When Facebook launched its developer platform in 2007, many expected e-commerce applications to take off — the idea was that people would want to find and share products with each other on Facebook, and complete purchases.

Instead, simple sharing applications and social games were the hits. By the end of that year, industry insiders were looking towards 2008… but you have to fast-forward to this year to hear about significant results from developers.

For example, e-commerce app provider Payvment recently told us that it was adding “more than 250 retailers and roughly 10,000-20,000 products” on Facebook every day, and recently passed the 40,000 retailer mark. The company, which offers a networked set of apps for Pages, recently closed a $6 million round of funding to help it expand.

Facebook itself has been giving e-commerce new attention.

In a just-published interview with BusinessWeek, business development director David Fisch says that Facebook set up a commerce partnerships group in November, that is “meeting with retailers to help Facebook develop software that lets users solicit advice and product reviews from Facebook friends in real time, even while they’re shopping on other sites.” Fisch also says that it is working on analytics tools that will let retailers learn more about which users are drawn to which products.

It’s not yet clear how Facebook might work with or compete against third parties offering apps and other services to retailers on Facebook.

Besides Payvment, other third-party developers working with retailers on Facebook include Alvenda, ShopTab, Fluid, Yardsellr and BigCommerce.

One final note: while we’ve been tracking Facebook’s efforts to expand its Credits virtual currency, Fisch reiterates the company’s long-held stance that it has “no plans to use let consumers use Credits to buy physical products.”

For only the second time in Facebook’s history, a game is threatening to break past 50 million players. Zynga’s new title CityVille has burst upward to its present size of 47.9 million monthly active users in less than three weeks, easily leading this week’s AppData list of fastest-growing Facebook games by MAU.

There are a number of factors contributing to CityVille’s growth, including strong cross-promotion, international users and moving third-party app notifications back to the top menu bar earlier in the month. We’ve covered these as the game progressed, with our latest post on the subject this morning at Inside Social Games. Here’s the full list:

Top Gainers This Week

Name MAU Gain Gain,% 1. CityVille 47,926,318 +25,872,767 +117% 2. My Year In Status 13,545,803 +4,563,995 +51% 3. Zuma Blitz 4,813,322 +3,820,088 +385% 4. Causes 21,108,958 +3,434,729 +19% 5. Badoo 8,153,512 +2,533,146 +45% 6. Merry Christmas To All My Friends :) 2,021,352 +1,936,028 +2,269% 7. @Hearts 9,389,284 +1,342,499 +17% 8. @Hugs 10,244,784 +1,312,409 +15% 9. FarmVille 56,315,680 +1,276,909 +2% 10. @Smiles 10,480,081 +1,145,949 +12% 11. JibJab 5,442,987 +1,050,656 +24% 12. Merry Christmas | Feliz Navidad 1,513,190 +984,614 +186% 13. Monster Galaxy 1,371,509 +924,177 +207% 14. My Year In Photos 1,105,943 +877,594 +384% 15. Give Hearts 14,596,531 +864,343 +6% 16. Frases Diarias 11,509,640 +758,006 +7% 17. phrases 4 fun 4,443,265 +730,784 +20% 18. Christmas – Natale – Navidad – Noel 1,008,761 +722,826 +253% 19. Texas HoldEm Poker 34,347,919 +656,578 +2% 20. City of Wonder 8,282,207 +629,893 +8%

Regular readers will note that the gains are a bit higher than normal across the board. Some of that is a surge in use of wall posting and gifting apps around Christmas, but the other half is likely the same third-party notification change that’s helping CityVille.

My Year In Status is making hay with the holiday, even more so than last year, when it topped seven million MAU. That makes sense, of course, Facebook being twice the size it was at that point. It’s followed by Popcap’s newest game, Zuma Blitz, which is a pretty significant growth story in itself.

Causes has been up and down in recent months; this week it has an impressive gain of 3.4 million MAU. Dating app Badoo, meanwhile, is doing quite well, and has a quite respectable stickiness to go with its MAU growth, showing about 13 percent of its total user count coming back as daily active users.

The top 10 is mostly completed by various @Apps titles, including @Hearts, @Hugs and @Smiles. In the last week, @Apps has gained over three million MAU, leaving it ready to break through 30 million total.

To educate users and address concerns, Facebook created an introduction page and video for the Instant Personalization program. Some users have come to believe that Instant Personalization shares their private data with third-party websites without their consent, whereas only publicly available basic information and data set to be visible to everyone is shared. The introduction page launched in September but is updated to reflect new partners. Improve understanding of Instant Personalization is crucial to its long-term success.

