Facebook Application "Values" From Adnomics

Although one should maintain a healthy skepticism of the values given to many of the companies listed in Adnomics extensive review of Facebook applications, the site offers great insight into the Facebook development landscape as it shows how many users and how many installs for thousands of applications.

Top of the pile is Slide.com, the most successful widget builder for Facebook that started as a photo application with enormous exposure across Facebook. Slide has already enjoyed investment of about $75 million and a spectacular market valuation of over half a billion dollars, actually far more than the $322 million valuation given to them by Adnomics which appears based more on metrics than market forces.

Newspapers: On The Digital Ropes

Newspapers are in trouble, and things keep getting worse. With circulation dropping and currently at the same level as 1946 (!), papers sold per capita are at a fraction of former levels. The death spiral could become fairly dramatic since newspapers have a lot of fixed costs and many are already losing money. Unlike internet enterprises, papers cannot easily scale back expenses as advertising revenues flow online. This will likely lead to continued consolidation of local papers and probably will become a death knell for many others.

Newsosaur has a nice summary post and Henry Blodget at Silicon Alley Insider has a good mini-analysis of the potential advertising revenue shakeout.

CPMs For Facebook Applications

Inside Facebook has pulled together an excellent post noting the claimed CPMs by several Facebook developers for their Facebook Applications.

Here are the numbers:

$0.60 CPM with Social Media

$1.50 CPM with VideoEgg

$0.27 CPM with Cubics, down from $0.43 earlier this month

$0.40 CPM with Cubics

$4.78 eCPM with Social Media
[? This is so out of line with the others I think great skepticism is called for here]

$0.50 CPM each with AdSense, FB Exchange, Social Media, and RockYou (and by combining 2 units on a page is making $1.00 CPM)

$0.125 CPM with Lookery ($0.25 with 2 ads above the fold)

$0.10 CPM with Cubics, down from $0.43

$0.04 CPM with AdSense

Note especially that last very sad Adsense CPM of $0.04 That's four cents per *thousand* impressions, hardly something you'd want to write home to your angel funders about. Clearly few if anybody has found the recipe for great monetization of the social networking experience - that is unless you count the amazing ability of companies like Facebook and Ning to garner investment capital based on huge company valuations.

Another issue that is not yet well resolved is the simply enormous discrepancy between these sad CPMs and those that are charged to many advertisers. It's still common to see advertising rates of $30 CPM and even more for highly targeted websites. Clearly advertisers see a lot more value in targeting than simple numbers, and based on the limited data to date it does appear that social network advertising is conspicuously inferior to other forms of ads.

Yet are the targeted website CPMs of over 500 times what most of these Facebook developers are seeing sustainable for the long term?

Click Advertising: ROI Matters

Advertising networks pool advertising space at large numbers of websites and then offer this space to advertisers as part of targeted click packages. These networks have been growing dramatically and enjoying great success as advertises struggle to maximize the amount of activity they get for a given campaign.

The New York Times reports and offers an interesting travel market case study that suggests advertisers are shifting their focus from campaigns with larger publishers at higher cost to campaigns where they can maximize the number of clicks per dollar spent.

Unfortunately for advertisers the equations grow increasingly complex after allowances are made for click fraud and inferior targeting. My own experiences with per click campaigns have left me very skeptical that positive ROI is easy to obtain in all but extremely well managed campaigns with high margins on sales of the advertised item. Minimum bidding levels on many potentially valuable search terms - for example $0.30 at Google for terms relating to "hotels" - make positive ROI for popular terms even more elusive.

Google Advertising: A Leap Year Problem Is Just The Beginning

Comscore will soon release their report of Google advertising activity for February and Silicon Alley Insider says they already have the numbers that show Google with 515 million US paid clicks in February, up 3% year over year. Unfortunately for Google a gain of only 3% is not very impressive on the surface and is also somewhat misleading because we had 29 days in February this year, which means that ad clicks at Google were flat on a year to year comparison.

