CPI > CPC

Google revolutionized advertising by popularizing pay-per-click. This model has not translated well to the world of social networking, because customers of social networks engage sites in a different way than customers of search engines. The difference is intent: when you're searching for a specific topic, ads have a chance to fulfill your interest in that topic. Social network page views are much more likely to be internally focused; ads are more of a distraction.

Because social networks have generated staggering quantities of traffic without generating as much economic value from traditional advertising models, there's a big opportunity to buy traffic on a new model. Starting with Facebook's developer program, social networks are all jumping on the apps bandwagon. Those apps are generating even more page views, making it quite affordable to buy application installs (which is a cost-per-action ad that requires the user to install the app before the action is considered complete). These cost-per-install ads are a reasonable way to jumpstart traffic to a new app, which is what they've been used for so far. But I think there is a much more interesting way to use the model, and that's what I want to talk about today.

If you ask an expert in Facebook apps to come help build yours, you'll usually hear the same advice: build your app for virality. That's sensible advice; most people who have made a business on Facebook rely on the viral driver of growth. Those who have tried to build apps that exist just as glorified landing pages or marketing channels have generally failed. So why buy advertising on a cost-per-install basis? If you have a virally-growing app, you don't need the extra installs. And if your app is designed to drive traffic to some off-network site or product, the cost is usually prohibitive, because the traffic in your app doesn't convert any better than a traditional CPM or CPC-based ad anywhere else on the network.

As a result, CPI advertising is incredibly cheap. I have seen plenty of situations where CPI rates are as low as $0.25 to $1.00, and plenty of situations where you'd pay that much just for a click to your traditional landing pages.

The unexplored value of CPI ads is this: social networking apps give you the opportunity to practice advanced marketing techniques like true one-to-one marketing or permission marketing. When someone clicks on one of your traditional CPC or CPM ads, what do you know about them? You know the content of the ad, so you know a little bit about what they're interested in. Other than that, you know their IP address, maybe their browser version or what country they are in. In other words, not very much. That's why so much of traditional CPC marketing is focused on optimizing landing pages and registration forms.

By contrast, look at what it means to have someone install your Facebook app. Again, you know they have some level of interest in your ad. You already have an authenticated login. You know the person's age, gender, where they went to school, who their friends are, what their interests are. And, most importantly, you have several reliable communciation channels to talk to them including including email, profile notifications, feed items and status messages.

Imagine the kind of impact you could have with a potential customer if you didn't have to waste any energy at all on convincing them to invite their friends. You can actually communicate with them instead, learning more about them, getting better at serving their needs. If you have an e-commerce product, for example, you could try using the app to offer specialized product offers or to tune your recommendations. If you follow Seth Godin's original permission marketing concept, you could offer your customers entries in a contest in exchange for learning more about your products. You could find out what products your customer already uses, and find out when they run out, need to refill, are ready to switch, or it's time to upgrade.

Think of all the money car companies spend advertising to people who are not at all thinking of buying a car, just to reach the handful who are. What if, instead, you could self-select as someone who is thinking of getting a new car, and have the car company work with you to research and select the best option, instead of spamming you with ads all the time?

The specific form will depend on the kind of product or service you want to sell. But the general principle is to frame your marketing on social networks as an exchange of value, played in rounds. As the customer gives you a little of what you want, you give them a little of what they want. If you have the patience to walk down that path, you can convert prospects into customers for life. From their point of view, buying your product gives them not just the product itself, but membership in an exclusive club where they can get the inside scoop on what you're thinking and doing. Wouldn't you rather relate to customers in that frame of mind than on TV or in a banner ad? And, as a customer, wouldn't you rather be treated that way?