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The “How Well Do You Know Me?” application is now the largest Facebook application ever based on monthly active users but how much is that worth? Considering that the developers behind the application have been using aggressive ads to monetize the application, it’s worth a lot but is that a sustainable business model? For the past few weeks I’ve been repeatedly arguing that it’s not a sustainable model and unhealthy for the state of the Facebook application economy. So if these aggressive ads are not the most effective business model on the Facebook platform, what is?
Virtual Goods Lead The Way
Zynga has become one of the most frequently discussed companies not only for being the largest application developer on the platform but also for reportedly projecting revenues of $100 million this year. It’s an impressive number and while a large amount of revenue has been generated through advertising, the company has also figured out a model to get people to spend their money on virtual products within the game.
Virtual goods are currently a small fraction of the revenue being generated on the Facebook platform but with the launch of the Facebook payment platform (which is now accepting new developers into the program), that is only expected to increase.
Targeting Verticals Can Make You Money
In my interview with Peanut Labs last week, I asked Murti, the President of the company, what was the most profitable demographic. He mentioned that mothers are a great demographic to target. He’s right and there are many other verticals that can be profitable. Monetizing a generic groups of users is nowhere near as easy as getting advertisers for a unique vertical. Magazine racks are a great way of finding out what the most profitable verticals are.
Whether it’s cars, weddings, health & fitness, home & garden, video games, or one of many other highly active verticals, these are all things that advertisers will pay for. One of the most surprising things to me in the application development space is how many app developers don’t know who their customer is. Yes, you can build an application for the sole purpose of “going viral” and slap up some ads that will generate revenue but that isn’t much of a long-term plan.
The Internet Isn’t Traditional Business
One other thing to keep in mind is that despite me being adamant about how driving millions of untargeted traffic isn’t a business (it clearly is … see here), the internet industry is still an emerging space. To compare Facebook to a traditional business doesn’t make much sense though. Yes, the company has various revenue streams which traditional media companies have, but the company doesn’t have a breakthrough model … yet.
For all of those companies building businesses on top of the Facebook platform, you can either wait it out until the breakthrough model comes, try to develop the model yourself, or start treating applications as media companies. On the other hand, we can all try to launch gaming companies and become the next application to sell millions of gifts to its users.
What do you think the best business model is for Facebook applications?
i woulnd’t assume the ‘how well do you know me’ app makes a lot of money. The average user does not visit the app more than a few times. ‘mob wars’-type games, that engage the user not only to return often, but to pay on their way to the top of the leaderboards is the most profitable model, you’ll find. It’s not uncommon for a gamer who gets obsessed with an app to spend hundreds of dollars on it [although these are few]. in the long run, having 100K users every month is actually worth more than having 10M for 1 month.
Nick,
Great post and very timely too. I think you make a good point about focusing on developing “sustainable” business models. I’ve watched over the past 18 months or so as the lineup of top Facebook apps evolved. From the gaggle of Vampire apps that were hot soon after the launch of F8 to Mob Wars and now the Games and Quiz Apps.
I think there is enough data to now understand the Facebook user community will continue to evolve - not only in demographics but also in their tastes, likes, dislikes, desires and demands.
But I think your final question is a bit off. To put it bluntly - I don’t think there is a **right** business model for Facebook Apps. I think the mistake that many app developers make is locking into a very narrow monetization approach. While virtual currency and gifts are the hot commodity today - something else will no doubt emerge tomorrow.
At BAM!apps (http://www.bamapps.com) we’ve just launched our suite of customizable, fully animated, hosted, turnkey applications that leverage up to 5 revenue streams; ranging from traditional display ads, virtual gifts, product placement, video ads and storyline/character customization. Our approach is to leverage the versatility of animation coupled with visual communication and the unique self expression of each Facebook user. Our platform is targeted to the casual or non-developer who may have great application ideas but are looking for the right platform to enable it.
We did a fair amount of testing to better understand the likes and dislikes of Facebook Users and our findings clearly indicate that splattering your app with tons of ads is a turn-off. So we’ve focused on other ways of monetization that still delivers clear value to Facebook Users. To get a better feel of how we’re using animation, the Facebook platform and user content to create a deeply integrated messaging, personal expression and communication tool check out our sample app (BAM!Hugz) http://apps.facebook.com/tgszgreetings.
dah
The business model is the same as it has always been for any website. You can sell advertising/branding, or provide something that people will pay for. At the moment, most apps don’t provide anything worth paying for.
Gaming applications have long term monetization opportunities. You do not need the millions of users to play your games. The life cycle is also longer if you have an engaging game.
A mix of Virtual currency and ad model is perhaps the basic business model for gaming but I think virtual goods within games will earn a bigger chunk in the future since it is relatively new to North America. If you look at games in Asia, they generate a tremendous amount from virtual goods.
At the end of the day, developers need to understand and study how their users are behaving in order to monetize. Developers also need to spend a little bit on advertising and attracting the crowd that spends.
Subscription model is the key to building a sustainable business on Facebook apps. There are so many opportunities for building a solid business via engaging end customers (different from end users), offering them a service trhough a Facebook app that allows them, in turn, to offer value to end user. Case, lets say you develop a sushi application, there are tons out there and you pick sushi and share with friends. Fine, advertising, great. But what if you built an app for sushi where local sushi restaurants can pay you to setup their custom network. Then on that network, people can join and build their own custom sushi roll form a list of ingredients specific to that location. Then when they’re done, they print out their custom, one-time roll and can bring it into the restaurant duringspecified slow hours where they will be able to get their unique roll made and get 10% off their whole order. Then, you expand to other sushi restaurants from that, each paying you a setup fee and annual subscription fee, or possibly just a % or $ for each person who fills out a sushi roll.