The market did not take this click report very well, and Google has fallen over 3% in after hours trading, though tomorrow's trades will tell the full tale of how this information will be incorporated into Google's share price which will open at about $444 tomorrow due to the after hours trading corrections to the close today at $458. This is not as low as the $412 Google has traded at recently but well off Google's 52 week high of $747.

Lacking from these reports however are the revenues obtained from these clicks. Better optimization can yield higher revenues from the same number of clicks, and major changes recently were implemented by Google, effectively elimating many ads that Google felt did not meet their new "quality scores" which reflected higher advertising standards. Thus it is possible that this new approach could actually lead to a "better than expected" revenue outcome for Q1 without more clicks. That said, if the advertising market as a whole is flattening out, Google will be very hard pressed to continue their amazing revenue growth. It is not clear if the current stock price on GOOG fully reflects the pessimism many analysts have expressed about online advertising in the next few years.

YouTube serves 1 in 3 of all online videos

Perhaps it should come come as no surprise that one in three of all the videos viewed online are served up by YouTube.

Comscore reports that in January of 2008 a total of about 10 billion online video clips were served. 3.36 billion from Google sites while the second place video provider, Fox Interactive Media, served up 584 million. Yahoo, once in contention for the top video spot, served only 315 million and Microsoft only 199 million.

Unfortunately for Google, YouTube's video dominance has yet to become a profitable part of Google's online advertising empire. Google acquired YouTube last year for 1.65 billion and so far attempts to monetize the tsunami of online clips and viewers has not met with much success.

Google - Invasion Of The Ad Snatchers?

Google's adwords and adsense pay per click juggernauts appear to be sucking the life out of old media says stock watcher Henry Blodget, author of the Silicon Alley Insider technology stock blog.

Blodget noted that online advertising is flowing online at a "frantic" rate, and Google captured twice as much of the new revenue as its closest three competitors combined.

Where offline advertising increased by about a billion from 2006 to 2007, online ad spending increased 4 billion with Google scooping up a whopping $2.7 billion of that $4 billion increased spend. As Blodget notes about a third of Google's revenues are from its relationships with publishers who use Adsense to run Google ads on their own properties, so some of that 2.7 billion is shared with the tens of thousands of large and small publishers in Google's advertising stable.

Google's powerful dominance in the online advertising space will be enhanced with the DoubleClick acquistion, although it remains to be seen if Google can monetize display advertising as successfully as it has monetized per click advertising -in many ways revolutionizing the industry with the success of the pay per click model. Ironically Google was not the inventor of this pay per click model that is rapidly making Google the most successful technology company in history.

Most credit the invention of the pay per click ad to Bill Gross and his startup GoTo.com which was soon renamed to Overture.com in a Disney trademark dispute and then Overture was acquired by Yahoo.

New from Google

Google is once again in the tech news today with two major product initiatives. The first is Google’s entry into the health records management business with trial recordkeeping at a Cleveland hospital. Although still in the testing phase it is clear that Google's ambition is to provide massive secure recordkeeping accessible to doctors, hospitals, and patients.
AP reports

The second Google development is adsense for video, yet another attempt to monetize video. Their last attempt, using YouTube advertising embeds, delivered abysmal results in small tests I ran and this result appeared to be confirmed when Perez Hilton’s huge celebrity site with millions of visitors had trivial revenue given the volume of downloads and views.
Perez has since switched to different advertising approaches.

Presumably Google has been learning from the poor YouTube system. Also probable that adsense will involve better targeting and probably better returns. That said, skepticism is called for here about finding a holy grail for video monetization. Unlike video, search keyword advertising offers the potential for good monetization of a person’s natural behavior - e.g. a search for camera information and camera deals also presents you with advertising you *want to see* because it’s relevant to your needs. It is much more difficult to get this virtuous cycle going with video or social networking, which to date remain pretty barren environments for advertisers.

