Inside Facebook

While much attention has been paid to the vast volume of inventory that’s been created by social networks, remnant-style CPMs that most social networks earn is not sufficient to sustain a real business for most developers. When the dust settles, can apps hope to do any better?

Andrew Chen has noted 5 reasons why social networks are hard to monetize. While developers face many of the same monetization challenges, developers have two big advantages over the social networks that can actually enable them to achieve higher CPMs than the social networks themselves:

1. App usage is a better signal for intent than profile data.

While users who indicate an interest on their profile may not have significant purchase intent at any given time, users actively engaged in applications around that same interest are more likely to conduct a relevant transaction. Of course, your app needs to serve a need in high value verticals like travel, media, finance, or shopping.

For example, it’s hard to know with much precision when users who list “skiing” as an interest on their profile page are most likely to purchase a lift ticket just based on profile data.  While this is great for basic targeting, it’s nowhere near the level of intent signaled by a Google search. However, users actively engaged in an application used to research current ski conditions and find friends going skiing this weekend are much more likely to have monetizable intent. Whereas profile data is often write-once-live-forever, application usage is a better indication of activated interest in a given vertical.

2. Apps offer better opportunities for brand alignment and integration.

While Facebook offers Pages and Social Ads for brand owners interested in building a presence in Facebook’s social environment, applications can go much deeper and offer experiences much more directly aligned with the values of the brand. With Facebook Pages, brands can only achieve fairly generic levels of user interaction. On the Page itself, users can post messages, upload photos and videos, and sign up to receive future updates. When users become a “Fan” of your brand, their friends will see a message that says, “Justin became a fan of Colgate Toothpaste.”

All of these things are great, but they leave a lot of value to brands on the table. With apps, brands can create more directly aligned and integrated brand experiences – both within the application itself AND in the “viral” messages that users send to their friends.

For example, Federated Media recently did a BMW “What Drives You?” campaign with application developer Graffiti in which users created over 6,000 entries and shared their creations with their friends. Which is a more valuable brand experience to BMW – looking at a Page with a logo and messaging, or drawing the car of your dreams? Which is a better feed item to be seen by millions of friends – “Justin became a fan of BMW” or “Justin challenges you to show What Drives You in the Graffiti Car Contest”? You decide.

It’s not all hunky-dory

To be sure, app developers still face many of the same challenges that social networks do. There’s a lot of inventory, and not all of it can be valued eqaully. Brands are concerned about how they will appear in close proximity to user generated content. And – as always – apps have to play by the rules the social networks themselves set, which could change at any time.

At the end of the day, big opportunities still exist for app developers to monetize well on social networks. Developers need to pick verticals that capture high-value intent/interest and partner with brands to create deep, integrated experiences. Picking the right space? That’s up to you. How to partner with brands? We’ll have more on that soon.