Social Networking Websites – Revenue Models

Thu, 26th Jun, '08

Out of ten people I know, atleast one has asked me how are social networking sites profitable. Out of hundred people I know, atleast one is trying to erect a social networking site and is desperately trying to answer this question. I am talking about the second most popular question on earth after “Where is God?”.

How are social networking websites making money?

If you are one who is trying to up a social networking website, I would like to share some gathered thoughts here about how one can monetize a social networking website and how one cannot, or if you know more, please use the comments section below, I am around and eager.

Userbase is money: NO. Yahoo has 500mn users, and if this were true, you would know more about Jerry Yang than some Brinn or Page or Zuckerberg. Having a hugely popular website is not going to get you rich unless you have a revenue model already planned into it. So get out of this mindset, as this is the first no-brainer that a sales guy will throw at you if you asked him this question.

I will put in Ads: I really don’t know which wise guy had this inundating brainwave of allocating real estate on web pages and charging businesses for the ads shown on them. This is not TV. I myself know, I haven’t clicked on a single ad till date, they are just not useful and they are not convincing enough. I am sorry AdSense, you are good, but I am sorry, in fact, ask[the online IQ testing website] for some data about the users which came in from your ad clicks and how much was their IQ range, should be an eye-opener. Anyways, so people don’t read entire web pages from top to bottom, left to right, sequentially as if watching a TV, spending time with every commercial on it just because they can’t skip the commercial breaks. On web pages, people just navigate to the exact section and click. And with usability getting to ever higher levels and the content getting more relevant, users are almost hypnotized. You may find umpteen success stories about how per-click ad programs made people rich, but you have to find one yourself in this real world to be convinced, and you won’t find one[1].

I will have users subscribe by paying: I suggest take a stroll if this idea is doing the rounds in your head. Do only what you will be comfortable with if you were the user. This could only work if what you are selling is a product or some indispensable service or support. And yeah, don’t lame it up like this[2].

Those were the myths. On to the facts.

Micropayments: Good things come in small packages. Very small. Imagine putting in goodies that cost a dollar by the hundred, and now if you have the userbase, this is bound to work. This may not get you to the top of the Forbes list, but will surely be a steady source of revenue.

Merchandising: You just have to do a count of the number of websites cropping up that claim to get a customised t-shirt to you. I bump into such websites each day, twice. If you have anything else other than pictures to put up on t-shirts or mugs or teddy bears, this could be just the way to leap out of the screen. Although this might be costly, but margins will be high if done in volumes and shipping be within a manageable geographical area.

Revenue-Sharing: Google shared commission with people if they put up AdSense code within their pages. Microsoft is showering its resellers. The Facebooks/Bebos have to do this. The fancy of social networking websites has long gone and people are still using it because its as much a part of them as their email addresses. They are spending ever increasing amounts of time each day on these websites and are still not that much loyal to not consider switching to another site, a better and rewarding one. Its only a matter of time before most of these users come to know and believe that they are buying your lunch. And after that its another few moments before someone comes up who is willing to share his lunch and pay his users their share. I can’t tell you how to share your revenue with your users, totally depends on the niche and technology you are working on, but if you don’t respect the time and effort your users are putting in you might just find some rough times ahead. This is specially true for websites that are solely thriving on user generated content[3].

And as another observation, selling anonymized trends on your website to your ad partners is not a very creative way to go about earning money. I guess the next step would be to get businesses to users who just want it. Permission Marketing[4].

Whatever you do, don’t start without a revenue model as that speaks of zero business insight on your part, and secondly it is very tough to incorporate a revenue model later in a very much alive site[5]. The stories that you might be entertained with is how google and youtube and so on started without a revenue model and so on, and are making big money today, well, they started when internet was only a place to check emails[6], not some place where you shop, play, meet people, learn and almost live your life there. They started out of pure geekness and a need to solve the problems the creators were facing. In comparison RockYou did an exhaustive study of the market and came out with widgets which hit right on target and made RockYou worth around 400mn $[7] in under 2 years. Keep looking and you will be convinced more and more of having a revenue model.

Quoted from What does the “Media Business Model” mean?[also contains an exhaustive list of all possible monetization methods]:

Both media and most online businesses are based on “software economics”, where the cost of creating something of value is relatively high but the marginal cost of distributing it to each consumer is very low.


6 Responses to “Social Networking Websites – Revenue Models”

  1. we network Says:

    […] article shares some thoughts about how one can monetize a social networking website and how not. – Webcam NetworkWebcam network EarthCam. EarthCam is the leading network of live webcams […]

  2. Pooran Jaiswal Says:

    thanks for the article which explains what works in today’s era.. wherein everyone is aware of internet and how to use it.
    i think every webmaster should go this article once before they plan to market their website.

  3. Not that I’m totally impressed, but this is more than I expected for when I found a link on Furl telling that the info is awesome. Thanks.

  4. tw Says:

    Youtube is less thank three years old, and facebook is less than 6 years old. Though its better to have a business model to begin with there is much to say about the ability to acquire a user-base and monetize later…if you can afford it.

  5. MiKu Says:

    Fair initial insight but i really wonder if per-clicks model do not work. since the free user base on yahoo and rest have significant revenue share for such per-click type of models. (Of course it requires, if not huge, bigger user base to work out.

  6. Pooran Jaiswal Says:

    please remove all the comments posted my name. it is creating problem for me

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