The launch of Instant Personalization at this April’s f8 was met with criticism of its opt-out default and how it shares data without permission. These concerns were compounded when a minor security breach in Yelp’s Instant Personalization integration incited fears about privacy implications. Facebook halted the roll-out of the program for five months until a second wave of partnerships, including Scribd, Flixster’s Rotten Tomatoes, Microsoft’s Bing, and most recently Clicker began in late September.

Somewhere along the way, users may have gotten the impression that Facebook was sharing their private data. At the Bing Instant Personalization launch, chief executive Mark Zuckerberg said that “there’s a lot of misconceptions about this. People have this notion that you go to a site and Facebook sends all your information to that site. That’s not true.” Facebook is now confronting these misconceptions head on.

If a user attempts to change their Instant Personalization privacy settings with their Applications and Websites setting, a roadblock pop-up of an informational video appears. It conveys Instant Personalization’s purpose and how users will know if their experience on a website is being personalized. Users must watch or close the video before being able to manipulate their settings.

Text above the video reads, “Just as your News Feed on Facebook is uniquely for you, instant personalization enables select partners, such as Pandora and Rotten Tomatoes, to create social experiences tailored for you.” By equating the program with the news feed, another feature which users initially protested but grew to love, Facebook aims to reassure users that while Instant Personalization might be a little unsettling at first, it will enhance their experience.

If users click to “Learn More”, they’re brought to the new introduction page with the headline “The web is better with friends”. Along with the video, users can also see a list of the current partner sites, a walkthrough of privacy settings, and a link to the Help Center which also displays a prominent red section linking to the video. An explanation of how the program works states “partners adhere to Facebook’s guidelines and may only use your public information to serve you a personalized experience.”

Expanding the program to more sites won’t help users if they disable it during this early stage. These educational efforts should increase the likelihood that users who seek to turn off Instant Personalization are first clear on how it actually works.

Check out the top headlines and insights this week from Inside Social Games – tracking all the latest developments at the intersection of games and social platforms.

Monday, December 13th, 2010

• With Over 20 Million Users, CityVille Is Already a Metropolis
• Big Developers Run This Week’s List of Fastest-Growing Facebook Games by MAU
• Farmandia Shows a Spark Remains in the Farming Genre
• Game Design Has Become a Game

Tuesday, December 14th, 2010

• Enter Nostalgia with Smurfs’ Village on iPhone & iPad
• Preview: Playdom’s Kogamu, an Action MMO for Facebook
• Zombie Party Combines the Undead With Standard Facebook Game Mechanics
• Three Great New Games Grace This Week’s List of Fastest-Growing Facebook Games by DAU

Wednesday, December 15th, 2010

• RubyCoins Adds In-App Payments, Readies for Cross-Platform Gaming
• Glu Mobile Upgrades the Social RPG Genre for iOS with Hero Project
• Highlights This Week from the Inside Network Job Board: NaturalMotion, Villain, & More

Thursday, December 16th, 2010

• DeNA Readies Mobagefor Worldwide Release With Ngmoco, Samsung
• Exploring Basic Economics & Social Skills in Tween Virtual World Woozworld
• OpenFeintTries Group Buying for Mobile Games With Game Channel
• Bigger than a Bodega, More Miniscule than a Mall, My Shops Personalizes Facebook Sims
• New Hires in Social Gaming: Digital Chocolate, Kabam, Meteor Games, & More
• Last Chance for Early Registration for Inside Social Apps InFocus 2011 – January 25th in San Francisco

Friday, December 17th, 2010

• TeamLavaContinues its Story Titles with Treasure Story
• Monster Galaxy Sweeps This Week’s List of Emerging Facebook Games
• Icebreak Games Brings Players the Farm of Their Dreams in Paradise Life
• Booyah Removes Energy from Nightclub City, Adds More Club Options
• Social Gaming Roundup: Dr. Dre, Bing, Charities, & More

The Wall Street Journal just ran another piece in its series covering online privacy issues, this time focusing on how mobile apps on the Apple and Android platforms may share unique device ID numbers without consent. If matched against real names, UDIDs pose a bigger privacy risk than cookies on websites since people usually have one phone and carry it with them constantly.

The storyline from here on in will be familiar. Apple has already been cracking down on developers the Journal inquired about this week. At least one company we know started employing SSL encryption for UDIDs yesterday. There might be a fall guy (like how Lolapps and Gambit were singled out when Facebook faced privacy-related criticism). There will be fixes — some necessary, some cosmetic. Then things will go back to the way they were.

