Is Facebook snubbing app developers?

When Facebook opened its application programming interface (API) in May 2007, developers of popular widgets that run on its platform—and many VCs—began to see dollar signs.

Their hope was that Facebook, which is now flush with a $240 million investment made by Microsoft last fall, would eventually buy some of these startup widget developers.

It is not an bad conclusion to draw. Even Jim Breyer of Accel Partners, who sits on Facebook’s board, told PE Week last year: “[Facebook is] looking for companies that can help us continue to evolve our platform—companies that build important embedded applications that would be additive to Facebook’s applications strategy.”

He added at the time that while Facebook had not yet compiled a formal list of acquisition targets, “there is the beginning of a list.”

VCs are suddenly feeling rather disillusioned, however. Not only has Facebook acquired just one company—a $10 million acquisition of Chinese search engine developer Tianwang—but the social networking site last week introduced its own version of one of its most popular outside applications, the “Top Friends” tool that was developed independently by San Francisco-based startup Slide.

Facebook was unable to respond to a request for comment about the application. Breyer also did not respond to a request for comment late last week.

While not a terribly significant amount of capital or companies when compared with other areas of venture investment, 16 applications startups have raised $186.5 million in the last 14 months based at least partly on their ability to use Facebook as a massive distribution platform, including leading third-party application companies, such as iLike, which has raised $13 million in funding; widget-maker RockYou, which has raised $52.5 million; and game developer Zynga, which has raised $10 million. Zynga is reportedly in the market now to raise another round. Zynga CEO Mark PIncus did not respond to a request for comment.

At least one venture firm took the promise of Facebook’s platform serious. Bay Partners last year launched an accelerated approval program for making small investments in new media companies that leverage the service. The program, called AppFactory, invests between $25,000 and $250,000 in related startups that take advantage of Facebook’s API.

Since the program’s debut, Bay Partners has made a handful of initial investments of under $500,000, according to General Partner Salil Deshpande. Several of those companies are in stealth mode, he says.

One is Buddy Media, an advertising network that is helping clients place targeted ads on Facebook and other social networking sites. Buddy Media has now raised $6.5 million from Bay Partners, Greycroft Partners and other investors.

Meanwhile, Facebook’s audience, which stood at 24 million users at the time of its API announcement last year, has mushroomed to more than 83 million current users. However, Deshpande expects the pace of third-party developers to slow. Asked what his reaction was to Facebook redesign of its user profiles—the move that may render Slide’s “Top Friends” application superfluous—Deshpande didn’t mince words.

“What we said on the day we announced our program was that if Facebook wants their social network to be a platform, Facebook needs to behave like a platform company,” he says.

Desphande adds that the evolution is “more easily said than done,” comparing the growing pains of Facebook to those that Microsoft, Apple and Sun Microsystems endured for years with third-party developers. Deshpande also says that “other common mistakes wanna-be platform companies make include not treating your developers right,” which, judging by Facebook developer online forums, is a widespread complaint about Facebook.

Shasta Ventures has also backed several companies that rely heavily on Facebook for the distribution of their products and services, including casual-game maker Popjax, which has raised $4.7 million from Shasta, Draper Fisher Jurvetson and Selby Venture Partners.

Shasta has also backed Flock Inc., a developer of a social Web browser that integrates easily with Facebook. The Redwood City, Calif.-based company has raised about $22 million from Shasta, Bessemer Venture Partners and Catamount Ventures, among other investors.

Shasta Partner Jason Pressman says that the firm has been mindful of backing companies that view Facebook and MySpace as important, but not exclusive, distribution channels through which to engage users.

“Any time you’re beholden to someone else and they have business power over you, you’re in a risky position,” Pressman says.

Still, Pressman adds: “This [Facebook move] definitely sensitizes us more greatly to the businesses dependencies. I think the development is going to have a meaningful impact on how the venture investor community views Facebook applications and ad applications built generally for social networks.”