What's The Best Business Model For Facebook Applications?

The "How Well Do You Know Me?" application is now the largest Facebook application ever based on monthly active users but how much is that worth? Considering that the developers behind the application have been using aggressive ads to monetize the application, it's worth a lot but is that a sustainable business model? For the past few weeks I've been repeatedly arguing that it's not a sustainable model and unhealthy for the state of the Facebook application economy. So if these aggressive ads are not the most effective business model on the Facebook platform, what is? Virtual Goods Lead The Way Zynga has become one of the most frequently discussed companies not only for being the largest application developer on the platform but also for reportedly projecting revenues of $100 million this year. It's an impressive number and while a large amount of revenue has been generated through advertising, the company has also figured out a model to get people to spend their money on virtual products within the game. Virtual goods are currently a small fraction of the revenue being generated on the Facebook platform but with the launch of the Facebook payment platform (which is now accepting new developers into the program), that is only expected to increase. Targeting Verticals Can Make You Money In my interview with Peanut Labs last week, I asked Murti, the President of the company, what was the most profitable demographic. He mentioned that mothers are a great demographic to target. He's right and there are many other verticals that can be profitable. Monetizing a generic groups of users is nowhere near as easy as getting advertisers for a unique vertical. Magazine racks are a great way of finding out what the most profitable verticals are. Whether it's cars, weddings, health & fitness, home & garden, video games, or one of many other highly active verticals, these are all things that advertisers will pay for. One of the most surprising things to me in the application development space is how many app developers don't know who their customer is. Yes, you can build an application for the sole purpose of "going viral" and slap up some ads that will generate revenue but that isn't much of a long-term plan. The Internet Isn't Traditional Business One other thing to keep in mind is that despite me being adamant about how driving millions of untargeted traffic isn't a business (it clearly is ... see here), the internet industry is still an emerging space. To compare Facebook to a traditional business doesn't make much sense though. Yes, the company has various revenue streams which traditional media companies have, but the company doesn't have a breakthrough model ... yet. For all of those companies building businesses on top of the Facebook platform, you can either wait it out until the breakthrough model comes, try to develop the model yourself, or start treating applications as media companies. On the other hand, we can all try to launch gaming companies and become the next application to sell millions of gifts to its users. What do you think the best business model is for Facebook applications?

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What's The Best Business Model For Facebook Applications?

Nick O'Neill

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Nick O'Neill