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Summary:

My gut reaction to the news that AOL’s Platform A would offer a guaranteed CPM (cost per thousand) for applications developers building widgets for Facebook and Bebo was that it’s a subsidy and subsidies are an unnatural and bad thing for business. Then I found out […]

My gut reaction to the news that AOL’s Platform A would offer a guaranteed CPM (cost per thousand) for applications developers building widgets for Facebook and Bebo was that it’s a subsidy and subsidies are an unnatural and bad thing for business. Then I found out the guaranteed payment was only 40 cents, which made me wonder how in the heck anyone could make real money off such a low CPM.

That translates into $400 for every 1 million visitors. Even with multiple ads and millions of page views, such a rate is unlikely to generate a venture-level return. Obviously there are plenty of people building apps (such as Scrabulous) who aren’t looking for venture returns, but it still seems awfully low. However, making money for apps developers is only a side benefit of the program.

The real goal is to encourage apps developers to use the Platform A ad network to sell their ad space, in turn boosting the entire category of online social network advertising. Obviously the bigger that category grows the better it is for the struggling Platform A (and Facebook’s attempt to defend a $15 billion valuation.) Undoubtedly Platform A will net more developers, especially for ad space that provides a CPM of less than 40 cents, but I’m not sure if this will help grow the industry as a whole over the long term.

I’ve asked Platform A how much they anticipate spending on this effort, but a spokesman declined to tell me. That, however, is the central question here, because what Platform A is doing is selling the ad space at a loss (or covering that loss). If we recall the subsidized shipping of the dot-com days, it’s remarkably easy to predict how this adventure could end if Platform A doesn’t either raising the CPM rate or limit the guarantee. For those riding the Platform A gravy train it would be nice to know when it stops.

  1. The article seems to contradict itself…

    It says…”made me wonder how in the heck anyone could make real money off such a low CPM”, yet it then says “…for those riding the Platform A gravy train.”

    So which way is it – no real money or a gravy train?

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  2. You’re not necessarily right.

    I’m speaking about Social Networks in general – and there are many out there, especially small, bootstrapped ones. I run a social network that if generated 40 cents CPM would have made me a huge salary (it was a one-man-shop).
    You make millions of page views pretty easily with a social network, and it’s enough if you’re bootstrapped.

    The problem: It’s difficult to get advertisement on a site, especially if it’s small. If Platform A gave me the 40 cents CPM in Europe, I would have taken it.
    The other problem: Paying 40 cents CPM or more can make sense, but not without perfect optimization. So it makes little sense to offer that third-parties that can integrate the ads themselves.

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  3. These comments are all beside the point. With the US-only limitation and the three impression per user frequency cap, it works out to a $0.10 or less CPM guarantee anyway.

    http://blog.lookery.com/2008/06/30/imitation-is-the-sincerest-form-of-flattery-the-bebo-ad-guarantee/

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  4. Stacey Higginbotham Tuesday, July 1, 2008

    By real money, I’m talking about venture-level returns. As for gravy train, it applies to those who will get a 40 cent CPM rather than 10 cents.

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  5. Stacey, I understand what you consider real money – but entrepreneurs with no venture funding or angel investors – all 99% of them – would consider a couple thousand dollars per month real money imho.

    I also think it would be $400 per 1 million impressions, not visitors. Then we have to take into consideration any frequency capping (per visitor, per day and so forth). With the large number of impressions per visitor on social networking sites, I can see how it can add up to lots of money for a developer but not enough for venture backed companies – just like you said.

    I already questioned VC-backed widget makers and this ridiculous web 2.0 hype behind them but I always felt they just wanted to be acquired by someone like Google who would then use AdSense to monetize them.

    Google AdSense for widgets must be around the corner.

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  6. [...] Hey Hey Platform A, How Much Money Did You Lose Today? Advertising, Advertising Networks Tags: Ad Networks, Advertising, Advertising.com, AOL, Platform [...]

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  7. It was recently revealed that “Bumper sticker,” a Facebook app that LinkedIn’s engineering team did as an exercise, is seeing 1B canvas page views (as opposed to profile page views) per month on Facebook. That’s starting to sound like real money.

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