Monetizing social websites: Trick or treat?

Dec 22, 2008 by Doina


Big social networks (such as Facebook and MySpace) that are currently money consumers, rather than income generators, are beginning to think about monetizing the huge traffic slices that they've obtained during the past years. But their problem is that nobody likes to pay for something that they've got in the past for free.

Considering that applications such as Facebook, Skype and YouTube were not planned to bring in cash from the beginning, it's rather understandable that the users received the monetization attempts with a bit of distrust and annoyance. On the other hand, there are social networks that were monetized from the beginning, and that enjoy a great deal of success. The point is that when you don't plan something in advance, trying to improvise along the way or to integrate it in an application that was not designed to include such a thing, requires more resources than a pre-planned application and may even prove to be a failure.

Of course, free networks bring in the largest number of users, but when Facebook has to pay over $200 million per year for server maintenance and electricity, the difference between user number and debts is not that encouraging. Some attempts are currently taking place on both YouTube and Facebook in order to cash in some money, but they are still far from engrossing some real revenues.

The example I have in mind is Second Life. In Second Life the virtual currency a user can obtain throughout his or hers experience is transferable in real life currency. Now, that's an incentive. But in order to get a reasonable amount of money the user also has to give back something and that usually turns out to be personal information used for add planners, or, they can pay for some real books on Amazon that contain tutorials on how to earn more virtual money on Second Life. That's a cycle that gives and take for both user and creator. But for YouTube, adds are generally small and as un-intrusive as possible, because they had some unfortunate experiences with angry users before. So these type of adds, that appear in user channels, don't get very much attention and can be easily ignored after two days of user surfing. The click-through rates drop down well beneath 1% in the case of these traditional monetizing methods, while in the case of Second Life where the adds were integrated into the application the click-through rates bounce up to 75%.

My guess is nobody likes to be fooled, and that's the general impression a user has when someone tries to sell them something they previously tried for free. The value free social websites have is of course greater for users, but it appears that they are reluctant to give something in return for it. Starting out non-profit might be a good strategy to attract valuable user-generated content, but sustaining that network requires real money. It's a tricky deal, and even if you close the network and then “re-invent” it under another label, you still might be accused of lying and deception and lose all your users. After all, in this game we're all innocent capitalist bystanders that want their share of the pie and with little cost/ higher profit as possible.


Tags: Business 


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