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How much is a Facebook user worth, anyway?

I recently found a great blog called Inside Facebook – the two founders, Jon and Justin, are really nice guys too. I definitely recommend you check out the blog.

Anyway, they recently had a great post called "I have 250,000 users, now what?" The blog is about a widget maker who’s gotten 400k users on Facebook, and who doesn’t know how to make money off of it. For a standard internet site, 400k is a GREAT number. There have been many internet sites that have had VC investments for quite a high valuation (over $10MM) with that sort of metric.

In fact, if he had a normal destination site, he could put on AdSense and pretty much guarantee himself a CPM of something like 30 cents to a dollar per thousand pageviews, which would probably look something like a couple thousand bucks a month, probably. Problem is, he doesn’t have an standard website where he can slot ad units – instead, he has something a couple inches by a couple inches, where it’s difficult to place ads.

So question is, how do you make money off Facebook apps? How much is a Facebook user worth, anyway?

Is brand advertising an option? Here’s the challenges
But in the case of Craig Ulliot, he has a distinct problem: How do you monetize a very small piece of real estate on the Facebook profile?

First off, brand advertising (selling at a high CPM) is basically not an option. Why?

  • Selling to brand agencies requires relationships, time, and money
  • Brand advertisers are unlikely to buy such a small piece of real estate
  • It’s hard to fit a big, interesting ad on the widget

This is not to say it can’t be done – I can imagine a "Sponsored by Expedia" there, but it’s take some real effort to get to something like that.

Here are the direct response options
Then on the direct response side, getting people to click and convert is hard:

  • Facebook is a high-frequency/sticky site that has very low clickthrough rates (<<0.1%)
  • Facebook doesn’t capture "intent" – viewing a map doesn’t mean you’re ready to travel
  • The best way to get people to buy is to move them OFF the site to convert, and Facebook doesn’t like that

So even in the case where you get a lot of pageviews, the aggregate CPMs will be terrible. But I suppose it’s better than nothing.

What does widget advertising really need to take off?
My guess is that someone has to move forward with a large direct response ad network that can deliver relevant ads in a very very small ad unit that is easily embedded into the widgets. Google should follow on all the widget hype by having a simple ad that lacks anything but the bare essentials on text, and then aggregate enough traffic to make it interesting.

Another option would be for some sort of deeper integration to happen as hooks to another widget. For example, I could imagine a company (let’s say Apple) creating their own widget. If you as Mr. Travel Widget, when installed, would try to convince the user to also install an Apple widget, I think that’d be an interesting model. Basically tag-along widgets which advertisers pay some amount for every user that is brought along.

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