Facebook Launches "Out-App Purchase" Ads

What if in-app purchases didn't have to happen in-app? Rather than indirectly helping developers monetize with ads that drive them installs and re-engagement, Facebook today began letting them sell Facebook desktop game virtual goods straight from ads in the News Feed or sidebar. But an even more lucrative opportunity could be bringing these "out-app purchase" ads to mobile. They could let Facebook earn money even if the 30 percent cut on in-app purchases goes to Apple or Google. Facebook already has the infrastructure in place, between re-engagement ads, coupon code auto-fill, and plenty of mobile feed impressions where it could place these ads. For now, though, these out-app purchase ads can ony be bought on desktop, and Facebook told me it had nothing to share about future plans to do more to inspire mobile purchases. But on desktop, the ads are already working and they let Facebook double-dip. Developers pay to show the ads, then pay Facebook a 30 percent cut of desktop in-game purchases. Kixeye used the out-app purchase ads to sell discounted virtual currency in its Facebook game Battle Pirates. The ads to buy $10 worth of in-game credit for $5 got a 10 percent click-through rate (way higher than the average), a 50 percent conversion rate for people who had paid in the game before, and a 14 percent conversion rate for users who hadn't previously paid. Kixeye went whale spearing as well, getting a 5,000 percent return on investment by targeting their biggest spenders with ads for $500 worth of currency for $250. These ads surely benefited from the big discounts Kixeye was handing out, but since the goods are virtual, it doesn't have much to lose. The new ad format may have caught some extra eyes, too. Of course there's an argument to be made that these types of ads prey on social gaming addicts who spend real money on pointless, fake virtual goods. Many Facebook desktop games are framed as "entertainment" when in fact they're utter time wasters that peddle quick dopamine hits rather than any lasting satisfaction. But like it or not, that's business. And it could be an even bigger one on mobile. Right now Facebook earns much of its $1 billion mobile ad revenue each quarter indirectly helping developers get more people into their apps through install and re-engagement ads. These allow developers to get seen despite overcrowded app stores and homescreens. As the popularity of the freemium model grows and more games don't make you pay up front, the ROI on these ads becomes less clear. Monetization through in-app purchases isn't directly connected to the user clicking on a Facebook ad —  they have to be hooked on an app enough to see value in spending money on it when they've seen all of the free content. If Facebook could bring its out-app purchase ads to mobile, it could prove obvious ROI like in the Kixeye example above. Of course, they probably couldn't sell virtual goods from the mobile News Feed as they can on the desktop, since iOS and Android don't allow in-app purchases to happen outside of their respective app stores. Still, Facebook could show ads that deeplink directly to exclusive virtual good purchase pages in apps that can't be navigated to normally. Alternatively, it could use the coupon code auto-fill feature it announced at f8 to show a discount code in the ad, which when clicked would pop you into the app and auto-fill the code so you didn't have to enter it manually. Imagine if you already played a mobile game but beat all the levels. A few months later, the developer releases new levels as a $2 in-app purchase. Facebook could show an out-app purchase ad in its mobile feed that deeplinked you into the app where you could pay a discounted $1 rate to unlock the levels. Or rather than the conversion-focused re-engagement ad to the right telling people to generally "Shop Now," Facebook could show a discounted sweater deal only available through the ad click. These would essentially be Facebook's existing re-engagement ads re-framed for driving immediate purchases. What developer wants engagement when they can get cold hard cash? Facebook is now competing with Twitter to sell ads to developers. The big blue social network is especially equipped to push these ads because they know so much about us. Not only does it have our identity, social graph, and interests, its SDKs, Facebook Connect options, and auto-fill billing info e-commerce feature mean its learning tons about our behavior in other apps. Plus, with Facebook starting to track our real-time location, and hear what we're listening to or watching, it's collecting context about what we're doing at any given moment and therefore what ads we might want to see. It could also lean on deeplink ad targeting services like URX for assistance. As former Facebook lead designer Soleio Cuervo wrote this morning, personalization is about identity, graphs, behavior and context. Personalized ads that lead straight to in-app purchases could be a boon to developers and become Facebook's next cash cow after app install ads.
Josh Constine

Josh Constine is a Writer at Gigabuzz, focused on covering early-stage startups, especially those with a technology focus and great perks.

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