The plight of branded apps and the future of social marketing

[Editor’s note: So it turns out branded apps are a bust — even if you’re Nike or Coca-Cola. Below, Keith Rabois, vice president of strategy and business development at app maker Slide, explains why and gives big-name advertisers some much-needed advice.]

Procter & Gamble spent $2.4 billion on television advertising last year — but they didn’t spend it on the “I Love Pringles” show. When it comes to TV, brands understand that it’s smarter to integrate ads with existing, engaging content than to try to build their own from scratch. Why then, do these same companies sink so much money into branded applications on the web?

Many have opted to launch their own social media micro-sites and social applications with brand names featured front and center, or with functions somehow relevant to the products they’re pushing. But in doing so, they’re choosing to compete directly with far more popular sites and widgets that already have traction sans the marketing angle.

A prime example is Bud.tv, an Anheuser-Busch-built portal to original entertainment aimed at beer drinkers. The company spent $30 million with the expectation that the site would draw between 2 and 3 million unique visitors a month. Instead, it gets about 10 percent of that figure, according to Advertising Age (subscription required).

It’s not the only one feeling the hurt. There is now substantial data from big names showing that built-for-brand apps provide little return on major investments. Consider this: Verizon, Blockbuster, Nike and the New York Times (all marquee brands) have launched their own custom apps on Facebook. Their combined active userbase (see chart) is just shy of 10,000. So if you were to turn all four into a single application, it wouldn’t even rank in the top thousand apps on the site.

We know this isn’t due to a lack of brand awareness. The apps in question just don’t offer enough value to attract and retain an active audience. Companies like American Airlines and Ford have run tests indicating that initial users ditch their apps soon after downloading them. And much of the time it’s a matter of who gets there first. Take Blockbuster’s Movie Clique, a Facebook app that lets users list movies they’ve seen, suggest films to their friends and share reviews. Launched in November 2007, it reports roughly 2,000 active monthly users today. Its rival app, Flixster (launched just 5 months prior), boasts more than 6.5 million active monthly users — even though its not a regular household brand. This doesn’t bode well for companies just starting to formulate app-based strategies.

Sometimes, the weak apps introduced by these companies actually hurt the brands they are meant to promote. As we’ve seen, sites and apps are viewed by customers as an extension of a brand’s promise — so when they don’t deliver, that’s bad news all around. Just think, if Nike’s app can only drive 3,000 users out of 140 million, what does that say about their “Just Do It” attitude?

When it comes to television, advertisers capitalize on popular programs by advertising within them via 30-second spots and product placement. Likewise on the web, the most successful ads are seamlessly integrated with well-known, useful applications — some of which give brands the opportunity to reach users in the tens of millions.

Again, Flixster is a great example. Many big studios have opted to run their movie campaigns through the app. Right now, its Facebook site includes a prominent display ad for The Curious Case of Benjamin Button, Horton Hears a Who as the rateable “Featured DVD,” and promos for Valkyrie and Last Chance Harvey under “Hot Movie Trailers” — all in one place, ready to be tapped by a total userbase of 15 million.

This past spring, Fox Home Entertainment struck a deal with my company, Slide, to promote the DVD release of Juno through our SuperPoke! app. So we added several themed actions to our repertoire, including “throw a blue Slurpee on” and “throw an orange tic-tac at.” In just three weeks, more than 3 million of these actions were exchanged. Compare that to the independent “Adopt a Juno or Bleecker” app that launched in April, which has attracted no more than 710 daily users.

To quote a knowledgable source on the topic, Andrew Frank, vice president of research at tech insight firm Gartner, says “In terms of social media advertising, brands can either fish where the fish are, or try to build their own ponds.” To extend the metaphor, in order for building a pond to prove effective, each branded app user would have to buy a hundred of that brand’s products. That’s not going to happen any time soon.

And that’s just from the brand perspective; there’s also the user to think about. The core of any well-loved social app is a great user experience. It needs to provide relevant, engaging content — or address a specific need. Developers who keep the end-user top of mind leverage experience data to hone their products and maximize value (with monetization a distant or ulterior motive). But if you set out to build an app around a brand from the start, you make what should be a side goal your main objective, and it’s difficult not to sacrifice that critical emphasis on user experience. We see this with Coca-Cola’s “Sprite Sips” app — a hastily-conceived avatar/pet concept that offers little and claims only 45 monthly active users.

Advertisers need to wake up and realize that an optimal environment already exists on the social web just waiting to be monetized in subtler, more intuitive ways. Not only will these strategies extend their reach by orders of magnitude and save development costs, but will ultimately be more appreciated by their prospective customers.

Keith Rabois is vice president of strategy and business development at Slide, the company known for Facebook’s notorious SuperPoke! app. Before that, he served in similar roles at LinkedIn and PayPal, and as entrepreneur-in-residence at Clarium Capital Management. He also sits on the board of directors for Yelp, Vendio, Xoom and FanIQ, and is an early investor in YouTube.