The end may be in sight for Facebook Application developers with Facebook’s recent and ongoing clampdowns on incentive CPA offers embedded within Facebook applications (about 99% are entertainment or game related). And with this latest move, is Facebook shooting itself in the foot?

Since 2008 I’ve had a hand in helping Facebook developers monetize their applications. The most common of which was selling “game gold” (or game character avatars, outfits, castles) primarily using Paypal as a payment mechanism.

The other forms of FB application monetization involved adsense (typically with a sub-0.01% CTR rate) or CPM ads (about $0.50 CPM). So it was pretty tough making decent money from your FB app.

Enter CPA offer-driven ad networks like Social Media, OfferPal, Super Rewards and Gambit, which offered CPMs of $10-20. In some cases, depending on the offer, CPMs of $50 were not uncommon. Not surprising that these were driven by game players who were filling up CPA offers in exchange for game gold (incentivizable offers).

The fact that Facebook and a number of “media outlets” have chosen to issue a blanket term to refer to them as “scammy offers” shows their questionable business sense.

If the offers were truly terrible, why were users filling them up? Granted, some teenagers might have been filling up a IQ quiz mobile offer and enrolling in a rebill without their parents consent, but if that was a concern, should parents be involved in the policing of their childen’s activities, including blocking 1-900 numbers, rather than throw responsibility on Facebook or an application developer?

While I was helping with some of these FB apps and going through the forums, the game players themselves were requesting these offers. We also repeatedly announced that they should read all the terms and conditions, and if they were unsure about whether they should take up the offer, they should pass on it, and instead buy game gold with Paypal if they really needed it.

So some of the portrayals of game players being forced to enroll for rebills with a virtual gun to their head is inaccurate. As far as I’m aware, there’s always an option to buy the game gold.

It’s also disappointing to see Facebook slam the book so quickly on application developers who’ve helped build the site up. There’s NO revenue share with developers for Facebook Ads displayed in the right sidebar when an application is running in the main window.

Given that an engaging game may take hundreds of hours to develop, that $20,000 opportunity cost (convervatively valuing the time at $20/hour) needs to be recovered somewhere, and adsense, ysm, casale, adburst certainly weren’t paying the bills (unless you were one of the top 10 apps).

An inside source familiar with the behind-the-scenes action mentioned that Tatto Media offers and the Gambit incent network had received notice from Facebook to pull their offers from FB apps. There is possible action against the other 3rd party FB incent offer networks too.

Given that Facebook might not be a viable platform to do business, these developers might move to MySpace apps, Orkut, or even a tier-2 social network like MyYearbook, or possibly over a smartphone platform like the iPhone or Android.

The net effect could be:

• A mass exodus of FB Apps to other platforms or simply shutting down because they can’t cover hosting costs
• Facebook Ads will experience a significant drop in impressions
• Facebook will lose at least 50% of it’s user/traffic activity

Although it’s admirable to think of the user experience, using the protests of a minority of irate parents, and ignoring the calls of game players who want the incent offers as an alternate means of getting game gold, may result in a “You Lose” situation for Facebook.