A few days ago, Brad Feld drew attention to The Facebook Problem, epitomized by the developer with quarter of a million users of his application , and hence of his infrastructure and of his wallet. It’s the old “we lose money on every transaction, but make up for it on volume” problem.
The Web 2.0 solution to this problem is to be acquired. Pete Cashmore reported earlier today that the Facebook frenzy has started. “I think these apps are good bets: when Facebook finally allows rev share on applications, and companies figure out how to drive traffic back again, these aggressive moves should pay off.”
I agree with Pete that there are probably some good acquisitions to be made here. However, I think of it in a slightly different way. The firms doing the acquisitions can afford to take a longer-term and riskier stance than can some of the developers paying for the Facebook problem.