SocialMedia: Wannabe Mecca of Social Apps and Widgets

SocialMedia is a well chosen name for a startup which in their words is aiming to be provide services to Manage, Market and Monetizing apps to developers on platforms like MySpace and Facebook. Managing here refers to a developer being able to track their apps while Marketing means SocialMedia providing services which will enable a developer's application to grow (virally). As we know, in a viral platform like Facebook or even Digg, to attain popularity one needs an initial base of users after which growth is pretty much spontaneous. This is where SocialMedia has stepped in to help apps become viral. Note also here a viral calculator which claims to predict the cost of each new user. Of course, its quite low mainly because of the Facebook referral effect due to its feeds and thats why developer love it most for.

SocialMedia is also an ad network helping developers monetize their ads. Other players in this arena are startups like Lookery, Rockyou, Cubics etc. This ad network was launched back in late August. While giving developers about $1-$3 for every thousand users, as mentioned, developer Greg Thompson who developed Aquarium Application had earned $100,000 in the first 3 months of his joining the network. You can have a look at their Appsaholic application if you are interested in the popularity and growth of some of the popular Facebook apps.

SocialMedia was one of initial developers for the Facebook Platform. It launched Food Fight and Happy Hour applications which attained quite a bit of popularity. Now, in their own words Social Media has developed as a way of providing services to applications after they felt a need for managing, marketing, and monetizing the apps themselves. It is a good strategy which has payed off well till now. There have been some apprehensions about this kind of advertising on Facebook apps which involves one application advertising other applications, so I am going to be very interested in how advertising is handled in the Facebook apps context.

Publishing, Social Interaction, and Advertising

Twitter is a popular platform for micro-blogging. Messages exchanged here are more of status updates or related to users' activities rather then anything else. So, Twitter is acting as a platform for friends to stay in touch with each other while presenting the posts in a single place. This can be termed as content creation - that is, content that is created by users to share. Similar content can be said to be generated by users in social networking sites like Facebook since information like feeds and profile information is looked at with interest by friends, etc. This would be different from, for instance, publishing on blogs where people generate and keep content and many earn recognition or money from it. Published content is often intended to be read by third parties while content created in social networks like user profiles, feeds, and status messages are meant to be for the interest of friends or any other person interacting on a personal level.

What Twitter has done is diffused the boundary between social interaction and published material leading to the term micro-blogging. One essential feature that is present in blogs and not in content in social networking/interaction sites is user's advertisments. While advertising on blogs is a widespread and prominent feature and, with social networks becoming more engaging with feeds and applications as on Facebook, advertisments have emerged there too. MicroSocialAds is a service which enables users to embed advertisments in their Facebook profile or into IM conversations they are having with friends.

I see some basic problems with this kind of advertising model. Firstly, a friend won't want or like to see advertisements while chatting with another friend. People are already used to chatting on good IMs and for one of the chatters, advertisements are a disruption and nothing more. Secondly, while social networking or micro-blogging, a user has no intention of being interested in any particular kind of content since they come to a social network with different intentions. So, its hard for advertising to be useful for a user in such a scenario which is not in the case of published blogs (read more if interested on Advertising in Social Networks). That is why I think advertisers should expect very low clicks per impressions in these cases. This point coupled with the fact that advertising would be disruptive in such scenarios, make it hard to believe that Micro Social ads would be too successful. Thus, even though lines between published blogs and social interaction have diffused, I think they will still differ in terms of advertising - mainly because while the former is about content, the latter is about interaction.

Facebook App Advertising - The New Age Ponzi Scheme

There has been a lot of interest in online advertising recently, several ad companies were bought by the big three this year (Microsoft, Google and Yahoo). Google bought DoubleClick for $3.1 billion, Microsoft bought aQuantive for $6 billion and Yahoo bought RightMedia for $680 million. Another big thing this year was the hype surrounding Facebook and it's developer platform. Here, too, Microsoft fueled speculation when it bought a 1% stake in Facebook for $240 million valuing the company at a staggering $15 billion (compare this to that of Ford Motors which has a market cap of 16.8 billion). 100s of new startups are popping up daily in the Valley and many of them have to do with advertising. With the Facebook platform, developers started building interesting simple apps which got popular real fast. Few of the early players in this Slide, iLike and RockYou are worth millions. You made a really popular Facebook app which is used by 100,000s of people daily but now what, how do you monetize it? All the major players then started putting ads in the canvas page of the apps.

