Our Sand Hill interview series continues this week with Andrew Chen, Entrepreneur in Residence at Mohr Davidow Ventures. (Last week I spoke with Jeremy Liew, partner at Lightspeed Venture Partners, to get his perspective.)
Prior to joining MDV, Andrew was a co-founder of Revenue Science’s ad network business, where he grew the network to thousands of publishers serving 5 billion impressions per month. He led Revenue Science’s monetization efforts for social networking giant MySpace, and landed several of the company’s key brand advertising clients. Jonathan and I sat down with Andrew at the packed out Coupa Cafe in Palo Alto.
IF: You call yourself a “skeptic” on the benefits of the Facebook Platform for widget developers. Why?
AC: I think Mark Zuckerberg is very smart, but I see a lot of challenges for widget creators. The platform is a great opportunity for widget developers to put up some huge adoption numbers, but the revenue opportunity is still very much unproven.
IF: What are the drawbacks to the Facebook environment in your view from the publisher’s perspective?
AC: There are two main types of ad campaigns online: direct response advertising campaigns and brand advertising campaigns. Direct response performance depends on your ability to capture and serve purchase intent – but it’s not clear that there’s significant purchase intent most of the time on Facebook. Brand advertisers want things like immersiveness and integration. Because Facebook limits profile widget design so significantly, this will never happen on Facebook to the degree that it can on your own property. So I’m skeptical that advertising will bring significant returns for widget developers.
It’s unclear how much a Facebook app user is worth, compared to a user on your destination site. On a destination site, you can probably get a $0.50-1 CPM, whereas the CTRs and conversion rates on Facebooks apps imply a much lower CPM. Facebook app users are potentially worth about 1% of what users on your website are worth in my view, but the opportunity is to make it up in bulk.
IF: Based on your experience working with MySpace at Revenue Science, which ad campaigns do you think will be the most successful on Facebook?
AC: The best shot for monetization using ads is direct-response ads that promote mass market products. I think you have the biggest shot there to get a conversion out of users. If people are already using a particular widget for discovering cool new music, it’s easier to hook into that shopping impulse and use it for advertising. The problem is that the more mass market it is, the lower the payments typically are.
If widget makers are allowed to send traffic a ton of traffic to their own destination sites, that might work well – in that case, it’d make sense to charge the widget makers a cost-per-click for every user leaving the site, similar to the way that Google funnels people OFF the google.com search engine for a fee. That would make Facebook a true traffic acquisition engine.
IF: Would you like to comment on any other strategic challenges you see for Facebook app developers?
AC: It will be interesting to see how Facebook treats its widget ecosystem. Certainly there’ll be a honeymoon period in the set of relationships, but it’s also clear from Facebook’s perspective that they have an incentive to make sure no application is ever more popular than the Facebook platform itself. Just look at Microsoft’s long-term strategy on controlling their platform to understand how heavy-handed they’ve been, at times, to developers building on their platform.