Event Report – The Monetisation of Social Networks

From the Churchill Club Event of 11-Jun-09

So I had a panel answer a number of questions around monetising social networks, including:

  • Are there profitable social networks or “are we just hanging on till we get bought”
  • What are the winner and loser models
  • What are the KPI’s
  • Can you switch horses during the race?
  • What’s next?

The Panelists were:
Martin Hosking – Chairman of Red Bubble
Lisa Watts – CEO of Artshub
Peter Daams – Cofounder &  MD of Travellerspoint

With myself as the moderator.

Lesson 1 Understand your community

Most people will only ever belong to a couple of communities at one time as true membership requires passion, and you can’t be passionate about lots of things at the same time. (eg family, career, hobby – pick two only)

The internet is not the community, its simply a method of virtually connecting a real world community.

If you can dominate a niche and act like an industry association, membership of your social network will be a given.

Lesson 2 Before you startAll businesses are based in a economic model.  For instance we don’t talk about monetising coal mining, because we don’t have to.  So the first question to ask yourself is, “Is this actually a business?”.

Understand that parts of your social network, although not revenue generating, make you an authority and therefore allow you to monetise other parts.

Raising venture finance is vastly easier for businesses that are monetised than those that simply have “lots of eyeballs”. But remember that venture finance doesn’t ensure success.  Recognise that successful exits from VC backed companies are (although high profile) extremely rare.  Perhaps 4-5 companies lasst year that received VC funding in Silicon Valley had an exit.  In most cases VC backed social networks are simply a process where 401K funds (~ superannuation in the USA) is transferred to Entrepreneurs.

Getting funding is virtually impossible when you are just spending dollars.  “You need to count the bodies, not just the bullets”.

Lesson 3 The Monetisation Models

The number one rule is to create value for your members then take a small slice.

Some identified ways of monetising social networks were:

  1. Donations – It works well for organisations such as Wikipedia.
  2. Membership Fees – such as Artshub and the Churchill Club.
  3. Expansions Packs – 3D design software such as Daz is free, but you pay for the almost necessary expansion packs
  4. Merchandising – The Joomla Open Source CMS makes a trickle of income from Joomla merchandise.
  5. Selling online events & training.
  6. Freemium – Many “content” generation organisations now have a “Free but pay for premium content” model.
  7. Taking money from telcos – Skype and a variety of other messaging organisations have done this.
  8. Virtual goods – purchasing digital goods.
  9. Selling Real Goods – eBay, which interestingly has become very much a community of communities.
  10. Advertising  – Specifically Google Adsense, which dominates the internet.

Note Google Adsense was placed last as its considered that if you need to monetise your community by selling the eyeballs to someone else, you probably don’t understand your community, but are definitely scraping the bottom of the barrel.

Lesson 4 Managing your monetisation

Don’t take your Search Engine ranking for granted.  A change in the Search Engine rules could see your ranking plummet and it may take months to find out why (The Travellerspoint experience).

Google Analytics is necessary, but its like turning on a data fire-hose.  You need to interpret this data, not just look at new visitors v’s repeat visitors.  Try thinking about measures that fall into one of three camps:

  1. They reflect the outcomes you want – eg Sales
  2. They drive the outcomes you want – eg visits from a campaign
  3. They are a health check  – eg repeat visits.

A couple of other final thoughts on managing your monetisation:

  • Its a lot easy to start with a monetisation model at a very low rate and put the prices up later, than to introduce a new one from scratch (think taxes).
  • Don’t forget to segment your community and provide plenty of alternatives in your offers.
  • Understand that conversation rates from free membership to paid membership in social networks is traditionally very low (sub 1%), however renewal rates are very high (think 80% plus).