important for developers operating on the Facebook Platform realize: this is Facebook’s world. If you don’t want to put up with the challenges of the platform, you can just set up your application off the site.

Oh, and when you build that “off-platform” application, don’t forget to use Facebook Connect: it will increase your application’s engagement!