Monetising Facebook apps

I missed this Techcrunch post on monetising Facebook apps back in July. It describes three companies that are experimenting with differing monetisation models:

• fbExchange which allows Facebook app owners to trade space with each other – basically a cross promotion scheme
• Lookery founded by Scott Rafer of Mybloglog fame – he is building an ad network comprised solely of real estate on Facebook apps
• Rockyou which is essentially a CPA network of Facebook apps dedicated to finding new users for other Facebook apps

If this is still state of the art thinking then I would say this issue is far from being cracked. As the comments on the Techcrunch post point out the first and third of these don’t get us anywhere – they are like pyramid schemes. Until someone has figured out a way to monetise this real estate other than from other Facebook app owners there is ultimately no value being created. Apparently Facebook app owners are paying up to 30 cents to acquire a new user – that is crazy when the monetisation is still in doubt – IMHO anyway. You could spend a lot of money that way and end up with nothing more than a lot of users to support. As I’ve said before, and I’m paraphrasing Ben Holmes of Index here, it only makes sense to start paying to acquire customers when you have got a clear view on their lifetime value. Otherwise you had better find a way to acquire them for next to nothing. This is the situation most social networks find themselves in and if you look at all the successful ones they have cracked the viral nut and users have come flocking for free. (It can make sense to bend the rules in the early days before you get to critical mass though.)

Which leaves Lookery – this makes sense as a model provided there is enough real estate to work with. The Facebook apps I use (mostly Blogfriends) don’t have the space to show ads – although they might be getting to the point where they could change that. The other obvious question here is whether Facebook apps are different enough to traditional display advertising that Doubclick et al won’t just scoop up this extra inventory.

The great news on this front that I hadn’t quite twigged before is that the Facebook apps have all your profile information, so it should be possible to target ads extremely effectively and drive CPMs to high levels. As Deep Jive Interests pointed out

Facebook applications seem like a fantastic opportunity for advertisers (and Facebook app owners) because many Facebook users have not altered their privacy settings, and therefore many applications have access to demographic drill-down type data that advertisers crave.

but

The problem is that many Facebook users, have, in fact, not yet noticed that they are being targeted in this fashion — and I suspect that many, when they will, will not like it.

The old privacy chestnut again. This debate is getting so boring now that I can’t wait for someone to start using personal data to highly target ads so we can finally gauge the reaction.

The last point to consider is (again from Deep Jive Interests)

Furthermore, many Facebook users, particularly users of applications — are also probably not fond of the whole idea of applications trying to sell ad space on *their profile*, essentially monetizing their activities (and in a circular way, their friends) absolutely gratis.

In a way if an app is showing ads in your profile it is your traffic they are monetising, but you could make the same argument about Facebook itself showing ads on your profile so I’m not sure this is a killer point. Some people are bound to get pretty fired up about it though.

As I read this post back I was hit by the realisation that this is a re-run of the widget monetisation discussion we had earlier this year. The lesson there (mostly from Photobucket) was that once the widget got sufficiently functional users were willing to put up with ads even though the real estate is very limited. I guess it will be the same here.