Social Media Business Models

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Typology

By Laurel Papworth:

"* Donations – wikipedia needs about 4 mill each year. In March they got a donation of 3 million. Open Source has always worked this way. And Shareware. The new widgets that can be added to anything from blog posts to Facebook profiles to wordpress plugins will increase how we show gratitude and value from donated products and services.

  • Joining fee (one-off), Pay as you go (each time or per minute), subscription (weekly or monthly) are fairly obvious. High subscription charges or joining fees offer a high barrier to entry and therefore can reflect luxury or exclusivity. Expect to see more. Blizzard have spent $200 million since 2004 (altogether, not yearly) on World of Warcraft and make $1.1 billion per year on their communities.
  • Expansions and upgrades work mostly with ‘downloaded software’ based communities such as World of Warcraft ‘Burning Crusade’ expansion and the gazillion that came from Everquest and Ultima online communities. A way of refreshing content and charging for it. In 2D networks its more like to be a premium service (either one off fee or tiered subs).
  • Merchandising of real life products through say, CafePress gives either the host or the member, or both, an opportunity to gain revenue from user customisable products on demand. Think of eBay but for new, user created products such as cups and t-shirts. Zazzle is a similar service – here’s the Zazzle Create A Product API.
  • API based sales – eBay allowed members to trade on their own sites rather than forcing them to eBay to trade. Revenues increased by 86% for ebay. 40% of Salesforce revenue comes from external sites (API), not their own webite. $490 million per quarter comes from Amazon API, not visiting their site. Not bad. (Thank goodness for Progammable web)
  • Along with Merchandising, empowering event management (Upcoming.org, Eventfull) and the taking of ticket purchase can lead to a clip of the ticket sale from the network back to the host.
  • Online Events such as poker games that have an entry free or admission fee. These are viral spiked network activities.
  • Freemium – sign up for free, get more if you pay tiered subscriptions. LinkedIn makes around $75 million – 100 million (2008). 1/4 of that is advertising, 3/4 tiered subscriptions including corporate services with jobsearch.
  • SMS – offering other viral events (Idol SMS voting) or simply text messaging amongst members. Very profitable at the moment, in Australia, for a number of under the radar companies.
  • Virtual Goods – 2 billion dollar industry in 2007. Gives Habbo a revenue of $17 per month from 10% of their members adding up to $200million per year . Collectible add a scarcity and (sometimes) a whole sub ecosystem to your virtual or real world products. Think Webkinz or some other fluffy pixel toys. Facebook gifts (only 250, 000 available!).
  • Advertising – makes MySpace $2.17 per member per year. TechCrunch about $2.5 million revenue a year. Sucks when it is intrusive.
  • Trial Affiliates – if you watch an ad, they give you a product for free or discounted, and the advertised company pays them. Also look at $uper Rewards – social network advertising affiliates that place ads in your Facebook games and earn you revenue. Mobwars makes $22k per day for the kids err developers that made it. $uper Rewards said that one (I think Facebook) application made $1million in a week.
  • Virtual real estate – this will finally start to move as the Web3D takes off, Google Lively and the new layered social virtual worlds (avatars on standard web pages) are figuring it out but it’s already a nice earner for Linden Labs who make $4 million per month from Second Life real estate sales ($8m each month altogether).
  • Revenue Sharing is where the host gives the member a slice of advertising revenue. A la Foneros. User generated content sales can mean the host takes a clip. So too, auction of real world content – anything member to member. Peer to peer economies – host takes a clip of loans, jobs and other (non media) based economic activity between members. Peer to peer banking will be 10.6 billion dollar industry by next year (2009).
  • Some networks make money by selling psychographic and demographic information. Market Intelligence may also be customer community discussions around a brand or product/service."

(http://laurelpapworth.com/social-media-monetization-and-revenue/)


Graphic

Graphic at http://laurelpapworth.com/wp-content/uploads/2008/09/social-media-monetization-models.jpg

Explanation by Laurel Papworth:

"REVENUE SOURCE: The X Axis (the horizontal one) is whether the money comes to you (you are the social network host or provider) from the members in the community or from external clients such as advertisers or sponsorship from companies. REVENUE FLOW: The Y Axis (vertical one) asks if the money flows in a traditional way i.e. host simply sets a fee to members or external companies. Or whether its a Customer to Customer (C2C) or Business 2 Business (B2B) social network economy. Also known as a peer to peer economy. In these cases, the host gets a “clip of the sale” – a percentage for enabling the transactions to take place. Oh I should mention – B2C works as well. This is where the revenue generated traditionally, say from Advertising, is shared back to the member who uploads the content (creates the page). Like AdSense sharing back to the community.

QUADRANTS: Pretty well break up into

  • member pays host.
  • external companies pay host.
  • host pays members,
  • members pay members"

(http://laurelpapworth.com/social-media-monetization-and-revenue/)

More Information

  1. Above graphic also at http://www.flickr.com/photos/silkcharm/2893602428/in/set-72157606247590916/
  2. Set of graphics by same author: http://www.flickr.com/photos/silkcharm/sets/72157606247590916/