September 15th, 2009 | Published in Google OpenSocial
In just over two years, social applications have greatly enhanced the user experience on social networks. The number of app installs among social networks has climbed into the billions, creating an industry with hundreds of millions of dollars in annual revenue. In this series of blog posts we are going to cover a wide range of topics such as business models, characteristics of successful apps, best practices, and metrics/stats.
The industry started out with the introduction of the Facebook Application Platform but has since expanded to many other social networks all over the world thanks to the OpenSocial standard. Social networks that benefited from adoption of OpenSocial include MySpace, orkut, hi5, Yahoo, and more than 20 other social networks. You can visit the OpenSocial
for technical details, tutorials and samples, and check out the Containers page for a comprehensive listing of all the OpenSocial networks along with traffic and demographics data.
In a short period of time, social applications have gone through two distinct phases in terms of feature richness and monetization methods. The first phase was dominated by apps providing simple social interactions such as self-expression or giving gifts. The second phase exhibits increasingly sophisticated characteristics in apps such as game design patterns (levels, points, rankings, etc.) and user generated content.
Business Models Overview
The business models of social apps have closely followed the development of social apps. In the first phase, the most revenue was generated from traditional display ads, supplemented by affiliate/referral offers and app installs. This worked well for simple interactive apps with relatively low engagement because users quickly moved on to next thing, be it an ad, a link or another app install. In this phase, less engagement by users in apps kept page view inventory in balance with available ads, resulting in high eCPM and profits for developers.
As apps matured in sophistication and richness, users became much more engaged with apps, less inclined to click on ads, links, or another app installs. Higher engagement also generated much higher demand for page view inventory, outweighing the supply from ad networks and therefore reducing eCPM rates. Out of necessity, app developers learned to take advantage of high user engagement by selling virtual goods, and in doing so, creating virtual economy business models that have provided the second boost to the ecosystems of social apps.
Stay tuned as we explore the business of social apps in upcoming posts on the OpenSocial blog.