VC Perspectives on the Facebook Platform: Andrew Chen, MDV EIR

Our Sand Hill interview series continues this week with Andrew Chen, Entrepreneur in Residence at Mohr Davidow Ventures. (Last week I spoke with Jeremy Liew, partner at Lightspeed Venture Partners, to get his perspective.)

Prior to joining MDV, Andrew was a co-founder of Revenue Science’s ad network business, where he grew the network to thousands of publishers serving 5 billion impressions per month. He led Revenue Science’s monetization efforts for social networking giant MySpace, and landed several of the company’s key brand advertising clients. Jonathan and I sat down with Andrew at the packed out Coupa Cafe in Palo Alto.

IF: You call yourself a “skeptic” on the benefits of the Facebook Platform for widget developers. Why?

AC: I think Mark Zuckerberg is very smart, but I see a lot of challenges for widget creators. The platform is a great opportunity for widget developers to put up some huge adoption numbers, but the revenue opportunity is still very much unproven.

IF: What are the drawbacks to the Facebook environment in your view from the publisher’s perspective?

AC: There are two main types of ad campaigns online: direct response advertising campaigns and brand advertising campaigns. Direct response performance depends on your ability to capture and serve purchase intent – but it’s not clear that there’s significant purchase intent most of the time on Facebook. Brand advertisers want things like immersiveness and integration. Because Facebook limits profile widget design so significantly, this will never happen on Facebook to the degree that it can on your own property. So I’m skeptical that advertising will bring significant returns for widget developers.

It’s unclear how much a Facebook app user is worth, compared to a user on your destination site. On a destination site, you can probably get a $0.50-1 CPM, whereas the CTRs and conversion rates on Facebooks apps imply a much lower CPM. Facebook app users are potentially worth about 1% of what users on your website are worth in my view, but the opportunity is to make it up in bulk.

IF: Based on your experience working with MySpace at Revenue Science, which ad campaigns do you think will be the most successful on Facebook?

AC: The best shot for monetization using ads is direct-response ads that promote mass market products. I think you have the biggest shot there to get a conversion out of users. If people are already using a particular widget for discovering cool new music, it’s easier to hook into that shopping impulse and use it for advertising. The problem is that the more mass market it is, the lower the payments typically are.

If widget makers are allowed to send traffic a ton of traffic to their own destination sites, that might work well – in that case, it’d make sense to charge the widget makers a cost-per-click for every user leaving the site, similar to the way that Google funnels people OFF the search engine for a fee. That would make Facebook a true traffic acquisition engine.

IF: Would you like to comment on any other strategic challenges you see for Facebook app developers?

AC: It will be interesting to see how Facebook treats its widget ecosystem. Certainly there’ll be a honeymoon period in the set of relationships, but it’s also clear from Facebook’s perspective that they have an incentive to make sure no application is ever more popular than the Facebook platform itself. Just look at Microsoft’s long-term strategy on controlling their platform to understand how heavy-handed they’ve been, at times, to developers building on their platform.


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12 Responses to “VC Perspectives on the Facebook Platform: Andrew Chen, MDV EIR”

  1. Darren Herman - Marketing, Advertising, Media and Technology Blog » Blog Archive » Facebook & Widgets says:

    [...] Andrew Chen, a friend of mine who is an Entrepreneur In Residence at Mohr Davidow Ventures (and former co-founder of Revenue Science) has done an interview with  Chen goes on to say that he says a hard road ahead for widget developers as the revenue model is unproven.  Read more here. [...]

  2. BlogForward : Money » Q&A with Max Levchin: Slide more than a widget-maker says:

    [...] although lately there has been speculation that Facebook and its platform will not deliver the expected revenue and connections with [...]

  3. Facebook News - Week of 6/29/2007 | says:

    [...] VC Perspectives on the Facebook Platform: Andrew Chen, MDV EIR [...]

  4. links for 2007-06-28 » Dan Zarrella says:

    [...] Inside Facebook » VC Perspectives on the Facebook Platform: Andrew Chen, MDV EIR (tags: socialnetworking) [...]

  5. Four factors determine how much a Facebook app is worth « Lightspeed Venture Partners Blog says:

    [...] Andrew Chen at MDV says in an interview with Insidefacebook that a facebook app user is worth about 1% of a user on your website. [...]

  6. Inside Facebook » First Venture Capital Fund for Facebook Applications Launches says:

    [...] others in the venture community who have expressed doubt as to the value of building Facebook applications, it sounds like Salil Deshpande and the team at Bay Partners are drinking the Platform kool-aid. [...]

  7. Facebook app fund not such a bad idea » says:

    [...] at all, something that venture capitalist Andrew Chen talked about in very skeptical terms in a recent interview with Inside Facebook. But Mike Arrington, who has no small amount of experience in the startup game [...]

  8. Gimme some mula, Facebook! « Sexy time says:

    [...] rate, which is quite terrible by any standard. Andrew Chen, a Silicon-Valley VC, offers a solution: If widget makers are allowed to send traffic a ton of traffic to their own destination sites, that [...]

  9. Stacy Fabian says:

    when you say it’s ove. Stacy Fabian.

  10. Secrets! How to make money with Facebook « Assetbar: drinks and recipes says:

    [...] not clear that FB users have high purchase intentions. Why should they? So their advertising future is tepid at [...]

  11. Social Network Fatigue: Different Personalities Want to Spend Time Differently « SmoothSpan Blog says:

    [...] not clear that FB users have high purchase intentions. Why should [...]

  12. Apps-R-Us App Club - FB App Scripts says:

    Interesting article. This guy is a pessimist no doubt. Glad to see things didn’t end up the way he foretold.

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