What is a Facebook app worth?

by Mathew on January 11, 2008 · 10 comments

Allen Stern of Centernetworks has a post up about how to get rich — theoretically at least — by coming up with a popular Facebook app. The numbers he has are from Adonomics (formerly Appaholic), an advertising analytics service aimed at Facebook developers, which is owned by a venture fund called Altura (“the first only-Facebook VC”). Adonomics will also guarantee a certain number of installs of your app for a fee.

According to Adonomics, the top Facebook app is FunWall, with 22 million installs and 3.6 million active users — or 16 per cent of the total. It’s not clear how the service defines active users. This app, according to Adonomics, is worth almost $30-million. If you do the math, that works out to about $8 per active user. Where does Adonomics come up with this figure? That’s also not clear. Apponomics is more than a little coy about the methodology behind its calculations.

I’m betting the numbers come from a place in Silicon Valley known as “Thin Air.” Is a Facebook app worth something? Sure it is. But is FunWall in any real sense “worth” $30-million? Maybe in some alternate universe. As an example of how Adonomics does math, the site says that Facebook has 60 million active users and a valuation of $18 billion, which “translates to $300 per active user.” Except that valuation for Facebook is hypothetical, and as a result virtually meaningless. (The script the company uses also likely violates Facebook’s terms of use).

Jeremy Liew of Lightspeed Partners says there are a number of factors that determine what a Facebook user is worth. Greg Thomson of Toronto has developed a number of apps — including My Aquarium — and says he now has more than 8 million installs. In this video from FacebookCamp, he says an active user is worth about $3 per year. Favourite Peeps was worth 4.5 cents per user, while RockYou says it thinks the average app user could be worth between 30 cents and a dollar.

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  • http://www.altura.com Lee Lorenzen

    Matthew,

    We don't mean to be coy but straightforward. The following post outlines how we come up with the valuation:

    http://blog.adonomics.com/2007/09/24/an-adonomi

    Facebook's $15 billion valuation is not hypothetical — because Microsoft and and individual investor put money in at this price. I actually think it is worth $100 billion (see blog.adonomics.com for the details as to why).

    WRT FunWall, an app that has 1/5 to 1/4 of the entire facebook audience has a valuation premium because Google, Yahoo, IAC, AOL and others would pay a lot to have an app that would allow them to harvest out a big chunk of facebook users over time to a competitive social network.

    Thanks,
    Lee Lorenzen
    CEO, Altura Ventures — the first Facebook-only VC
    cell: 831-595-7501

  • http://www.mathewingram.com/work mathewi

    Thanks for the comment, Lee. I still don't think it's all that clear
    how you arrived at the specific numbers for the apps on your list, but
    I realize that it's a combination of a number of different factors.
    And I would argue that the assumptions around many of those factors –
    such as an app's future growth rate, Facebook's future growth rate,
    the rise in advertising rates, etc. — are either flawed, or
    ridiculously optimistic, or both.

    As far as Facebook's “valuation” is concerned, it is completely
    hypothetical. Microsoft bought less than 2 per cent of the company,
    and paid a price that was based on a whole range of factors,
    competitive and otherwise. To extrapolate from that to the value of
    the entire entity or to the value of individual apps like FunWall is
    ridiculous — and I think the same goes for your $100-billion
    estimate.

    In any case, thanks for the comment.

  • John Minnihan

    If the app developers are actually making money (this isn't clear, so we'll assume not), then each user is worth zero.

    Seriously, valuing numbers of users is pointless unless there is a demonstrable, market-driven correlation (i.e. more users => more revenue). Even Dave McClure, who has vigorously defended Facebook recently, is beginning to ask about monetization (http://500hats.typepad.com/500blogs/2008/01/fac… )

  • http://www.mathewingram.com/work mathewi

    Thanks for the comment, John. I'm not sure that they are worth zero
    – Greg Thomson, whose video I linked to, seems to be pulling in a
    fair bit of revenue from his apps, from what I can gather — but your
    point is well taken. Even if they are making some amount of money,
    extrapolating from that out into the future and then coming up with a
    “value” for every app is unwise at best.

  • John Minnihan

    Sure – the assumption above was that the apps were not currently gen'ing any revenue. For those that are, the math remains basic: total revenue / total users = rev per user.

    Now that facebook is considering (it may be reality, I've lost track) allowing users to hide some apps from their profile pages, this could greatly reduce any contrived value those apps had, if “viewability” was part of the equation.

    This is evolving, to be sure, and remains an interesting topic. But don't discount the overall faddish nature of it. Look at how quickly Twitter emerged and engaged folks. Something else is always around the corner.

  • http://www.mathewingram.com/work mathewi

    agreed

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  • Neil

    Then what about funwall.in a similiar one operates in India having massive traffic?

  • Neil

    Then what about funwall.in a similiar one operates in India having massive traffic?

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