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OpenSocial ad profits: elusive for small developers?

Financial trends and news by John Shinal
May 29, 2008 | last edited July 10, 2008 | Comments (0)
Short URL: http://vator.tv/n/262

Open Social logoThe promise of the Google-led Open Social platform is to allow developers of social-networking applications to write their code once, then distribute their app across many sites so they can monetize it wherever it proves popular. 

Yet in several sessions at the Google Developers Conference in San Francisco this week, there were a lot of questions -- and few solid answers -- about how developers would make money off their widgets and gadgets.

Most of what money has been made so far in social network advertising has been pulled in by the sites themselves. And so far, it hasn't been much.

The research firm eMarketer has forecast that ad spending on social networking sites will rise to $1.6 billion in 2007 from just under $1 billion last year. That's a drop in the bucket compared to overall online ad spending of $28 billion expected this year.

Earlier this month, the top executives from News Corp. offered some frank comments about why MySpace had missed its revenue targets, cautioning that selling ads on social networks is a challenging proposition.

More evidence about the state of the market came in these comments by Glam CEO Samir Arora, who told Venture Beat that his company decided to focus on partnering with content sites, rather than adding social networking features, because advertisers are so far not willing to spend much on social networks.

Max Levchin of Slide, which just raised $50 million on a $500 million valuation, didn't provide a lot of detail about his company's revenue model in this interview, other than it has to do with using the data Slide collects on its users to help sell targeted, behavioral-based ads next to their apps.

Yet a lot of the social network sites limit how many ads can cover its "canvas" and the question of how those ads will take shape is still unknown. Will someone who Super-pokes a friend get served an ad, or will it just be the recipient, or both? And will the ad persist on a page after the initial action is taken or simply vanish?

"It's still early. People are still experimenting," says Chris Schalk, a developer advocate at Google who works with Open Social. 

With the social networks Facebook, MySpace, Hi5 and others getting most of a very small pie, where's the money going to come from for Open Social app developers?

One dose of reality came from Jay Parikh of Ning, the Marc Andreesen-backed site that lets users build their own social networks. Like Slide and Meebo, Ning just raised a round with a hefty valuation of half a billion.

While Open Social provides a common development platform, it's still too early to know whether it will provide a common marketplace for widget and gadget makers. Most likely, Open Social developers will still have to have ad-sharing agreements with each of the individual social networking sites, known as 'containers,' where there applications appear.

"They'll have to cut deals with each container. I have a feeling they will stay separate," Parikh said.

Given that that will create a back-office nightmare for smaller shops, and an expense that would eat into profits, Parikh predicted that someone will come up with a central marketplace or network that will place ads for Open Social developers.

The question is, 'who will host that central exchange?' asked Parikh. "Will it be the sites themselves, or Google?" It's a good question.

On the other hand, big, well-pocketed companies with lots of very-popular apps may have enough clout to cut their own deals with online marketers or ad networks.

Just months after it's launch, Open Social has 2,000 apps built on top of it, according to Google. Those apps were written by 20,000 developers and have been installed 66 million times.

Those are decent early numbers, but making money off that growth may prove elusive for developers, especially small ones.

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Bambi Francisco Roizen, on May 29, 2008

Good story on where Open Social stands.


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