The Monetization of Social Networks: Time to Think Outside the Box
TechCrunch posted an article today that talks about the “real” value of social networks. The article gives a great in-depth look at the real valuation of Social Networks from a global perspective and ranks them accordingly. However, the article stops short from really getting into the burning question when talking about Social Networks - monetization.
It seems like over the past few weeks there has been a flurry of articles written that discuss how Social Networks can monetize their traffic in a more effective manner. The obvious path for most social networks lies in advertising, especially targeted / behavioral based advertising. Even though the monetization via advertising on sites like Facebook and MySpace has been talked to death, as the recent redesign of the MySpace home page shows, monetization is and will always be a top priority. So what are they suppose to do? How else can they monetize the hoards of people visiting their websites on a daily basis? From my perspective, companies, regardless of what niche they are in, should not rely on advertising alone – in fact, as it was discussed in this Silicon Alley Insider article – Social Networks should be looking at more creative ways of augmenting their revenue.
So what exactly would be my solution to this all important question? Social Networks need to think outside the box. Yes, that is easier said than done, however from what I see in regards to plummeting CPC rates and advertiser value, do Social Networks really have a choice? With that being said, here are some of my thoughts on how Social Networks can further monetize traffic. Yes, some are realistic, some are probably ludicrous - however, all are feasible. It is also important to point out that the growth of the big Social Network players has mainly been caused by the openness and free aspect that allowed for the viral message to get out. Obviously a social network needs to be careful when looking “outside of the box” for monetization so that they do not interfere with the overall user experience or flow.
- Add-Ons: Like I said above, a Social Network needs to be careful with what they charge for when most people are used to getting things for free. However, there are a few add-ons that many people would not mind paying for. These add-ons, like small profile enhancements, would be minor in the grand scheme of things – they would have to be very cheap to buy (e.g. $0.99) and easy to obtain. The key with add-ons is creating the “cool factor”. Once something achieves a level of cool, especially with the teen demographic, it becomes a must have for everyone. Add-ons can be big like exclusive profile control / designs or minor like a custom media player - regardless of what they are, the cost to make would be minor but the impact would be huge.
- Premium accounts: Social Networks can go the Ning route and allow users to create their own personalized Social Networking experience based off of the Social Networks existing platform. Using MySpace as an example, a “premium user” would be able to create a fully customizable Social Network living off of the MySpace domain – for example the URL example.com/Kieran would be for standard users and the URL Kieran.example.com would be reserved for premium users. Allowing for premium accounts can be billed in just about any method possible…monthly, yearly, one-time – you can also allow for add-on services that cost extra…for example, no ads (like Ning offers), more storage space, premium features, etc. With very little effort a Social Network can leverage its platform in a whole new way. Premium users might not bring in as much as display advertising, but when billed on a regular basis, these users can be a nice guaranteed cash flow.
- Virtual Worlds: Virtual worlds do not get the press they they used to and it is possible they will only be a niche area and never truly go mainstream, but I still think Virtual Worlds will play a big part in how large groups of people participate and interact with others online. So what about adding a “Second Life” type environment to a Social Network that users have to pay to use? Think about it for a second…take all that time people (especially the younger demographic) spend on MySpace and now make it so they can “virtually” interact with their friends - imagine instead of your own island or city your place in the virtual world is your profile and the changes you make on the web and in the game are transferable between each. Putting a virtual world into play opens up numerous revenue streams: membership fees, upgrades, in-game sponsorships…the list is endless. Plus, by creating a virtual social network you will be generating extreme brand loyalty as users would be less likely to tire and move on to another service.
There you have it, my ramblings of how a Social Network can leverage its brand and traffic to generate other revenue streams. I am sure as time goes on I will think of more crazy ideas…when I do, I will be sure to add them to the list. One last thing, when writing this post it occurred to me that taking away the ability to display ads might cannibalize the advertising business - however, since I predicted and mentioned in previous posts, advertisers are not necessarily looking for just bulk traffic, the highest CPM’s go to targeted traffic - quality over quantity.
When looking at monetization of a website, also check out my previous post on the monetization of micro-blogging start up Twitter.
