Make money in the Facebook Economy !

Talk about a killer app. Two years ago Jia Shen and Lance Tokuda wrote, just for fun, a goofy Web application for MySpace that could turn anyone’s photos into live-action slide shows. It succeeded - horribly. Within days of its launch, hordes of users at the then-superhot social network discovered the app, added it to their profiles, and communicated it to their friends. It spread like a case of Ebola at the Super Bowl. Within a month Shen and Tokuda had 100,000 users, and traffic was doubling every 24 hours.

The servers - those digital canaries in the mine shaft - crashed, and crashed again. “It was crazy,” Shen says. “We were down 17 of the first 30 days.” Then it got worse. With traffic peaking at 1.5 million users, server costs topped $20,000 a month. And there was no way to monetize their creation.

Still, they soldiered on for more than a year, keeping afloat with tens of thousands of dollars in loans while hoping to figure out a way to turn their enormous fan base into a brilliant business. It never happened - at least not on MySpace.

This spring, however, Shen and Tokuda spent a few days porting their MySpace hit over to Facebook. The upstart social network began as a hangout for high school and college students and last September allowed anyone to join.

Eight months later, Facebook did something MySpace still hasn’t done: It opened up its network to developers and made it easy for them to make money from their applications. Which is exactly what Shen and Tokuda did when they rewrote their app and let it loose on Facebook.

Two months later, the duo had generated more than $200,000 in ad revenue. By late July they had 14 other apps up and running, with more than 22 million users. “When we started, we had no idea what we were doing,” Shen says. “Now we have a whole suite of applications, and that’s where our power is.”

It’s an increasingly common tale as the Facebook economy picks up steam. In just 10 weeks, hundreds of developers launched more than 2,500 new applications, triggering 139 million downloads. While a possible Facebook IPO or acquisition could change things overnight, for the moment it’s a free-for-all.

The apps have names like FoodFight, Zombies, (fluff)Friends, and Fortune Cookie, and they let users indulge in everything from scrawling graffiti and sending virtual cocktails to buying music, brokering loans, and joining charitable causes - usually without leaving their Facebook homepages. Some apps have attracted hundreds of thousands of users, and a select few have pulled in millions.

One venture capital firm, Sand Hill Road-based Bay Partners, has set aside more than $12 million to bootstrap 50 new Facebook applications. “The current apps only scratch the surface of what is possible,” says Salil Deshpande, a partner at the firm. “We’re looking for much more sophisticated applications that can make money.”

1: Sell ads

The play

Just about any Facebook app can get into the ad game, but only those with the biggest audiences will earn serious money. Several easy-to-use ad networks are already delivering the ads for a cut of overall sales.(See “Tools,” below.)

The front-runners

Graffiti (5.9 million users). This highly viral drawing tool spread quickly because of its simplicity and originality.

iLike (5.4 million users). Users can set up their music and video libraries in mere minutes.

The Simpsons Photos, Quotes, and Trivia (60,000 users). Pearls of wisdom from the first family of Springfield.

The payoff

Apps currently generate less than $1 for every 1,000 pageviews. But that amount will likely increase as demographic targeting becomes more refined and the ad models move from simply racking up pageviews to measuring users’ engagement.

Tricks of the trade

1. Establish your base. Hold off on serving ads until you have at least 10,000 users. Bombarding users with too much advertising can scare them away and hurt your growth in the long run.

2. Test different ad networks. Putting up ads is a simple cut-and-paste operation, so you can afford to be choosy and pick the network that gives you the best deal.

3. Don’t clutter up app pages. “This is definitely a challenge for developers,” says Mark Kantor, one of three developers behind Graffiti. “The most important thing is to preserve user experience.”

4. Renegotiate as you grow. Demand a bigger cut of the revenue share as your traffic jumps. Says Kantor, “It might be better to go with a small ad network if you think you’ll stand out.”

Tools

Dozens of ad networks are cropping up to serve the Facebook developers. Here are a few.

1. Lookery (lookery.com). This new Facebook-specific ad network aims to offer developers demographic profiles of their user bases. More targeted advertising could soon fetch a higher price.

2. Userplane (userplane.com). AOL-owned Userplane pays per minute of exposure rather than just per pageview, so it’s good for applications like games that keep users highly engaged.

3. Google AdSense. Not new, but many developers consider it the best means of supplying relevant ads.

2: Attract sponsors

The play

Advertisers are already sponsoring apps. Besides being widely used, your application needs to offer companies a natural way to interact with their customers.

The front-runners

Likeness (2.9 million users). Offers quizzes that generate top-10 lists - an ideal branding vehicle - and matches them with those of friends with similar preferences.

FoodFight (2 million users). Virtual lunch money buys you food to throw at friends. Next up on its menu: chicken wings from a major food chain.

