Adonomics Facebook App Valuations Raise Eyebrows, Questions
5 Comments Published by Blake Robinson January 14th, 2008 in Facebook Advertising, Facebook Applications, facebook Business, Facebook Marketing.
CenterNetworks ran a piece Friday pointing to various application valuations established by Facebook analytics company Adonomics. In a survey of the top 20 apps, Adonomics values range from nearly $26 million on top for Super Wall and just shy of $3 million at the bottom for, my personal favorite app, Zombies. These apps wield 23.9 million and 6.9 million installs with 3.1 million and 138,875 active users respectively.
While those are significant audiences and are certainly valuable, I question whether apps like Super Wall can truly be worth $26 million. Given the low CPMs of Facebook ads, I have difficulty believing that any of them are profiting so handsomely. An audience is only worth as much as you can monetize it, and currently there are few ways to do so effectively — Facebook itself is even having trouble doing so.
Adonomics stands by its methodology and maybe it will prove to be accurate, but for now, these valuations feel, to me, largely speculative and not entirely grounded.
5 Responses to “Adonomics Facebook App Valuations Raise Eyebrows, Questions”
- 1 Pingback on Jan 24th, 2008 at 12:26 pm
Does anyone see a parallel here between the valuations of Facebook apps offered by Adonomics and the valuation of Facebook ($100 billion) offered up by Lee Lorenzen, who bought Adonomics? Either they’re consistently overvaluing both the applications and the platform, or they’ve got more foresight than the rest of us combined.
To Teresa,
I appreciate the comment and time will tell whether I’m right or “drunk” WRT the valuation question of both apps and facebook. That being said, I do try to provide lots of supporting data as to why I believe what I believe.
In addition, it is important to note that part of the goal of the Adonomics valuation is to aid app developers as they seek buyers because I was seeing too many deals being done early on for ridiculously low valuations (e.g., Favorite Peeps to Slide for only $60K). Even if a developer accepts less than their Adonomics valuation it certainly helps to have the Adonomics valuation as the starting point of negotiation.
I’m also happy to help any facebook developer that wants to sell an app valued over $100K to find a buyer for a percentage of the fee. We have also purchased apps at or above their Adonomics valuations. So, in that very real sense we stand by our numbers.
To Blake,
As stated in our FAQ’s we stand by these valuations and the methodology that we used to arrive at them (see http://blog.adonomics.com/2007/09/24/an-adonomics-valuation-is-the-key-to-not-undervaluing-your-app/).
When we manage ads for 3rd party apps we see RPM rates from $0.25 to $3.50. The high end of this range is not bad and I know of 20 or 30 apps written and owned by teams of developers with fewer than 3 members that are pulling in ad revenue between $30K and $200K per month in ad revenue. An app with $200K per month in revenue will do $2.4 million in annual revenue and this certainly justifies a $2 to $6 million valuation (i.e., 1x to 3x annualized revenues).
If you look at the full range of apps in our list, you will note that the top twenty recieve a premium because they are potential strategic assets that might be coveted by Google, Yahoo, IAC, MySpace and others that want to in a single step gain access to 15% to 50% of all Facebook users. This would allow these Facebook competitors to introduce these users to a competitive social network.
We tend to value facebook installs at around $0.50 per install. This is what it will cost you at RockYou and Slide to buy users for you facebook app. In addition, $0.50 is low compared to the cost of acquiring a registered web user via paid search. I also believe that Facebook app users are more valuable to acquire than registered web site users because they are reachable by the app owner without an extra opt-in and their usage of the app is an advertisement via the newsfeeed to their friends.
Because a facebook user is worth significantly more than a registered web user, acquiring a Facebook app is a quick way for a Web 1.0 company or major brand to obtain a daily connection with millions of users that have opted in to being contacted by the app owner and whose profile page boxes are online billboards telling their friends about the app owner.
Lastly, while creating some of these apps might not be that difficult, it is non-trivial to support an app with 2 to 20 million installs and 100K to 3 million daily active users. The other reality is that creating a popular facebook app is REALLY HARD. With over 13,000 shipping apps from 169,000 developers who’ve looked at Facebook only 146 apps have managed to capture more than 1 million users.
Thanks,
Lee Lorenzen
CEO, Altura Ventures — the first Facebook-only VC
cell: 831-595-7501
I spy with my little eye an Adonomics advert on your front page. Shouldn’t you disclose the fact that you have a business relationship with these guys in your article?
to understand the craze that is currently occurring with business that do not produce much revenue but have huge valuations, just look at Google’s valuation of some $200Bn with a paltry $12Bn in revenue and $4Bn in profits (which is questionable by any accounting standards, meanwhile Microsoft is worth a similar figure with over $50Bn in revenue and over $12Bn in profit and Billions in the bank. It is hard to see that FaceBook will achieve any credible monetization in time to capitalize on its captive audience before they move on! I personally do not subscribe to the Advertising revenue model, it just doesnt generate enough money based on server farm costs and traffic, if you work the Breakevens for these companies they are not even close!!!