Stop Hiring Advertising Agencies to Write Software

Advertising agencies traditionally build “creative” campaigns such as commercials and print ads that fly out into the world with an unmeasurable impact on a client’s brand. The first disruption to this model came with performance advertising. Instead of seeing if sales of soda increased after a barrage of 30 second TV spots, advertisers could see who clicked on ads and which ones followed through to purchases. Advertising dollars could be efficiently spent by directly measuring the impact of advertising campaigns. Increasingly desperate advertising agencies managed to grab a piece of this pie–either by creating and managing pay-per-click campaigns for clients or creating the landing pages that these ads lead to.

Mobile is the new disruption. Although mobile ads operate in much the same way as pay-per-click ads, there is a new generation of advertising that is delivered as a mobile app. Many brands have dedicated apps such as Chipotle and Starbucks, while others have created advertising campaigns built around mobile games and location-based experiences. This is real software.

Most advertising agencies are not software developers. Yet many brands make the mistake of hiring agencies to build mobile apps. I’ve seen this many times, as companies that know how to make web pages and 30 second commercial spots scramble to understand software development on behalf of a client. This is an expensive and failure-prone strategy. The software development process is completely different from Photoshopping banner ads or shooting TV commercials. There is no way for a traditional advertising agency to transform themselves into a software company. Large ships are slow to turn.

The reality is mobile advertising is more dependent on software developers and data scientists than video editors and account managers. Some brands are catching on and eliminating the middleman. In fact, others have started incubators and are smartly creating startups around this new era of software-based advertising.

This is a much smarter use of advertising dollars. Advertising campaign budgets can easily rival a series-A for a hungry startup. A startup filed with smart engineers and designers that are far more capable of promoting your brand in a measurable way than a traditional agency. Agencies might consider the same approach. Instead of trying to do it all in-house either hire an actual software developer to build and manage the project externally or spin up a disruptive advertising software startup.

Facebook’s Mobile Gaming Apocalypse

Crowdstar recently announced they are abandoning the Facebook platform to focus on mobile social games. After amazing success on iOS, they have discovered what many of us have known for years: Facebook games are dead.

In the wake of Farmville’s massive success in 2009, investment in social gaming hit a fever pitch. The Facebook audience grew to 500 million with the rising tide floating all boats. We went from “RIP Good Times” to a veritable all-you-can-snort coke buffet in the little over a year.

During this period, Facebook shut down viral channels making it more difficult to acquire ‘free’ customers and instituted a 30% tax on social gaming revenue in the form of Facebook Credits. By 2011, user growth flattened out and user acquisition costs skyrocketed as social gaming companies blew their war chests fighting over the same group of casual social gaming customers.

Apple, on the other hand, introduced In-App-Payments for free apps and created an entirely new genre of tablet games with the introduction of the iPad. News of new social gaming startups declined, but mobile gaming investments became white hot. The mobile social gaming gold rush was on.

Recent filings from Facebook show that Zynga, one of Facebook’s single biggest contributors of revenue, is now responsible for a shrinking portion of Facebook’s income. This may be due to a change of focus. New game releases on Facebook from Zynga have slowed to a trickle. Meanwhile, Zynga has been feverishly acquiring mobile startups and barking up their stock price with social gambling chatter. While some companies stubbornly cling to the Facebook platform, in most cases social gaming companies are evacuating Facebook for mobile.

Facebook can’t earn a dime off of mobile social games despite their usage of the Facebook API because mobile billing is all controlled by Apple or Google (and now Amazon). There is no place for Facebook credits in the mobile ecosystem. If you try to use any alternative payment system in an iOS app, Apple won’t approve it.

This is why Facebook is making carrier billing agreements and beefing up their HTML5 platform. They can’t get a cut of native app revenue, but can position themselves as a premier destination for HTML5 mobile browser games with Facebook Credits as the billing system.

Even if buying Facebook Credits can be made as seamless as iTunes billing, Facebook still has to fix the fact that HTML5 sucks. This is a problem that is somewhat out of their control, as HTML5 performance is affected by features in mobile browsers developed by Apple and Google.

Facebook is desperately trying to figure out mobile–spending $1 billion on Instagram is an example of this. The unstoppable shift to mobile media consumption threatens Facebook’s core revenue streams from all angles. Facebook Credits have no use in native mobile games and Facebook can’t generate much ad revenue as ads are largely non-existent in their own mobile apps. Facebook’s walled garden is under attack from another walled garden of closed mobile devices. I guess it’s karma.