Losing Money on Every Facebook App User, But Making it Up on Volume

Unintentionally funny (I think) comment from my friend Andrew at MDV:

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.

That’s not quite “Lose money on every sale, and then make it up on volume”, but you can see that phrase from there.

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Comments

  1. Andrew says:

    Yup, it was unintentionally funny :) Turns out the current valuation per user is closer to 0.2%:
    http://www.insidefacebook.com/2007/06/25/another-facebook-app-acquisition-slide-buys-favorite-peeps-for-60k/
    Thanks for the link, and see you soon!

  2. Mike S. says:

    1%? Did he pull that out of his a**? I have no data either but looking at Facebook’s abysmal conversion rates, it MUST be a LOT less than 1%!
    It’s naive to think that you can make things in “bulk.” People who think that are either gullible or have no business experience. Here’s a challenge to Andrew : name ONE business that has a SINGLE offering and has been able to make things in bulk in the long run.
    Sure, if you’re a Microsoft or Google, you can afford to lose billions on a single line of products (look into Xbox) but name me a single startup that has been able to do that and survive and succeed without being acquired. Andrew is interested in doing quick flips and selling losing businesses to companies that crave eyeballs but how many of the companies that follow this strategy will actually be able to do that? Following the VC model, it’s in Andrew’s interest that companies shoot for the stars but for every one success, there is going to be at least 100 failures. You have a better chance of winning the lottery than being acquired by Yahoo, Google or MS. If you’re an entrepreneur, don’t be foolish enough to follow that advice.
    Paul K has nailed it with his quote.

  3. Paul Malin says:

    I think about Facebook apps everyday because I am building one. They were supposed to be serving ads onto the side of the canvas page and giving 100% of that revenue to developers but ads almost never appear next to canvas pages (although they are almost always present next to the profile etc. pages). As well developers were supposed to be able to place ads inside their apps but they don’t seem to be taking advantage of this (or maybe the ads are getting blocked). As an aside I wonder if there is a conflict of interest with the ad deal Facebook signed with Microsoft… Anybody with insights into this area please post them.

  4. Mike S. says:

    Paul,
    Think of Facebook as AOL 2.0. Really, there’s no difference between the two… its’ just that Facebook doesn’t charge you any money for the privilege of developing apps for their users.
    You’re better off developing your own site and cultivating our own community and even if your audience ends up being 1000x smaller, you’ll be ahead.

  5. Bert Armijo says:

    Valuation flows from a proven relationship with the customer that can be leveraged to build revenue streams, but revenue does not have to be derived from the initial relationship. Google is a perfect example of that, as were traditional magazines and newspapers when we used to read them.
    The launch of Facebook apps has proven beyond any doubt that Facebook has this relationship with their users. The apps themselves, however, have proven nothing except that users clicked on them once. Six months or a year from now if iLike can show 4 million “active” users on Facebook they’ll have proven they’ve built a user relationship as well.
    Now, how they realize that value is another question.