Bronte Media

A month or two ago I thought out aloud about the economics of Facebook app revenue growth and in particular how artificial some of that was. Basically, I think the ‘offer based’ revenue from the likes of Offerpal is extremely vulnerable and at the very least will be re-rated by 2-3x downwards. They are offering the modern day version of ‘free ipod’ ads.

Now from Gambit, a firm that helps app developers earn money, we know how much is at stake. Take a look at the table in the post; around 40-50% of app developers revenue comes from people filling out offers like credit card applications and netflix trials rather than paying up with cold hard cash.

If we assume a worst case scenario that offer based advertising decreases by two-thirds in the next two years and it makes up half of revenue then that means the $1 an app provider is making today is realistically 65 cents (.50 cents cash + .15 real value of offer advertising). But that is only the rate of monetization and that can be shielded by the sheer growth in users and interaction with the app.

For Offerpal and others like it though, their revenue is most sensitive and I suspect we’ll see them sold to some sucker like MySpace or Paypal in the next year before it all blows up.

Finally, for the record, I think Zynga will be a blow out home run because of one thing: The US will legalize online poker once more and Zynga are poised to ride that rocketship better than anyone else (besides FullTiltPoker and PokerStars).