On the whole, the “What They Know” series is great for mainstream consumer education. But its sometimes simplistic descriptions of industry practices and occasional scaremongering creates risk that uninformed policymakers will draft poorly targeted legislation. It could end up being unnecessarily destructive to consumer Internet businesses or be so cosmetic that it doesn’t really fix underlying problems.

The thing is: Data collusion is a problem inherent to platforms and their ecosystems. The same power that gives two guys the ability to quickly build and ship a product that 1 million users know and love is the same power that gives two guys the ability to walk off with sensitive, personal data on millions of people.

Platforms like Facebook, iOS and Android have unleashed the fastest-growing businesses ever known. Zynga trades at an implied market capitalization of just under $5 billion on highly illiquid secondary markets. Groupon became a $6 billion company in 24 months, after growing in a large part through targeted performance advertising on Facebook. There are more than 550,000 applications on Facebook, 300,000 on iOS and 100,000 on Android. People use apps to book flights, find restaurants, play games and serendipitously run into friends.

But with that incredible distribution power comes risk to consumer privacy.

The incentives for data collusion among developers will always be strong. As long as these powerful platforms exist, so will some symbiotic entity that barters, trades, collects and matches data on individual users. Today it’s Rapleaf, which shares a venture investor with Facebook. Tomorrow it will be some other company.

Frankly, there is no way that companies like Facebook, with fewer than 2,000 employees can — day in and day out — police more than 2.5 million developers and 100% guarantee that there aren’t privacy violations or unauthorized data sharing by third-party apps.

That’s not to say these companies are lax.

Each one has a slightly different regulatory approach. Apple employs a preventative strategy. It vets apps ahead of time and puts them through an unpredictable approval process to the ire of developers. Once it gives an app the green light, Apple tends to leave it alone unless there is an egregious terms of service violation.

Google takes a post-hoc approach. It doesn’t do upfront vetting, but users can flag apps and Google can take them down after they’re already in the store. Unlike iOS, users can also return apps although the window was shortened to 15 minutes from 24 hours last week. A post-hoc approach has, of course, unleashed huge spam problems in the Android Marketplace, which Google is only beginning to come to grips with.

Facebook’s approach is closer to Google’s. It has algorithms that can automatically take down apps if they’re growing in suspicious ways, but it also employs human checks as well. Over the years, we’ve become pretty familiar with late Friday developer crackdowns.

What’s interesting at this moment is that there is an open question in Washington D.C. as to how legally liable platforms are for the behavior of third-party developers.

The overwhelming majority of developers produce immense value for consumers, but let’s take an extreme hypothetical example. If an unscrupulous app developer launches a “Sexual Purity Test” or “How Mentally Stable Are You?” Quiz (yes, the latter is real), gets millions of users and secretly sells that data to pharmaceutical or insurance companies, how much liability does the platform bear?

Technology companies are hoping more of that responsibility will fall to an empowered Federal Trade Commission. Momentum is also building for the Department of Commerce to create a federal office for guiding online privacy regulation.

But if the platform companies can’t entirely control their ecosystems, I sincerely doubt the FTC or any privacy czar can.

Consumer education is far from where it needs to be. On sign-up prompts, platform providers could force developers to excerpt key parts of their privacy policy and explicitly list third parties they share data with. They could also make it a lot clearer to users about who developers are (since violators often just go and set up shop under a different name if caught).

There aren’t easy answers here. For all of the value that that these platforms unlock, we’ve opened Pandora’s Box when it comes to privacy.

[Image via The Wall Street Journal.]

Facebook Plans 15 Acquisitions in 2011 – Company corporate development manager Michael Brown said it was looking at 15 acquisitions in 2011, according to peHUB. These would be similar others this year, like the Hot Potato and drop.io acquisitions in that they would be a mix of talent and product acquisitions. More details and a video at the link.

Zuckerberg, Facebook in Time Magazine – Facebook CEO Mark Zuckerberg was named Time Magazine’s Person of the Year and the magazine also had an interesting photo gallery of Facebook offices around the world. [Image via Time]

Facebook Best Place to Work – Glassdoor placed Facebook at the top of its list of 50 best places to work. It beat out Apple and Google.

NetFlix Searches For Facebook Engineer – NetFlix posted a job for a Facebook Integration-Engineer/Architect recently who can “create a more social Netflix experience.”

Obama Administration Considers Privacy Office – A report from the Commerce Department suggests that a potential Privacy Policy Office could be created to manage commercial uses of personal information. More at the link.

