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.