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Ads, Out -- Apps, In

  |  May 22, 2009   |  Comments

Are software developers poised to be the new agencies?

Should you fire your agency and hire more developers? It may be a bit premature to do so now, but consider the trends. The global economic slump is only hastening the move away from media buying and "classic" online advertising toward content creation and dissemination.

Small wonder that apps are running a close second in the shift away from advertising as marketers increasingly strive to create content and tools to help users solve problems, make their lives easier, increase functionality, or simply have more fun.

Pioneering the trend is Apple's iPhone App Store. Last month, the store hit the impressive benchmark of one billion downloads. Apple gets a 30 percent cuts of app sales, which range from 99 cents to upwards of $2.99. Apple's estimated revenue from app sales is undisclosed, but estimates range from $70 million to $160 million.

And that model translates neatly into the marketing world. The world's largest social network, Facebook, anticipates earning $500 million in ad revenue this year. AdAge this week estimated Facebook app developers could very easily match that number. In other words, app revenue equals ad revenue.

Small wonder Facebook founder Mark Zuckerberg recently announced the FB Fund, which will give grants of up to $250,000 to developers creating apps for the site. MySpace, too, has a dedicated sales program for branded apps.

As the social media players increasingly look to apps for the revenue they aren't squeezing out of ads, flavor-of-the-moment Twitter plans to leapfrog the whole ad thing completely. So said co-founder Biz Stone just this week. It's widely anticipated the hotter-than-hot microblogging platform plans to look to apps, rather than to ads, for revenue.

Some venture funds in Silicon Valley are wholly devoted to investing in apps. Some are even focused on Facebook apps alone. Some developers have sold their apps for hundreds of thousands of dollars, while others have raked in tens of thousands in app-based ad revenues.

Perhaps no company carries more weight in the app space than RockYou, which built Facebook's Super Wall, the most popular app on the most popular social media site. The private company is valued in the tens of millions of dollars.

RockYou's biz dev chief Lisa Marino told AdAge that developers will earn money from Facebook in the primary ways: virtual currency, branded sponsorships, and ad-network inventory. These "might overall be bigger than what Facebook brings in revenue," she said.

An example? Bud Light's page features an app that allows people to send branded virtual gifts to friends. Gifts can be customized for holidays or special occasions. When recipients get a gift, it appears on their Wall and can be seen in all their friends' news feeds, literally driving the brand through the network. Over 2,500 people became fans within weeks of the page going up on the site.

The Travel Channel built Kidnap for Facebook. The branded game boasts close to three million active users per month, and its Web site has seen 28 percent traffic growth through the app alone.

People actually pay 99 cents to download Kraft Foods' iFood Assistant for their iPhones. With it, they get more than 7,000 recipes, many of which require Kraft products, along with features such as shopping lists and how-to guides.

Apps aren't just for big brands. Hyperlocal apps are making inroads, too, particularly and unsurprisingly on the iPhone.

Tapit helps you find free tap water refills for your water bottle. It's green, and participating local businesses benefit from the exposure and walk-in business. A similar play is MizPee. Who hasn't desperately sought a clean restroom at one time or another?

Thinking app? Think fun. Or functional. Or informative. Think free, but if it's good enough, think fee. And if you're really, really good, like Kraft, you might just be able to convince people to buy your marketing.

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Rebecca Lieb

Rebecca was previously VP, U.S. operations of Econsultancy, an independent source of advice and insight on digital marketing and e-commerce. Earlier, she held executive marketing and communications positions at strategic e-services companies, including Siegel & Gale, and has worked in the same capacity for global entertainment and media companies, including Universal Television & Networks Group (formerly USA Networks International) and Bertelsmann's RTL Television. As a journalist, she's written on media for numerous publications, including "The New York Times" and "The Wall Street Journal." Rebecca spent five years as Variety's Berlin-based German/Eastern European bureau chief. Rebecca also taught at New York University's Center for Publishing, where she also served on the Electronic Publishing Advisory Group. Rebecca, author of "The Truth About Search Engine Optimization," was ClickZ's editor-in-chief for over seven years.

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