RockYou has a successful ad network of it's own. The big companies which are in advertising on Facebook apps include SocialMedia and Cubics (bought by Adknowledge.com recently). SocialMedia has $3.5 million in series A funding led by Charles River Ventures. But the problem with all these advertising solutions on Facebook is that all of them sell paid installs of other Facebook apps. Almost all (99%) of the inventory of these ad networks consists of ads for other apps. It is very hard to get advertisers for third party things on Facebook apps. What kinda service will you advertise on an application which lets you hug your friends virtually. So even though the apps are very successful they actually have little value for a third party advertiser. And on top of that, people can always use Facebook's own social ads if they choose to advertise on Facebook at all. Developers know this; all the money that is being pumped in the advertising network on Facebook is coming from newer apps and this is a classic feature of a ponzi scheme; there is not enough momentum in the Facebook apps to sustain growth themselves. Big players who are on top of this will make quick money and are continuing to do so. The best way for the ones who enter late is to get bought, which is the trend seen on Facebook. There was a guy who tried to sell his app on the first day itself saying it was getting around 1,000 installs. Developers know it well that they need to cash out early since this model won't work for long.

There are others who create a good app and then to cash out soon, try to buy some initial advertising on the ad networks, and fuel the growth. It looks like an endless vicious circle but it cannot work for long. Apps selling other apps when both of them actually don't solve any user problem or add utility. There are already 11000+ apps listed in the Facebook directory and most of them are inactive, it is easy for a user to add an app and then forget about it completely. Most Facebook pages are increasing looking similar to the MySpace profile pages, overloaded with useless crappy apps and information that makes no sense. Overuse of the platform will eventually lead to it's downfall - how long can developers find out new ways to hug, poke, kiss, slap, eat, drink etc etc and etc....

Facebook's own social ads are not doing as well as expected, some users report much less click through rates. But there is still a lot of time before the momentum reduces, 100,000s of new users embrace the Facebook platform daily and so there is no dearth of newbies to install your apps. Till that time comes, hug me, poke me, x me , blah blah me...will go on on Facebook and people will make money for spreading crappiness around :).

Microsoft to Offer Mobile Ads

In a bid to claim more of the mobile market and to catch up to competitors, Microsoft is reportedly set to launch mobile advertising on Monday on the U.S. version of MSN Mobile. Mini banners and text ads will be displayed on the MSN Mobile portal along with news, weather, stock, and movie info, search, email (Hotmail), IM (Messenger), and Microsoft's blogging and social networking platform (Live Spaces). They apprently already run ads in other global markets. As you may recall Microsoft bought online advertising company aQuantive in May for $6 billion in response to Google's Doubleclick purchase for $3 billion.

Google's Mobile Ads are text-based and allows users to navigate to the advertiser's mobile site or call the business directly. With Yahoo Mobile Ad Network, it appears that advertisers can choose from display banner ads, sponsored search links, video spots, in–game or in–application placements, call, SMS, or if you don't have a mobile site, they will even build one for you.

Another Googler Gone - Google Luck!

Another Googler has moved on. This time is it Dominic Preuss. He is moving on to Meetup, an event listing and networking website. At Google he worked in local ads. However, at MeetUp he will be a BIG CHEESE, VP Marketplace. He’ll be helping the company to create a new stream of revenue by coordinating sponsors with Meetups, and earning revenue from sponsors as well. Hmmm... If you are Googler that is leaving or know of one leaving or about to leave let us know. See also: Google Adsense God Says Goodbye

Web 2.0 to Boost Online Advertising

The Internet Advertising Bureau (IAB) is reporting today that internet ad revenues has hit an all time high of $5.2 billion for Q307 and has been consistently setting new records each quarter of 2007. Revenues for Q1 was at $4.9 billion, and $5.1 billion in Q2. The IAB claims that this is attributed to both larger as well as smaller companies recognizing the role of digital marketing as pivotal to their overall marketing strategy.

