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It is only a matter of time until both the Facebook Application Developers and Facebook Users join together and tell Facebook “there is no taxation without representation” while requesting Facebook both to amend its terms of service for enhanced privacy and allow application developers to rely on business models that are not subject to Facebook’s whims. The sanction, if not understood, is not mass removal of accounts, but blocking Facebook’s 3rd party services when not browsing in Facebook, therefore harming Facebook’s new found business model.

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The reason? Facebook has been vigorously expanding its control over both user information and application developers. It began today when Facebook coerced Zynga into an agreement to use Facebook Credits as its currency after a long dispute, and will continue when Facebook will do so to other application developers.

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Facebook forgot that it is solely a conduit, the incumbent who provides connection between users, other users and applications. It is not a core application and its business model is not based on being such. Two years ago, I wrote that “In a year or two Facebook’s shareholders will come to their senses and start asking money from the leading hundred applications, as they are allowed to do” … “when you develop a Facebook application or any other social network based application, you’re writing your source code on ice; it’s more than reasonable to assume that Facebook won’t charge you anything and will never shut you down. The problem starts when you want to establish a business model on something that’s more than “more than reasonable” (like investing your pension funds). That’s why, like you wouldn’t deploy a real product without contracting your deployment contractor, you really should consider doing the same with Facebook”.

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The time has come when Facebook wants to have its day. Facebook Application Developers raise capital from investors, some VCs target only Facebook apps, other VCs invest in another icy road, iPhone Apps raise capital as well, and quite a lot of it. The iPhone app store is also known to block applications, especially when those applications compete with Apple’s business models. Some day, Venture Capitalists will say to application developers that they will not invest in applications where the conduit may revoke them at any time and for no reason. Therefore, application developers will have to look for stable business models, such as using OpenID as a social network or allowing data portability, applications may prefer to use old social models or rely on Twitter as a social network instead of Facebook, just so they will not be coerced into using a currency of choice. No one will develop for a platform that has no stability (this is why, by the way, net neutrality is so important)

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Users, from the other end of the scope, will negotiate with Facebook. Explaining that it may not be as simple as Facebook reckons, and that without users, it is a mere conduit, connecting sockets and bits. “If you want us to stay here“, they will say, “you have to grant us our rights. We want to have the privacy of our choice, we want to have the ability to control, and if you grant us those rights, we will grant you the information you need to sell to ³rd parties“.

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Without such negotiations, Facebook is doomed. Funds will not invest in companies who develop Facebook Applications, as these applications have no solid business model, and Users will leave (or block) Facebook. It will remain with a magnificent apparatus that is left unused. And when unused, it will be sold, like scrapmetal.