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I don’t know if the people at Facebook meant to do it, but it’s been dawning on me that if you run software-as-a-service for consumers, Facebook makes sense as a brand new distribution channel to go to. By “channel”, i’m talking about the massive middelman gravy train of operating the distribution systems for software in the US and internationally. Otherwise known as, “the channel“.

I know very little about it personally, but I know enough to put two and two together - Facebook represents a new mechanism for allowing people to see your products, hence potentially it’s a brand new channel. It’s especially tuned for the ASP model of software-as-a-service being marketed to consumers, because it’s all being distributed throughout the social graph.

It’s got less in common with new internet-delivery software channels like Steam and Salesforce AppExchange (which don’t, and sorta, involve social participation in their mechanisms, respectively), and a lot more with Xbox Live. Once again, the MS Xbox Live team is light years beyond the rest of the company in being a role model for these social channels, and the social media web takes a while to catch on to the trends and respond.

Web businesses these days seem to mostly operate off of two models, either advertising (in which case you just care about traffic & users), paid services (in which case you really care about customers), or both. In any case, software as a service is difficult to market - you can pay for ads, try to go pester TechCrunch to give you access to their 200K (not sure on the recent count?) readers, or you can hopefully meet enough geeky people to give you a shot, and then “hope” for a viral distribution through traditional means. If you go any of the “viral” routes, your product has to be great enough for you to cause your users to email/IM/tell each other immediately, and those people to follow in suit. Since that’s rare, many startups conveniently allow you to email / market on your behalf immediately on sign-up, via email, or even giving away your credentials to fetch your “friends” from an external source.

Obviously, as many have mentioned, Facebook turns that on its head. If you can manage to get someone to try installing your app, you yourself define its marketing presence on the profiles of individuals. Facebook gives you fairly moderate limits as to what sort of presence you can make on an individual’s profile (20 minifeed items, 10 invites per day, or so i’ve heard?), but those limits are pretty high for a social graph. The fact that your users will naturally market your service for you, by presenting their activity and usage of your software as part of their persona, is pretty revolutionary.

Xbox Live pioneered a bit of this by offering so many ways to browse the commercial software that your “friends” in the ecosystem participate in. Inside the network, it’s easy and natural to play games with friends, be marketed to by various games that are present in the profiles of others, and purchase games directly through the Live channel.

The initial growth of the FB channel is pretty remarkable, and one wonders how much the first-mover advantage will confer to those who noticed the land-grab, and entered quickly.

Running a hosted service on the web is a requirement for developing for facebook; so consumer-facing, software-as-a-service websites should fit right in both technically and marketing-wise. It’s not a huge leap of imagination to imagine that publishers of shrink-wrapped software can provide a hosted service that provides your customers with profile enhancements on facebook, even if it’s just to announce that they bought your software. Sure, it sounds sort of ridiculous, but people add companies as friends on myspace. It seems like this generation is okay with having their participation in cultural commercialization becoming part of their identity.

In this context, you can look at say, Google Apps, as an integrated service offering of applications that have distribution in a low-percentage but massive volume closed channel that is Google web search. You might say that Yahoo!’s many properties have the same relationship to its web search. Now, Facebook may have a strong innovative lead here in creating a channel that could grow powerful enough to charge for publisher participation within it. That would be the ideal endgame for a new channel - to settle down and enjoy the ride - and it would also require early growth that seems to be getting fulfilled at the moment.

Well, that’s about what I’ve got to say about this. I’m definitely not the first to realize this, and I’m no industry pundit or expert. My apologies for the disorganization of this brain dump. You should certainly draw your own conclusions. I don’t think that it’s something to be afraid of - but I think that it’s a really interesting new model that has the potential to slap a lot of people in the face for not investing heavily in social networks for lack of ways to “monetize.”

Oh, and also - it goes without saying that this is my opinion, bearing no relation to any position of my employer, Yahoo (where I work at Upcoming, whose Neil Kandalgaonkar just released a Facebook App). Heh.