While it’s been clear for some time now that the gold rush days of the Facebook platform are over, developers are beginning to contemplate moving on to other platforms.
That’s the gist of an an AdAge article this morning highlighting the increasing challenge of building a profitable business on the growing social network.
The Rising Cost Of User Acquisition
Core to the “Facebook platform is dead” argument is the rising costs of acquiring new users.
At first, user acquisition was completely free on the Facebook platform. Thanks to numerous communication channels and unlimited user invites, Facebook developers experienced a massive gold rush in which building a business was pretty simple. However over time, competition increased, communication/viral channels decreased, and developers turned to Facebook Ads as their primary source of new users.
As each viral channel has closed, developers have been forced to rely more and more on advertising to build their businesses. The closing of these channels in an effort to improve the overall user experience is a process that we’ve documented numerous times over the past few years (see here, here, here and here, just to name a few).
Late last year, it had become clear that the Facebook platform had matured and that there was no longer room for “dorm room developers.” In fact, the Facebook platform is down right challenging today.
As a number of small developers told AdAge, things became difficult last April when Facebook shut down the largest communication channel for app developers: Notifications. As communication channels decreased, the cost of ads increased dramatically.
Game developers have now turned to third-parties who optimize ad campaigns in an effort to maximize ad performance. The result is that one-off developers no longer stand a chance. As Dalla Snell, co-foudner of Portalarium complained to AdAge, “I ran an ad all last week,” and “I didn’t get a single click.”
Every game developer is running ads that get no clicks, but with powerful ad optimization tools from companies like TBG Digital, nanigans, Kenshoo, Efficient Frontier, and more, running 30,000 combinations on a single ad is standard.
Companies using these platforms can instantly discover responsive markets and then turn up their investment in each one until each demographic has been saturated. Fortunately for top game developers, Facebook’s user base continues to grow.
The overall ecosystem has officially become a game for companies with sizable budgets, not shoestring startups. While there are outliers to support the contrary (including niche game companies), the common consensus is that the Facebook platform is now a mature market.
Transaction Fees Eat Away At Margins
In addition to the cost of acquiring new users rising, Facebook decided last year that ir would beging enforcing that all game developers implement Credits as in-game currency. The result has been even smaller margins and even more optimization to an extent that most newcomers cannot afford.
While it’s not news (as we’ve suggested this was the case for over six months now), Irina Slutsky does a great job of highlighting the realities of building on the platform.
While Facebook is always looking to optimize the platform in a way that balances user experience and presents opportunity for developers, there is no ignoring the fact that the Facebook platform is now a market for big businesses.
Readers, what do you think about the state of Facebook’s platform?