Visualizing Facebook’s User Connections – Paul Butler, a Facebook data infrastructure engineering team intern, created a visual representation of what Facebook’s 500-plus million users’ connections look like, geographically. [Image via Facebook]

Facebook Sets Sights on Big Media - Facebook has hired two New York-based executives to work specifically to get big media companies to work with the social network. They are: Andy Mitchell, who worked as VP of business development at The Daily Beast and Nick Grudin, who did the same job at Newsweek.

Paciolan, Buddy Media Partner to Sell Tickets - Paciolan has developed a white label version of the Buddy Media Platform, PAC Social MEdia, to better use Facebook to sell tickets and promote events.

Details on Facebook’s Policing Team – The New York Times took a look at Facebook’s “hate and harassment team,” which essentially decides what content to keep and remove on the social network.

Fan Appz, Miami Dolphins Grow Fans – The Miami Dolphins NFL football team have enlisted the help of the Fan Appz platform to help grow their Facebook fan base, which currently runs about 446,000 Likes. The Dolphins will work to create deeper connections to their “Finatics” Facebook community using Fan Appz in the near future.

Oodle Expands on Facebook – The classifieds search engine Oodleis set to roll out new social features to better nexus with Facebook.

Construction Hiring in Rutherford County, NC – Construction hiring has begun for Facebook’s latest data center in Rutherford, North Carolina. About 150 electrical jobs will be open for applications.

Facebook’s weekly Developers Blog Platform Update includes information about a new Platform change log, implementation of the third-party ID mechanism, and deprecations of some APIs and FBML tags at the end of the year.

Platform Change Log

Since Facebook pushes new code every Tuesday night, it can be difficult for developers to stay up to date on changes. To make it easier for for devs to integrate the latest features and keep their apps functioning, Facebook will now file Platform changes in the new change log in addition to announcing them on the Developers Blog. Changes go live on beta.facebook.com on Sunday night, giving devs two days to test their apps before the changes are rolled out to the public.

Third-Party Unique Identifier Mechanism Roll Out

In the aftermath of the user ID sharing issue, Facebook developed a mechanism to allow applications and acceptable partners to verify the identity of users without sharing their user IDs. Developers can assign users a unique third-party identifier via the Graph API or FQL. All applications must begin using this system by January 1st, 2011.

API and FMBL Tag Deprecations

Facebook will begin returning an error or cease to recognize many “old and infrequently used FBML tags and API methods” starting January 1st, 2011. Developers should check the full deprecations list to see if their apps will be affected.

While it was previously announced that pages.blockFan would be deprecated, Facebook has responded to developer feedback about the need for a method to prevent unruly users from spoiling the experience of others. The call has been removed from the deprecation list and will continue to be supported.

For years, the conventional wisdom in Silicon Valley was that social networks were expensive to run, and didn’t make much money. So as Facebook grew by hundreds of millions of users over the past few years, many people wondered if it was in financial trouble.

Revenue, however, appears to have doubled every year since 2007. And at this point it appears to be increasing even more sharply.

Based on what we and others have heard, we’ve tracked Facebook making $150 million in 2007, slightly less than $300 million in 2008, and somewhere up to $800 million in 2009. A number of reports have suggested that it will make $2 billion or more this year, and we have also heard the same estimates in recent months — up significantly from the $1.1 billion number that the company  loosely confirmed earlier this year.

How? Through growth in brand and performance advertising — payoff from years of investment — with revenue from its Credits virtual currency only starting to kick in.

But, aside from bits of information provided by sources close to Facebook, there is very little information available about how the latest revenue numbers actually break down. So here’s a closer look at what we think is going on.

Some high-level points, before we get started. Facebook’s user base has boomed from around 375 million at the beginning of the year to somewhere around 575 million today, with growth happening across the world, in all types of advertising markets (see our Inside Facebook Gold report for more details on Facebook’s worldwide traffic). Engagement is also massive: Facebook says that more than 50% of users visit the site every day.

Facebook’s product development has focused on continuing to increase engagement and gathering more user data — factors that help it target advertising more accurately to more people more often. And although we’re focusing on revenue here, we should also note that Facebook has made significant hardware and software investments to reduce infrastructure costs, helping it to become profitable as of late 2009.

Performance advertising

Zynga and other social gaming companies began utilizing Facebook’s self-serve advertising system in order to reach more users over the course of 2008 and 2009. Along with a smattering of online performance marketers, and a few early adopter small businesses and major brands, the developers provided significant boosts to Facebook revenue in past years.

