We made a subtle but important change to all of our apps last week: we removed the banner ads.
From day one, all Backstage games had included two banner ads on every page: a 728x90 pixel leaderboard across the top, and a 125x125 button at the bottom of the right-hand navigation. (The ads that appear stacked horizontally to the right of our application are controlled by Facebook.) Initially these ads accounted for 100% of our revenue. Back in October of 2007, I was quoted in an interview as saying that we were making enough from these ads to buy me a soy latte every day. A venti soy latte, I might add.
The original business model for Facebook app developers was simple. Create a viral app, get a million users, and display banner ads. Repeat. Spurred on by the successes of others, and the million dollar Google AdWords royalty cheque proudly displayed by the founder of Plenty of Fish, we believed this was our road to fame and fortune. We initially looked at running ads from Google, Azoogle, NeverBlue Media, Video Egg, etc., but ultimately we went with the new breed of ad companies that specialized in the emerging market of Facebooks apps: Cubics (for the button ad) and Social Media (for the leaderboard). Over time we became big enough that RockYou let us play, and we switched to using them for the leaderboard.
But then a funny thing happened: December of 2007 became the last month where banner ads were the dominant revenue source for our apps. This transition started during the first Vancouver Facebook Developer Garage in October of 2007, when I met Jason Bailey of KITN Media (later Super Rewards). We were both presenters: I demonstrated Scratch and Win, and he talked about how you make money on Facebook using CPA (cost per action) advertizing. His approach was endearingly sleazy and forthcoming. We exchanged business cards later that evening during the beer shmooze put on by Joyent (who would later become our hosting company). To make a long story short, in December of 2007 Scratch and Win became the first app to incorporate the Super Rewards CPA offer wall. The following month Scratch and Win became the first app to incorporate Spare Change micropayments. Banner ads became a less important part of our business with each passing transaction.
I've heard Mark Pincus of Zynga describe their revenue breakdown as 1/3 CPA, 1/3 micropayments, and 1/3 banner ads. Their business model is the same as ours, and they use the same monetization partners as we do (albeit long after we started to), so trust me when I say that I think he's exaggerating the contribution that banner ads make to his bottom line.
Anyway, about two weeks ago the banner ads started to damage our customer experience in two ways. First, one of our banner ad networks started to include an ad for malware in its RON (run of network, which is a fancy marketing term for "the ads we show"). We worked with our user community and the ad network to help identify the source of the problem, but the damage to our reputation was already done. To make matters worse, after assuring us that the offending advertizer had been identified, banned, and spanked with a knife, it resurfaced like a cockroach a mere three days later.
Second, Internet Explorer users started to notice that the Flash component of our pages was blocked while waiting for the ads to finish loading. This would sometimes lead to an unacceptable 30 second delay in the loading of our Mind Games puzzles, Bingo Explosion cards, etc. Despite our best efforts to determine the cause and code a workaround, the combined black boxes that are the Facebook FBML parser and Internet Explorer's threading model left us stumped.
We were faced with a difficult business decision to make. Should we carry on and deal with the customer service issues as they arose? Or do we turn off the ads and sacrifice a revenue stream? The decision was surprisingly easy to make.
Backstage is not in the ad publishing business. We are in the business of making engaging apps, so anything we can do to create a pleasurable user experience will ultimately pay off in terms of our customers willingness to complete CPA offers or use our micro-payment partner to buy more of our virtual currency. While the reward for ad publishing is only linear (i.e., a 10% increase in our user base leads to 10% more ad revenue), the reward for making our apps a joy to use is far greater in terms of viral spread and willingness to pay to play.
Surprisingly, feedback from our users on this decision was quiet. It turns out that most of our players -- with the exception of malware pop-ups that tell you your computer is infected with a virus -- are banner blind and didn't even notice! However, some did, and I will close with a quote from one of our customers regarding our decision.
I got the email indicating the
changes you are making to the application and I am extremely happy to
see that you removed the ads that were slowing things down so badly.
It might seem like a small thing, but it lets everyone know that you
have been listening and care what we think. Awesome applications and
obviously awesome people behind the applications!
Carrie Hughes (by email)
