Is App Verification Really a Money Tree for Facebook?

When Facebook launched the app verification program a couple of days ago, some people claimed that Facebook had created a “serious revenue machine.” Mike Arrington wrote,

If every application applied, that would be $18 million in incremental revenue to Facebook. Our guess is half or more will apply.

While important questions should be asked about how the details of the benefits of program are implemented when it actually goes live, I believe that claims that the app verification program is a new money tree for Facebook are a little exaggerated. If Facebook makes $9 million over the next year from app verification application fees, I will be extremely surprised – what’s more likely is that only a few percent of app developers will pony up the cash.

Looking at AppData for Facebook, we find that there are only 400 applications on the Facebook Platform today with over 100,000 monthly active users (about 1% of all apps), and there are only 4,400 with over 2,500 MAU (about 10% of all apps).

Making the liberal assumption that every application developer with over 2,500 MAU invests $375 per year in app verification, Facebook’s total annual revenues for the program come to $1.65 million.  If you assume that half of those applications would get a student/non-profit discount, the number falls to $1.2 million.

And what would be the rough fixed cost of administering the program? Assuming the full review process takes 1.5 hours per app per year, the total number of person-hours required comes to 6,600, or about 3 person-years. Assuming a fully loaded employee costs $100k/year, that’s $300k/year in reviewer costs. Add in 1/2 a developer it will probably take to support the program and total personnel costs come to about $400k, not including anything else in the calculation.

So, assuming 100% of the developers of the top 4,400 applications pony up the verification fee, Facebook stands to make somewhere around $1M per year from the program in incremental revenues. Facebook has also said it will consider lowering the renewal fee in the future, which might lower the number further.

The verification program definitely not going to be a money loser – Facebook could charge less for verification and still break even, but they chose the price point they did. But at the end of the day, Facebook’s root goal for the verification program is to increase user trust in applications so that dubious apps don’t screw up the ecosystem for everyone else. If Facebook wanted to make more money from app developers wanting more distribution, there are many other simpler ways they could do that.