Secret’s Secret Monetization Strategy
This post explores possible monetization strategies for Secret and the kind of revenue they could generate with their product.
The iPhone app Secret is the talk of the town. Just shy of 50 days from its original launch, the app has attracted a flurry of press, co-founder David Byttow has been a keynote speaker at SXSW, the tech community has seen the app be involved in the recent GitHub scandal, and the app has attracted $8.6M in a recent funding round led by Google Ventures, at a rumored $50M pre-money valuation.
What will Secret’s revenue model be?
Secret does not currently generate revenue: it’s a free app with no in-app purchases or ads in the product. Yet to justify the $50M valuation, Secret needs to have a clear path to monetization.
It’s unlikely that Secret will monetize with in-app purchases. While it’s conceivable that they could launch premium features for a one-time fee, that also seems unlikely: a one-time fee will not create a repeatable business model. Another popular way to create revenue streams from much-used apps is to add games you can play with other users, and asking to pay for the game or new lives—this is the model used by Candy Crush and popular messaging app Line. But adding games to Secret seems unnatural, especially since you can’t play with your friends as the identities are kept, well, secret.
The most likely monetization model for Secret? Advertising.
The two products most comparable to Secret are Facebook and Twitter. Usage patterns are very similar: Secret recently disclosed that 90% of users who engage in conversations come back every day, a number in line with behavior on Facebook and Twitter.
How many users does Secret have?
To derive the size of Secret's userbase, we can use the same comparables any venture capital analyst would look at. According to this article at The Information, this is how much money Twitter and Facebook are making on a per-user basis:
[source]
Given the rumored $50M pre-money valuation, and at a price per user of $130, let’s assume that Secret currently had around 400k active users at the time the term sheet for the $8.6M funding was signed. Keep in mind that Secret is likely growing much faster than either Twitter or Facebook, but has no revenue.
What type of advertising will work best?
It's pretty clear that Secret will not want to go with banners or interstitials, the traditional mobile ad formats:
Not only would these formats destroy the app’s streamlined user experience, they would also not monetize well: banners and interstitials generate around a $1 CPM (cost per 1000 impressions). At 400k users, and 2 impressions per session that’s $800/day. This means that banners and interstitials could make Secret $0.73 per user per year.
How do Facebook and Twitter make so much more money?
The Native Advertising Alternative
The key to Twitter’s and Facebook’s superior monetization is their superior ad format—the ads sit inside the stream of content and are natively styled. They do not block the content and thus make for a better user experience. Advertisers are happy as well, since they have more space to tell their stories than a tiny 320x50 banner.
Namo Media's product is native advertising: We make it easy for publishers to monetize with native ads, and we give them control over the format and the placement of the ads in their stream. We allow publishers to direct-sell ads with our tools, and we bring advertisers if the publisher has unsold inventory (or no sales team). When Namo Media brings the advertisers, we see a $1.50 CPM average across the apps we’re working with. In fact, our publishers are seeing an immediate 3-5x revenue lift over what they made with banners. The number of native ads that can be shown to users is primarily dependent on how far users scroll down the stream. Based on my own behavior, Secret’s scroll depth is probably substantially higher than Facebook’s. If Secret inserted 4 native ad impressions into each user session, native ads would make Secret $2.19 average revenue per user per year - almost as much as Twitter’s $2.76.
What advertising should Secret run?
Secret’s content is unlike any other: these are very personal stories, sometimes sad, sometimes juicy, sometimes apocryphal. It might make sense for Secret to recruit their own advertisers and craft custom brand messages for them.
One media outlet that has done well at this sort of direct selling to brands is The Onion, which posts sponsored stories such as this on their site. The advantage of these ads is that they sell at a substantially higher CPM, say, $10 rather than $1. If Secret could find the right advertisers to pay these rates, then even at just a 50% fill rate they would land at $7.30 average revenue per user per year, comparable to Facebook's $6.58 per user per year.
It’s best to add advertising early.
An early investor in Tumblr told me that one of the things they wish they’d done differently is to add advertising to the product sooner. When users see advertising, they understand how the app makes money. This will cause less of a user revolt than adding ads later when the product is more established.
Knowing Byttow and Chrys Bader, I’d say that they see Tumblr’s $1.1B sale as the low bar. I’m excited to see Secret rise further into the stratosphere, and hopefully become the latest native ads success story.
Disclaimer: While Secret founders Chrys Bader and David Byttow are both friends of Namo CEO Gabor Cselle, and Secret’s lead investor Google Ventures is also the lead investor in Namo Media, this article relies exclusively on publicly available information. None of the hypotheses in this article have been reviewed, commented on, or confirmed by Secret.