HotLists (1.6 million users). This app lets users define their personas by posting brands’ logos, cleverly dubbed “stylepix,” on their profiles.

The payoff

Building direct relationships with brands takes more time and effort, but it means higher-quality advertising and more control over how your users interact with it. Expect to earn multiple-dollar CPMs instead of the pocket change you’d get from the ad networks.

Tricks of the trade

1. Don’t pitch big brands without big numbers. You’ll need a large traffic base - at least a few million users - before top brands will pay attention.

2. Know who’s looking at your pages and why. Analyze your user demographics so you can pitch your audience effectively to sponsors.(See “Tools,” below.)

3. Let your users do the work. Incorporate brands that your users identify with, and they’ll willingly spread the word.

4. Don’t overdo it. Too much brand presence will scare away Facebook’s sometimes advertising-averse audience.

Tools

Where to find help analyzing your traffic and users.

1. Google Analytics. Embedding Analytics into your apps is easy, and it churns out useful stats about where users are coming from.

2. Gigya (gigya.com). This startup tracks metrics like app stickiness and user adoption rates.

3. Appaholic (appaholic.com). This site tracks traffic growth by the hour, day, or week - critical when launching a new ad campaign.

3: Sell services

The play

As apps become more about utility and less about fun, opportunities will arise to sell digital services of lasting value to users. Eventually, they’ll make purchases without leaving their profiles.

The front-runners

Files (43,000 users). Offered by Box.net, this online file-storage service turns a Facebook profile into a repository for members’ digital media.

Picnik (206,000 users). A Facebook version of Photoshop.(Hello, Adobe?) Basic tools are free; advanced features are offered for an additional fee.

The payoff

If you’re selling a real service, then you can have your cake and eat it too- try selling subscriptions and ads to double-dip on your traffic.

Tricks of the trade

1. Start with a free version. And make switching to a paid offering an easy process. Don’t force users to leave Facebook to sign up.

2. Set logical limits. Decide carefully what you’ll give for free and what you won’t. And even the freebies must be valuable enough for customers to be willing to spend their time.

3. Research your price points. Box.net already had storage plans for businesses and professionals. But when it moved onto Facebook, the company rethought its pricing models and created a $25-per-year plan that’s comparable to the cost of an external flash drive - the way most college students store important files.

4. Be tactful and timely. Box.net alerts its users when they’re nearing their file or storage size limits, politely reminding them about its for-pay premium service.

Tools

Where to find a platform to process payments.

1. PayPal. A starter plan will cost you 2.9 percent plus 30 cents per transaction.

2. Google Checkout. The standard processing fee is 2 percent plus 20 cents per transaction.

3. Facebook. The company is rumored to be launching its own payment platform soon.

4: Sell products

The play

As Facebook increasingly becomes the center of people’s digital lives, it’s also becoming a venue for selling things - digital and otherwise - to its fast-growing audience.

The front-runners

Amazing Giftbox (127,000 users). Sends virtual Amazon merchandise.

Band Tracker (29,000 users). Searches upcoming concerts and links to ticket vendors.

Visual CD Rack (20,000 users). Lets users browse and buy music from a virtual CD rack.

The payoff

Most developers are going the affiliate route, offering product wish lists and then sending users to sites like Amazon.com or iTunes. Others, however, are directly selling such items as ringtones and T-shirts.

Tricks of the trade

1. Be a middleman. iLike makes its music-sampling apps simple and hands off sales to iTunes or Amazon via affiliate partnerships. Those directly selling hard goods need to prepare for the complexity of payment and delivery.

2. Keep it simple. Facebook has not yet become a place where people are likely to buy, say, a digital camera. But users are starting to purchase items that don’t break the bank and extend Facebook’s utility. XLR8 Mobile, for instance, is looking to sell ringtones and wallpaper on Facebook via custom storefront widgets. “We don’t want to bring people to the store,” says XLR8 Mobile CEO Perry Tell. “We prefer to bring the store to the people.”

3. Give it away. Going viral is always the goal. One great way to get there is by offering free samples. Whether it’s a digital download of a song or the image of an item, give your customers a taste of what they’ll get before asking them to commit.

4. Don’t rule out the odd. “Sometimes wacky, unusual, off-the-beaten-path stuff sells huge,” Tell says. “Everyone is looking for the next Crazy Frog, so you must be willing to try lots of things.”

Tools

1. Clearspring Technologies. This analytics service tracks exactly who’s downloading an app and what they’re buying through it. It also suggests when to double down on an item or sales approach that is working or, conversely, kill off those that aren’t.

2. Garage Sale. Developers can use this Facebook shopping cart system run by Buy.com, which takes a 5 percent cut of sales.

3. Facebook Marketplace. The largest classified-ads community on the network, it’s a good place to monitor buying trends.