Archive for the ‘BlogWatch’ Category

Alternative Ways Social Networks Are Making Money

October 9, 2007

Social Networks are often criticized as having a hard time at being profitable. Most are supporting themselves in one of two ways, traditional online advertising, or a subscription model. But I wanted to briefly take a look at some other ways that social networks are trying to increase their revenue streams.

Virtual Gifts
The next largest monetization method taking form behind advertising and subscriptions are virtual gifts. With the massive success of virtual gifts in foreign markets (i.e. Cyworld) a lot of US properties have started experimenting. Most notably Facebook recently launched their “Gifts” area where people can send gifts to others for $1 a piece. Social Network HotorNot has even completely abandoned their subscription model that has made them millions year after year in exchange for a virtual gifting system. Virtual worlds are most suited for this type of system, but traditional SN’s are finding a place for it.

My guess is that this type of monetization will only be lucrative for extremely large social networks. With the very low cost of virtual gifts you have to produce many transactions for it to be worth it in the aggregate. The only communities to support this level of transactions are those in the top tier with millions of users

Survey Network
A monetization model pioneered by social network, Xuqa, survey’s are proving to be very profitable for a number of online communities. In a social network like Xuqa where there is a form of social currency that users collect, people can take surveys or sign up for other offers to receive more of the virtual currency. Xuqa has expanded their survey system into an ad network model called Peanut Labs where other publishers can sign up to monetize their site in the same format. According to Peanut Labs each survey response pays out $3 and affiliate leads payout between $.50 and $15.

Unfortunately this system is only structured for those communities that deal with virtual currencies, but can be a very viable source of revenue.

Photo Printing
With most social networks naturally being a place where users upload a lot of photos, many have experienced with providing printing services for a cost to their users. Most social networks outsource this and take a cut of the action. The most recent entrant on to the scene that helps with this is moo.com. While it is something that is easy to add and doesn’t interfere with the user experience, photo print revenue sources are still not substantial to make much of a dent.

Cardvio

I recently saw one of the founders of Cardvio demo their product at a Boston Web Innovators Group and was impressed with their technology. Cardvio is a system that lets you create your own card online and send it via snail mail. Social networks are a logical place to include this service considering it is usually where people store pictures to create cards, and the connections to the people they would want to send them to. Doesn’t hurt either when you have small features like Facebook’s birthday reminder.

While another easy add on similar to photo printing, this might be icing on the cake for social networks but by no means a main revenue source.

Product/E-commerce Affiliate Programs

Most online retailers such as Amazon offer affiliate programs that allow social networks to promote items next to people’s favorites. This has been around for awhile, but really hasn’t caught on or proven itself as a significant revenue stream. The downside to these programs is that it usually does interfere with the user experience, making it a tough cost-benefit decision.

I still think that there is room for innovation in monetizing social networks via E-commerce, but the current affiliate program structure just isn’t producing massive benefits.

Data Access

A very interesting revenue model that has appeared in micro niche professional social networks is charging for access to the data a community has created. For example, Sermo.com, a community for doctors charges companies such as hedge funds, and drug companies $150,000 a year to have access to the data being created by the community. Another example of this would be ActiveRain.com who isn’t charging to consumers yet, but will likely in the future, for content created by their community of real estate professionals through a portal called localism.com

If you know of any others, please leave them in the comments. In my opinion online communities and social networking is the future of the internet just like search was back in the late 90’s. Old revenue models are trying to be squeezed into a new medium, just like banner ads tried to be squeezed into search engines. There will continue to be innovation until a lucrative revenue model is created. My guess is that it will once again be a new form of advertising that takes advantage of the massive amounts of user specific data that social networks contain.

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