Yesterday I had lunch with the developers of a top Facebook application. They were commenting on the poor performance of advertising on Facebook applications currently. This is a serious problem for developers, especially those that are making their living off of these applications. Earlier today VideoEgg announced a new advertising model that they would begin using for their general network: pay per view. The new advertisements can be dynamically resized to fit anywhere on a publisher’s website.

The argument behind this new model is that CPM advertising lacks accountability. You pay for eyeballs but there is no way of ensuring who’s viewing it. This is a similar case for application advertising networks. The current models don’t allow for demographically targeted advertising campaigns. Instead advertisers (who are entirely application developers currently) can pay on a cost per install (CPI) basis or a cost per click (CPC) basis. The CPC model isn’t very effective though because it doesn’t accurately measure a user’s intent as Google’s CPC solution, AdWords, currently does.

So what’s the solution? Currently there isn’t one but over the next few months I think we will begin to see more robust advertising services potentially starting with The UADA which will announce the details of their program on February 29th. Mainstream advertising agencies have kept away from application advertising. That may be in part due to the fact that Facebook has built a New York presence and is pressuring advertisers to use their SocialAds solution.

The fact remains that Facebook application advertising companies are going to need to focus on doing more business development activities and go head to head with Facebook SocialAds. So far nobody has developed a robust advertising solution for applications and as such the majority of advertisements are currently advertising other applications. If the Facebook application advertisers want to play with the big boys they are going to have to focus on business development with large advertisers because those relationships are what’s valuable to advertising companies.

So far VideoEgg appears to be the only company doing so but even for them it has been challenging to increase effective CPM rates for application developers. We will see a significant transition in this space over the next six months as more robust solutions become available. Have you had any luck with your advertising on Facebook?