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App monetization: Gambit launches, funnel metrics, and ARPU vs “CPM”
New monetization option for app developers launches
Today, my friend Noah Kagan launched a new payments service called Gambit which you can check out here. The focus is on virtual currency-based Facebook/OpenSocial applications, and supports credit cards, mobile payments, and offers-based monetization. He also has a blog and twitter account.
Given the proliferation of these services, I wanted to spend a couple minutes talking through the new monetization funnel for apps and some of the metrics that are being thrown around.
Spreadsheet model
First off, I wanted to quickly share a very simple spreadsheet model which you can download here.
Funnel steps
At a high level, the key issues to track for an offers-driven monetization looks something like this:
- total installs / registered users
- monthly active uniques
- daily active uniques
- daily paypage uniques – how many users go page where you can pay or fill out offers?
- daily lead clickthroughs
- daily net lead completions (lead completions – chargebacks)
- daily revenue
- monthly revenue
From top to bottom, you can see that the focus is around uniques, and how many of them translate to completed offers and ultimately revenue. Of course, many of these transactions will actually end up as direct payment via credit card or mobile, and that is trivial to add to this model – I won’t cover those just for simplicity.
One quick note on leadgen though, for those who are unfamiliar – essentially, leads are opt-in forms that users can fill out in order to generate virtual currency. This might be subscribing to a Netflix offer, for example, or giving out a real address to get a direct mailing from a university. More about the leadgen industry here. As a result of this construct, users may not have to use credit cards in get money to the publisher, which can be great.
As a result of this offer-based monetization, it becomes important to track not only how many people click through to begin filling out a lead, but also how many folks complete leads, and ultimately how much revenue each lead is worth. Different demographics, geographical areas, and lead types generate different kinds of revenue. There’s also chargebacks that happen when the leads are rejected for being complete or incorrect.
Example numbers
If you plug this into a monetization table, then you can see the flow.
Here are some example numbers derived from games that Noah’s company Kickflip had previously developed and operated – he was comfortable sharing the data that came out of his own apps. The numbers below would represent a large and successful app with millions of actives per month:
| total installs | 15,000,000 |
| monthly active uniques | 3,000,000 |
| daily active uniques | 450,000 |
| daily paypage uniques | 45,000 |
| daily lead clickthroughs | 13,500 |
| daily net lead completions | 1,890 |
| daily revenue | $5,670.00 |
| monthly revenue | $172,935.00 |
and of course these numbers are driven by all the percentages of how much dropoff there is at each step. For quick reference, the percentages are listed below and drive the numbers in the table above.
| % of monthly actives | 20.00% |
| % daily active users of MAU | 15.00% |
| % of DAUs that visit payments | 10.00% |
| % that clickthrough to leads | 30.00% |
| % that complete leads | 15.00% |
| revenue per lead | $3.00 |
| % chargeback | 1.00% |
Now that we have these metrics, we can start to calculate to other metrics.
Let’s define a new term, “ACPM” which stands for “App CPM”
As someone from the online ad industry, I was saddened to hear that the term “CPM” had been co-opted by these app monetization companies to mean something entirely different and weird.
In the app monetization world, this is the definition:
App CPM = (daily revenue / daily uniques to the paypage) * 1000
Recall that this is very different than the standard definition:
Online ad CPM = (daily revenue / daily ad impressions) * 1000
They are certainly not apples-to-apples, even though they are represented in some literature as such. And unfortunately, now that some of the market leaders are using these misguided terms, everyone is following suit. Yuck!
So as you can see, the “app CPM” (which I’ll refer as ACPM) is defined by uniques to the payments/offer page, rather than by pageviews or impressions. Using the above numbers, we’d get:
ACPM = ($5,670 / 45,000) * 1000 = $126
I’ve been told by multiple people that numbers from $50-$200 are all possible here.
Measuring ARPU
You’ll notice that the ACPM has no relation to the overall usage of the product – in fact, you might have $300-$400 app ACPMs but still have low revenue, since the ACPM is only defined once the users hit the payments page. Maybe you have a small number of users who do so, or maybe you only have a small % of users who are active at any given time.
