Open Social Developers Journal - Show Me the Money

Sometimes it’s nice to be old. Well, it’s at least nice to be able to remember mistakes so that we can hopefully avoid repeating them. Back in the “Web 1.0” days, there was a period of euphoria where everything related to the internet was certain to be incredibly profitable. And now we are in the era of “Web 2.0”…

So how does anyone make money in the OpenSocial world? We’ll be chatting more about the business perspective for this in an upcoming webinar, but let’s just focus on the developer’s side for a moment here. Advertisements stand out as the clearest path to dollars in most scenarios. What does it take to include advertisements in an OpenSocial Gadget?

First, here’s the world’s shortest primer on web-based advertising. Ads make money when the end user sees them or clicks on them. The ads that make the most money tend to match the other content on the page (e.g. put sports memorabilia ads next to sports news articles) and/or target characteristics of the user (e.g. offer Denver Broncos tickets to a person who lives in Denver).

Since most social sites require a login, the ad networks can have trouble spidering the pages to know what the page is really about. Some networks have options (which are not available to all accounts) that allow the request for an ad unit to say what the content is about (“this page is about automobiles – send me car ads”). Of course, this only works if the application somehow has insight into what the page is displaying. Clearly an application should know what kind of content it is showing. If I write a dating gadget, it’s probably safe to request ads about dating (hold that thought for a moment…)

Targeting by user seems really intuitive for social gadgets. Given the success of Facebook, several ad networks have appeared that focus exclusively on these opportunities. It seems likely enough that someone will have a fairly robust offering. Most likely it ends up being a “least common denominator” offering like Lookery which just uses Age, Sex, and Location. But what happens when a container site can’t tell the application the user’s gender and whose problem will it be to translate all of the possible ways that “location” might be described in different social sites into something the ad network understands?

In addition, OpenSocial has the concept of the user and a visitor. When I browse my friend’s profile, I’m a visitor. But the application doesn’t have any rights to get my profile information, so what kind of ad should be displayed in that situation?

But the real challenge here is understanding the rules of the container site. If I make an application that’s about dating, and a dating site decides to support OpenSocial applications, I really doubt they would like to see ads for their competitors showing up in my application on their site. Today there’s no API that conveys any rules for advertising. Pragmatic social sites will probably screen every application to see if it meets their standards. But what prevents developers from modifying the application later? And just how quickly will social sites review applications?

Remember the early days of getting an application into the Facebook directory. Right now, I’m waiting for one of the OpenSocial launch partner sites to respond to my request to add Didja Hear to their approved list.

Advertising within the gadget isn’t the only path to money for OpenSocial Applications. But other monetization options like affiliate sales programs or cross-promotion fees for other application developers have both technical and business challenges as well.

In many ways, this is very similar to the interior decorator problem. Application developers can build unique, highly-customized versions of their applications for each target social site. Or they can take their chances with some very basic advertising strategy which will work everywhere (but probably not perform well anywhere).

The ideal solution seems like it would be an ad network designed specifically for OpenSocial. It would need a really large inventory of ads along with an API that would allow container sites to express some basic concepts (including forbidden advertisers and targeting rules). It’s a good bet there are some bright minds considering this problem right now…

I’m not old enough to have experienced the 1849 gold rush, but I’ve heard that the best money was made in supplying the prospectors. Clearly in the “web 1.0” world, a lot of companies profited by solving the difficult problems in a new emerging landscape. There’s gold in these OpenSocial hills, but we haven’t yet seen whose going to profit the most from it.

P.S. While we’re waiting for the container sites and API’s to get stable, you can check out this page to catch a quick screencast about Didja Hear!? We’ll be posting links and instructions on how to add Didja Hear to different social sites on this page as well.

Brian Kellner is VP of Products at NewsGator

Comments

[Paul M. Watson]

"It’s a good bet there are some bright minds considering this problem right now…"

Surely this is Google's strategy? They aren't selling OpenSocial, they are selling ads that happen to work well in OpenSocial.

They get sites to incorporate OpenSocial and then provide an AdSense module for OpenSocial gadget developers. Google then gets their ads displayed in properties they wouldn't normally get into. OpenSocial gadgets are even easier to install than AdSense script blocks for blogs/webites.

OpenSocial containers that "pragmatically" monitor gadgets will have a difficult time rejecting ad-loaded gadgets while still allowing enough gadgets in to be of use to its users.

It is going to be difficult for sites to successfully manage this transition. From controlling the ads that appear on their sites to allowing ads in gadgets they have no control over )or revenue share in) to be displayed on their sites.

[Jeff Nolan]

Paul,
The point about providing sites with the ability to enforce advertising rules is important. Consider Myspace which does not allow ads in widgets.

You might also take a look at the applicability of Google's Gadget Ads program in this respect.

http://www.google.com/adwords/gadgetads/

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