That trend has continued, with local advertisers, social game developers and group buying sites like  Groupon reportedly making massive investments. Advertisers have reported prices steadily rising as more of them figure out how to achieve their desired returns on investment. As of this past fall, the average cost-per click in Facebook’s largest market, the United States, is around one dollar. For developers interested in learning more, we’ll be examining how advertising is working for Facebook and developers at our Inside Social Apps conference in late January.

Facebook has been making a significant new effort to help performance advertisers spend more money. It introduced an advertising API last year that allows third-party service providers to place thousands of automated, highly targeted ads on behalf of clients. While that program has rolled out slowly, big search marketing businesses like Omniture have moved in to offer services to clients, and a dynamic ecosystem of startups are competing for clients as well.

Facebook also ended most parts of its original advertising deal with Microsoft, where that company ran banner ads on the site and split the revenue — the relationship is now more product-focused, on things like social features for the Bing search engine.

In addition to more users, more engagement, more advertisers, and the new options available through the API, that switch helped make even more inventory available to sell against.

Brand Advertising

Facebook has been trying to pitch Madison Avenue on the benefits of its advertising services for years, and all those efforts appear to be paying off now. Most major brands at least have a Facebook Page today, and dozens have created more sophisticated applications, Facebook integrations on other sites, and other campaigns designed to engage with users.

While Pages are free, Facebook upsells owners into its performance and brand advertising services. The home page ads are only available to companies that spend $50,000 or more, and include a variety of engagement-focused options, such as the ability to Like a Page or RSVP to an Event with a single click.

The company has also aggressively stepped up its sales efforts to large brands, building out its staff in New York City and many other offices around the world, and hiring a series of veteran salespeople away from other technology and media companies.

While there’s little information available about the amount of revenue now coming from large advertisers, anecdotal evidence suggests it is booming. For example, a number of Page management companies, like Buddy Media, are saying that they’re seeing significant new interest.

Credits

While still in its early stages, Credits will likely form another key revenue driver for Facebook in the future. This past year, the company made it clear to developers that Credits would be the only payment option for virtual goods in canvas applications. While many companies have not fully integrated Credits yet, expect them to in 2011. Also look for Facebook to expand Credits to the web and mobile devices — something that many have speculated about, but has not yet happened. If Credits proves to be a big success in 2011, we expect Facebook to quickly expand it beyond the home site.

While a new game called Monster Galaxy leads this week’s AppData list of emerging Facebook apps, the Christmas apps are the real story, including . With just eight days left until the big day, we’re bracing for a great many more apps than have shown up so far.

Name MAU Gain Gain,% 1. Monster Galaxy 848,868 +725,565 +588% 2. Merry Christmas To All My Friend :) 618,741 +583,645 +1,663% 3. Christmas – Natale – Navidad – Noel 693,543 +564,025 +435% 4. My Year In Photos 642,523 +496,213 +339% 5. #1 Song On My Birthday 967,633 +393,443 +69% 6. Crazy Cabbie 522,543 +263,475 +102% 7. My Top Followers 397,827 +250,671 +170% 8. Especialmente para ti 804,724 +239,395 +42% 9. ♥ ♥ SpeciaL For You ♥ ♥ 846,278 +238,496 +39% 10. 超級職場 — 超人氣！免費休閒養成遊戲！ 618,732 +214,267 +53% 11. Trial Madness 2 306,942 +203,931 +198% 12. Envoyer une Rose 920,687 +185,413 +25% 13. Ninjas Rising 629,361 +171,794 +38% 14. Awak..? 378,659 +170,759 +82% 15. Galaxy X 419,924 +165,676 +65% 16. Paradise Life 254,121 +164,306 +183% 17. Downhill Snowboard 395,052 +164,214 +71% 18. Your statistics 759,282 +160,746 +27% 19. SNSplus 249,044 +152,307 +157% 20. Like It Too 926,464 +152,251 +20%

Monster Galaxy is an interesting new game, from the creators of tween virtual world Gaia Online. Anyone familiar with Pokemon will recognize the monster-collecting theme, but the game also lacks the strong time-based mechanics and monetization characteristic of most Facebook titles.

Apps like Merry Christmas to All My Friend are typically as bare-bones as possible, focusing on either greetings or gifting. My Year in Photos is in a somewhat different category, going through an entire year of the user’s activity to pick out the highlights — in this case, top photos, or down at number seven, My Top Followers.

Most of the remaining apps are pretty typical. Several are by AppBank, an app developer that has created hundreds of apps over the past year with varying levels of success, this week being one of its better ones of late.