Andrew Chen Archives

Subscribe · Featured · Recent · The Cold Start Problem 📘
Dear readers, I have moved to Substack and I will be writing here from now on:
In the meantime, I will leave up for posterity. Enjoy!

How much is a Facebook user worth, anyway?

I recently found a great blog called Inside Facebook – the two founders, Jon and Justin, are really nice guys too. I definitely recommend you check out the blog.

Anyway, they recently had a great post called "I have 250,000 users, now what?" The blog is about a widget maker who’s gotten 400k users on Facebook, and who doesn’t know how to make money off of it. For a standard internet site, 400k is a GREAT number. There have been many internet sites that have had VC investments for quite a high valuation (over $10MM) with that sort of metric.

In fact, if he had a normal destination site, he could put on AdSense and pretty much guarantee himself a CPM of something like 30 cents to a dollar per thousand pageviews, which would probably look something like a couple thousand bucks a month, probably. Problem is, he doesn’t have an standard website where he can slot ad units – instead, he has something a couple inches by a couple inches, where it’s difficult to place ads.

So question is, how do you make money off Facebook apps? How much is a Facebook user worth, anyway?

Is brand advertising an option? Here’s the challenges
But in the case of Craig Ulliot, he has a distinct problem: How do you monetize a very small piece of real estate on the Facebook profile?

First off, brand advertising (selling at a high CPM) is basically not an option. Why?

  • Selling to brand agencies requires relationships, time, and money
  • Brand advertisers are unlikely to buy such a small piece of real estate
  • It’s hard to fit a big, interesting ad on the widget

This is not to say it can’t be done – I can imagine a "Sponsored by Expedia" there, but it’s take some real effort to get to something like that.

Here are the direct response options
Then on the direct response side, getting people to click and convert is hard:

  • Facebook is a high-frequency/sticky site that has very low clickthrough rates (<<0.1%)
  • Facebook doesn’t capture "intent" – viewing a map doesn’t mean you’re ready to travel
  • The best way to get people to buy is to move them OFF the site to convert, and Facebook doesn’t like that

So even in the case where you get a lot of pageviews, the aggregate CPMs will be terrible. But I suppose it’s better than nothing.

What does widget advertising really need to take off?
My guess is that someone has to move forward with a large direct response ad network that can deliver relevant ads in a very very small ad unit that is easily embedded into the widgets. Google should follow on all the widget hype by having a simple ad that lacks anything but the bare essentials on text, and then aggregate enough traffic to make it interesting.

Another option would be for some sort of deeper integration to happen as hooks to another widget. For example, I could imagine a company (let’s say Apple) creating their own widget. If you as Mr. Travel Widget, when installed, would try to convince the user to also install an Apple widget, I think that’d be an interesting model. Basically tag-along widgets which advertisers pay some amount for every user that is brought along.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see for additional important information.