To measure how the numbers fit together from top to bottom, instead we’ll have to calculate the ARPU:
ARPU = revenue / total actives
This means that this would include any and all actives, regardless of whether or not they visited the payments page. For the numbers above, they’d translate to:
Monthly ARPU = $172,935 / 3,000,000 = $0.058
On Facebook, I’ve been told from multiple sources that numbers from $0.01 to $0.25 are all reasonable, and that off of the social platforms you’ll find more niche destinations that generate closer to $1 ARPU.
Conclusion
Ultimately, it’s very exciting that multiple monetization platforms are getting created in the industry, and that competition will be great for everyone. Gambit is certainly one of many new creative companies that will come out with great stuff.
At the same time, it’ll be up to publishers to figure out how to squeeze as much monetization they can from their properties, but without compromising the user experience. By looking at the numbers above, it’s clear how you can increase both ARPU and ACPM in very systematic ways, but it’s potentially at the cost of retention or engagement within the product.
Ideas or questions? Leave me a comment.
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UPDATE: thanks to Jared Fliesler for correcting a silly mistake in my arithmetic 
I've been one of gambit's first users, and I can tell you that the numbers you're giving are realistic. And that we're trouncing them
Gambit has actually performed a bit better for us than the competition.
mattmaroon
11 Mar 09 at 9:41 am
Matt, you have a destination site right?
I wonder if there are some systemic differences in monetization for destinations compared to apps, across the board.
Andrew Chen
11 Mar 09 at 9:48 am
I was referring to our Facebook apps. Our destination site isn't really equivalent. It does monetize way better than Facebook apps in terms of RPU (without any sort of offers) but is much harder to grow.
mattmaroon
11 Mar 09 at 9:52 am
Andrew, thanks for the fantastic post. In launching my current startup, this has been a constant source of frustration for us. We capture customers already further into the funnel and yet often get forced into a last-generation construct of “eCPM” causes all sorts of wonky math to occur.
I do see an upcoming evolution of the lexicon necessary to evaluate lead-gen (and CPA) based businesses, especially as simple impression math falls further out of vogue for transactional segments. The claims of Offerpal making $100-500 eCPMs is better evaluated in the model you put forth.
Looking forward to more posts on this sort of topic!
Andrew Hoag
11 Mar 09 at 11:21 am
Another fantastic post: insightful, hard data, very well edited and easy to read. Superb!
Jussi Laakkonen
11 Mar 09 at 11:48 am
glad you liked it!
Andrew Chen
11 Mar 09 at 12:38 pm
I think they need to come up with new terms rather than trying to redefine existing words that already mean something specific. It's really misleading, imho, and now even well-intentioned competitors in this space have to follow suit.
Andrew Chen
11 Mar 09 at 12:39 pm
nice write up. andrew chen for president!
noah kagan
11 Mar 09 at 2:22 pm
Andrew your article was informative, but i find myself hoping for some sort of comparison between Gambit and some of the competitors.
After reading this article, the question “How does this new company with creative ideas compare against the industry leaders such as Offerpal?” looms in my mind.
A critical thought I had of Gambit right off the bat was that, isn't the success of an offers-based monetization solution company based on how large their network of advertisers is (diversity of offer), and the effectiveness of their system smoothly moving users from the offer page to the final completion?
Otherwise, a great and informative article Andrew.
Leland
11 Mar 09 at 10:56 pm
Hahaha, I don't believe that. I've been steering people away from Offerpal and others in that niche because I assumed from their 'CPM' rates were just a shady way of getting people in the door, and by quoting them they were being unethical. Now that I know they're skipping all but the last step in the conversion funnel, those rates make sense.
Thanks for clearing that up, Andrew.
gyardley
17 Mar 09 at 7:09 am
Hi Andrew,
Matt here from Offerpal. This is a great post. And you're absolutely right — it makes sense for us and the industry to start using a better metric than eCPM, which is a bit like fitting a square peg into a round hole. There are some benefits to using it, however. The key is — and we make sure to point this out to people — that you're getting that eCPM based on impressions to our offers page, so it's up to the publisher to drive as much traffic as they can to that page. Obviously this is a much different model than putting some banners up wherever you have the inventory and getting eCPMs in the hundreds of dollars, and as such it takes some getting used to. But most of our publishers started measuring our performance on an eCPM basis in the beginning, so it kind of stuck.
