Sail, I think you’re missing the real problem with Facebook apps. They are getting too crowded. When you’re one of a few, attention is easy. When you’re one of a thousand, attention is hard. Facebook apps have the same problem that all the Web 2.0 companies with baby toy names have – it’s very, very difficult to build a large enough community that you can build something worth monetizing.

Let’s for a second assume that you invest in an “apps” company that employs 4 engineers and 1 business person (if there’s no business person involved, I hope your LPs don’t commit any further funds to your firm). Let’s assume you low-ball on salaries because the engineers are all co-founders and you get them to work for $40,000/year. Make that fully loaded and you’re up to about $60,000/year. For the sake of argument and simplicity, let’s assume the business guy comes at the same price so we’ve got 5 people at $60,000/year fully loaded. That’s $300,000/year in H.R. costs. Now add in $100,000 for using Amazon’s EC2 and S3 and $50,000 for office and $50,000 for legal. You’re up to a $500,000 per year cost structure.

If we are to believe Andrew Chen at Mohr Davidow (http://www.insidefacebook.com/2007/06/24/vc-perspectives-on-the-facebook-platform-andrew-chen-mdv-eir/), we see that Facebook app CPMs should be somewhere around $0.01/CPM.

Now, just to cover the operating costs of the business, we have to hit 50 milion CPMS which is 50 billion views.

Let’s say the average app user logs in 300 times per year (I think I’m being quite generous here), then you need 166 million app installs to just cover costs.

Please do enlighten me how your “portfolio apps companies” plan on getting 166 million Facebook users to install the app given Facebook doesn’t even have that many members?