The more interesting part of this report is their assertion that Web 2.0 promises to provide even more opportunities for marketers to leverage. New platforms emerging out of Web 2.0 are providing new and lucrative platforms for online marketers to tap into and monetize.

"The emergence of new platforms, including broadband video, rich Internet applications, mobile, and social media promise to deliver new benefits for consumers, and create exciting new venues for marketers to realize value in digital media."

News Corp's Myspace Advertising Network Coming Soon to a Website Near You

Facebook’s targeted advertising was criticized heavily last week by bloggers despite Facebook promises to create a better user experience through better targeting of the ads. I’m guessing users will hardly notice the change, and advertisers will continue to be underwhelmed with the performance of social network advertising although these ads will play an increasingly important role as social networking explodes and the number of page views on social networking sites like Myspace exceeds pageviews on any other site.

I think Myspace now has the top global pageview count which is why the new ad network from News Corp (Myspace’s parent company) is an important development. It appears they will sneak in under the radar and avoid the heavy criticism levied against Facebook even though presumably they’ll also be working hard to target the ads to the specific Myspace user profiles.

Yahoo Focused On Mobile Ads & May Follow Google

Yahoo! will not be focusing on mobile as Google is doing. Instead Yahoo will be focusing on selling ads for the mobile platform, reports the Globe and Mail.

"Yahoo is working on a number of deals that enable it to sell ads across carriers", said Marco Boerries, GM Yahoo Mobile.

Yahoo has been inking deals with network carriers to bring mapping, email and other features to mobile internet users. These services will be accompanied by Yahoo ads.

Boerries doubts Google will be able to sell enough advertising to cover the costs it will incur from its mobile business model. However, if Google succeeds in doing so, Yahoo is open to adopting a similar software-based model.

Advertising 2.0: It’s Raining Widgets!

Google launched widget ads – this mashup of a widget with a traditional banner ad creates exciting possibilities. There are a few examples here – I particularly like the movie ad – ‘A Mighty Heart’ and the Honda ad.

I like these two for a few reasons:

• It’s basically a shrunken micro site – it serves as a great source of information. But also (probably because of the size limitations) is meant to present only the most important/relevant information, which is really all most of us want anyways.
• If created properly the content provided may serve as a source of information that may be of interest to special interest groups, partners and hopefully customers. If the right information is put into the ad people will want to post it to their sites and why not let them? Google even thought of that and included an ‘embed this ad’ script (as shown here).
• It’s interactive –they even have video components! Unlike a “pass through” ad, these ads combine the best elements of full web-apps with the portability and size of the traditional Google ad. Videos, forms, games, all possibilities creating an interactive experience for the user.

What would you put in your ad? I think it would be cool to show a 3D model or interactive diagram in there. Or if I were promoting an event it would be nice to embed the registration page in the widget itself.

Needless to say, this opens the door for a new use of the traditional Google Ad budget. The early question is whether this will be part of our existing Google Ad campaign or require a new strategy with a totally new campaign. Either way, I’m sure it means more marketing.

Who's afraid of Google?

The latest issue of The Economist has an article on the rising power of Google (NASQ: GOOG). The article makes the case that the internet giant is more like JP Morgan than Microsoft. The article is harsh at times as when quoting Eric Schmidt "Our goal is “not to make money”, as its boss, Eric Schmidt, puts it, but “to change the world”.

Google is the white knight that rescued silicon valley after the dot com bomb and prevented it from becoming death valley. Google ignited the next evolution of the web, made silicon valley the online advertising capital of the world, overnight, and has empowered millions by making information universally accessible and not the domain of a priviledged few. Yes, Google has changed the world. Click here for the article>>.

Google Adsense for Games

Google reaffirmed that the company is interest in the game industry is limited to in-game advertising. This is an area that Google believes will have tremendous growth over the next number of years. In-game advertising is expected to exceed $1 Billion by 2011, from about $78 million last year. Google got into the space via the acquisition this year of game advertising company AdScape Media.

