Division of online advertising revenue : Help !

Sorry ! Ninja lawyers demanded redaction of the original post.

A summary of what was discussed follows :

Nayana Somaratna:

• I am negotiating an exclusive deal with an ad-agency to monetize my mobile apps. 
• They are offering eCPM rates a magnitude higher than AdMob, iAds, etc. 
• They also have arrangements to assure 100% back fill.
• The minimum duration is 6 months, following which the agreement may be extended.

• Their share is to consist of an initial 15% service fee + 50% of the remainder.

  • As an example, if the deal were for $100 of ads, it would be split as follows:

    • 15% of $100 to the agency = $15
    •  50% of the remainder to the agency = ($100 – $15) * 0.50 = $42.50
    •  The remaining money goes to us = $42.50

Is this a good deal ?

Alok Kejriwal:

• 15% pre money commission is not unusual
• Keep the lock in’s flexible so that you can exit when you want.
• Best, keep a couple of apps free for yourself to use.
• Review their performance in 3 months and compare

Mahesh Khambadkone:

• Looks like a great deal. 
• Make sure that the back-fill agreement is water-tight
• Ensure that the exit-clause is favorable to you

Kanchan Kumar:

• There are only 2 important things worth negotiating here :

  • Defining a performance parameter and review it quarterly. Have a clear exit clause for the scenario where performance is below a pre-defined level.
  • Add the clause of using some other platform (like ad-mobi) for unutilised inventory.

• Time is money : go ahead as quickly as possible. Each passing day results in lost revenue.
• Agility is the key in this market and only way to learn is by “doing” it, as long as you are not stuck with a long term contract.

Abey John:

• Check what happens if the advertiser does not pay the advertising agency – will you get paid for the used inventory in such a scenario ?
• Have a clause that guarantees minimums like 40% irrespective of whatever expenses are incurred by the agency and a defined time period for payment irrespective of their collection.
• If the advertiser wants to reach your users they will come you ! It might be worthwhile putting a “Want to advertise?” link in the apps which will direct advertisers to a contact page.
• Negotiation is all about what you have and what they want and how much they are willing to live with. If there are many apps with a similar user base then you have less bargaining power.

Many thanks to Alok Kejriwal, Abey John, Mahesh Khambadkone and Kanchan Kumar for their great advice !