Open To Buy
The Gotham Gal started out her career in the retailing business and spent time as a buyer at Macy’s. The way that job worked was she’d get her "open to buy" report and then go into the market and buy. I always loved that term. It meant it was time to go shopping.
Facebook went open roughly a month ago. And now VCs, web companies, and media companies have opened their pocket books and are going shopping for Facebook apps. It’s actually a bit of a feeding frenzy if the reports I am hearing are to be believed.
Yesterday was Facebook day in the office. We started off with an awesome meeting with the Jarvis father son duo. Not sure who I learned more from. But if you want a Facebook app, you can hire Jake. The first two Facebook apps I installed (last.fm and flickr) were built by Jake so I can vouch for the work he does.
Then I spent time with a good friend who I don’t think wants to be outed on this blog who is building a very interesting facebook oriented business. And he’s in the market for apps. He’s open to buy.
And at the end of the day, I spent time with an entrepreneur who made a smart buy early in the Facebook craze and now is sitting on a bunch of apps and is now raising money to build a business on top of that foundation. He’s done his buying for now.
So let’s look at some of the facts I learned yesterday.
Facebook apps sell for the number of users who have installed the app. The price was $0.10 per user last week. Now its $0.25 per user.
The CPMs that Facebook apps are getting are what you’d expect. Less than $1.
The churn rate is high. Some apps are down as much as 60% in the past week. 20% weekly churn is pretty typical.
You can build a Facebook app in an afternoon. Maybe the more complicated ones could take a man week. So let’s just say the cost of building a Facebook app isn’t that high. Certainly less than $10,000.
There are a total of 1,131 apps. Of the last 500 to be approved, only 5 have over 100,000 members, and none have over 200,000.
This fact came word for word from the Hypebusting post on Valleywag.
So what do we have here?
A marketplace where the early entrants were able to amass a large user base quickly but where new entrants are having a much harder time. So the early birds have something that everyone else covets. And they are now monetizing it. That makes senses.
But what’s the right price to pay for a popular Facebook app? Let’s say you have a million users. Let’s say the average user visits the app page once a day. [I have no idea if that’s a good assumption. Some help here please]. That’s 1 million PVs per day, 30 million per month. Let’s say that there’s a single banner at the bottom of the Facebook app page, which is what I’ve typically seen. So at $1 cpm, we are looking at a $30,000 per month revenue stream for a one million user app. That’s $360k/year. But that is with no churn. It seems like the lifetime of a typical Facebook user is less than a year. Maybe less than six months.
So these prices of $0.10 per user to $0.25 per user make some sense to me. It’s not entirely nutty. But the churn is concerning. And I really have no idea what the right assumption is on average user visits per day per app. And I bet it varies wildly from app to app.
Markets are fascinating. And this Facebook app market fascinates me. I don’t know if VCs should be participating in it. I don’t know if our companies should be participating in it. I don’t know if it’s a bubble or a bargain.
But you cannot ignore what is going on in Facebook. It’s a hyperactive development platform on the web in the middle of a community of 27 million (May comScore numbers) people. It’s like nothing I’ve ever seen before in my 20 years in the VC business and I think you have to get your head around it and soon.
To that end, Union Square Ventures is hosing a Facebook Developers Meetup next Monday, July 2nd. I’ll be there.