One other metric we've used is similar to your ARPU — we tell people that we can make them about $75 per day for every 1,000 DAUs, which is our network average. If my math is correct, that's (75 / 1,000) X 30 = $2.25 ARPU on a monthly basis? Granted, that's not revenue per TOTAL users, just active users, so it's a bit different from what you suggest. Perhaps we should start talking more in those terms?
Anyway, thanks for the thoughtful analysis.
Matt McAllister
17 Mar 09 at 5:49 pm
Matt, is the eCPM really based on impressions to the offer page? Because I've heard from several sources that the way it's quoted, it is actually defined by the number of UNIQUES to the offer page. It'd be good to get an official clarification on how it's calculated.
As for the Daily ARPU number, I think that almost any number is better than the eCPM metrics that are being quoted
You're right that an ARPU would be particularly helpful, but for the developers, they will want to normalize against the uniques to their entire app, not just the payment page.
Andrew Chen
17 Mar 09 at 6:12 pm
Here's some more detail on the differences between different providers:
http://www.sachinrekhi.com/blog/2009/03/14/opti...
To net it out, the entire thing is commoditized and many of the offers are coming from the same leadgen CPA networks. Sachin's claim is that the main drivers of different monetization numbers are basically just business terms, for now.
Andrew Chen
17 Mar 09 at 6:14 pm
Absolutely Andrew. I think eCPM is probaly used because, on first glance, it shows a VERY surprising amount of profit and triggers peoples' greed.
eCPM is a great way..
for companies such as Offerpal and Superewards to spread their service.
Anyways, the fact that Matt has posted here his thoughts about eCPM means that their company is definitely working in the right direction. The overall demeanor of the company providing this Leadgen service to an application needs to be thought about long and hard, because the impact to long-term subscribers after introducing a “shady” monetization method such as Leadgen (I say shady because many of the offers open up customers to massive amounts of spam and unsolicited offers).
Offerpal and other Lead-gen companies needs to come around and realize that there is more of a market for their service then they realize. It's just that, as it stands, so many of the offers are focused towards “throw-away” users. The type of people that only use a companies service for a short amount of time and then leave anyways. For these companies, having their users spammed by unsolicited offers a week or two later because they used large amounts of their personal information to get “virtual currency” is not a problem.
But there are many companies (ours included) that value their customers deeply. I hope that these lead-gen companies put some more focus towards providing spam-free and honest offers instead of whatever pays the most.
Leland
23 Mar 09 at 2:23 am
Andrew, sorry for the delay in responding here. Between the iGames Summit and GDC, I've barely been at my desk for over a week.
Anyway, yes, the way the eCPM has been calculated in our sector of the industry has been… (daily revenue / daily uniques) * 1,000.
But Offerpal plans to move away from such metrics, in part thanks to your post here. The eCPM (better described as earnings per UV) will probably take a while to go away, however, because publishers must use some metric to compare platforms such as ours to one another, and eCPM has become the standard.
Most likely, we will adopt something very similar to your ARPU. Thanks…
mattmcallister
25 Mar 09 at 12:42 pm
Matt, very happy to hear that! Good job offerpal
Since you guys are leading the market, I think your influence in creating more transparency here is a good thing.
Andrew Chen
25 Mar 09 at 3:17 pm
Andrew,
Thanks for the informative post and for providing the Excel DL!
This is a little off topic but I have noticed that many of the bigger game publishers (traditionally retail only) are going online, be it Web, PSN, XBL, mobile. People like EA have been offering more and more downloadable content, trying to capture new revenue sources.
Do you have any insight into how these companies are addressing hybrid revenue streams? Are they integrating an ARPU model? It would be interesting to read more about how bigger players are making the move to diversify their biz. Any links or articles you know of would be greatly appreciated.
Thanks!
EdwardV
22 Jul 09 at 5:22 pm
Andrew,
Thanks for the informative post and for providing the Excel DL!
This is a little off topic but I have noticed that many of the bigger game publishers (traditionally retail only) are going online, be it Web, PSN, XBL, mobile. People like EA have been offering more and more downloadable content, trying to capture new revenue sources.
Do you have any insight into how these companies are addressing hybrid revenue streams? Are they integrating an ARPU model? It would be interesting to read more about how bigger players are making the move to diversify their biz. Any links or articles you know of would be greatly appreciated.
Thanks!
EdwardV
23 Jul 09 at 12:22 am