When you click on a sponsored link on Google, whoever bought that ad pays Google. Advertising generated 96 percent of Google’s revenue last year, even as it crushed the competition on maps, email, and online video, made huge strides with Android, and did everything else it does. From a money point of view, Google is a paid search engine that also places ads on websites.
Facebook wants to be the same thing, but with apps, and on a social network. Under the paid app installation plan it rolled out today, which had been available in beta form since August, developers can place ads on Facebook — web or mobile. When users install those apps after clicking on the ad, the developer pays Facebook.
It’s up to the app developers to make money from those users afterwards, of course, but Facebook has already done its job by convincing users to install the apps, and it gets paid for that — something it desperately needs now that it’s a public company, beholden to stockholders. Business Insider thinks it’s a $1 billion business, and that’s on day one.
Facebook is in a unique position to do this, because it already acts as the glue between apps (as we suspected it would), boosting their usage measurably. It knows many of the apps your friends use, as well as who they are, and a bit about who you are. Now, it has a way to extract cash from that information for merely giving you something you want anyway.
Is this idea crazy enough to work? It’s not crazy at all; it’s the same strategy Google employs, but instead of advertising against search, it’s advertising against apps and social relationships. And according to Facebook’s blog post, it worked pretty well in beta:
In early results, beta partners like Kabam, Fab, TinyCo and Big Fish were able to reach a more relevant audience and efficiently drive installs. For example, TinyCo saw 50 percent higher CTRs and significantly higher conversion rates compared to their current mobile channels, as well as a significant increase in player engagement.
A select subset of Preferred Marketing Developers (PMDs) has been testing mobile app install ads and saw similarly positive results. For example, Nanigans’ clients efficiently achieved 8-10x the reach compared to other mobile ad buys. Ad Parlor saw consistent CTR’s [click-through rates] from news feed of 1-2 percent from engaged users looking for iPhone and Android games that their friends were playing.
We’ll be keeping an eye on how this plays out from a music app perspective.