"We are not going to be a publisher or a developer or a portal for games, at all. That's the jobs of everybody here. That's why we want to partner with you", said Bernie Stolar.

Publishers will be able to use the Google to put advertising in their games, and collect revenue. Advertisers, in turn, will be able to work through Google to buy ad space within games. A Google representative said that it will start with ads in Web-based games, with plans to move into PC and console games later on.

Google, Facebook, MySpace Keep Yahoo Down

Yahoo's second-quarter profit fell 2.3% from a year earlier. Google continued to lead Yahoo in search market share, Facebook and MySpace continued to erode Yahoo's strong hold in display advertising.

This is the sixth straight quarter in which Yahoo's profit has declined as a result of diminishing share of the search market and display advertising to competitors.

To counter this Yahoo introduced Panama, an advertising program designed to make advertisers' Web links more relevant and more likely to be clicked and Right Media Inc. to handle online-advertising auctions.

About 40% of Yahoo's revenue comes from selling search-linked ads, the four- line text spots that appear next to search results, and from display advertising, which includes banner and video ads.

eBay Beating Google in Payments

According to the Mercury, recent surveys found that less than one out of five users of Google's Checkout online payment service were happy with it and eBay's PayPal figure was more than double that (two out of five). In May, about 33 people visited PayPal's Web site for each Checkout visitor, up from an 11-to-1 ratio in December, according to Nielsen/NetRatings.

At Searchnomics 2007, Google CheckOut claimed that 25% of all online transactions originate via search. Even if half that number is true, then there is a threat to Paypal's lead over CheckOut. In 2004, both the companies' had annual sales that were almost equal. However, revenue at Google tripled to $10.6 billion last year, while eBay sales increased 82% to $5.97 billion. According to comScore, Google had 120 million visitors in May which was 51% more than eBay's in the same period.

Google's Advantage
Google is the most used and recognized search engine on the planet. Google is leveraging its advantage in search and advertising to complete the checkout flow for online payments. Google's strategy is to chip away at PayPal's leadership. Approximately 40% of Paypal's transactions orginate on eBay and some of these products compete with third party vendors. Previously, these vendors did not have much choice but to use Paypal as a payment system on their web sites. CheckOut provides them an alternative. Also, with CheckOut there is no holding of balances. It is an automatic overnight deposit to your bank account, where as on Paypal, a request has to be made for a deposit and it takes 3-4 days at best.

Paypal's Advantages
PayPal is the most innovative and recognized web payment service ever. Paypal has the benefit of a large marketplace via eBay. Presently, eBay does not allow CheckOut on its properties. PayPal's service, generated a fourth of eBay's revenue last year and it has become increasingly important as auction sales growth slowed to 23% in the first quarter, half that in 2004.

Google is using Checkout as another tool to further entrench its search and advertising platform. PayPal is a profit and growth center for eBay. To secure its lead Paypal should move quickly to integrate itself as the online payment system with other major search engines such as Yahoo, AOL, Ask, MSN, Amazon to name a few. Alternatively, Google could open up to third party payment systems like Paypal and let the user decide which payment service to use. This way the market decides the winner.

Genbook - Internet advertising for small business

Genbook Inc., a San Francisco-based provider of online advertising solutions, has raised $2.2 million in Series A funding led by Neo Technology Ventures of Australia. www.genbook.com

Tumri - Internet advertising

At WebGuild we always have the inside track. Pradeep Javangula, CTO & Founder confirmed to me that it was Series A round not a Series B as widely reported.

Tumri Inc., a Santa Clara, Calif.-based provider of contextual online advertising solutions, has raised $5.42 million in Series A equity funding, according to a regulatory filing. Shasta Ventures led the deal, which also included around $1.09 million in convertible promissory notes. www.tumri.com

Come hear their exciting story at the WebGuild Conference http://www.webguild.org/meetings/wg2006/