(I did not "invent" this idea, someone told me about it. I figure you'll be interested in the experience, it was rather surprising for me.)
Google makes money on ads, oodles and oodles of it. Up until today, I never "understood" the value of ads. Today, I got a chance to use ads, here is my story:
Dropbox is a storage service, if your friend signs up by clicking your referral URL, both you and your friend get 250MB of free storage up to 8GB of storage. This means if you can get 32 (8GB/250MB) friends to sign up you get lots of free storage.
As you can imagine, I don't have 32 friends, so the question is how do I get people to click on my URL? Ads! I signed up for a Google AdWords account, and created an add which read - "Download DropBox and get free 250MB of storage". Here are the stats from my experiment:
- Total Cost: $15.00
- Impressions (number of times add shown): 3.6K
- Clicks: 257
- Average Cost per Click 0.06
- Conversions (times people installed DropBox after clicking) : 32
In this experiment each of impressions -> clicks -> conversions, is a 10x decrease, which seems astronomically high to me. Seriously, 1 in a 100 people who saw my ad signed up for DropBox. No wonder eyeballs are so valuable!
A final note for the clever among you, would it have been cheaper to purchase storage from dropbox instead of paying for ads? DropBox pricing is $2.40/GB/Year, and worse you can only purchase it in increments of 50GB. Thus, using ads and the referral system is a good deal.