Loading ...Mike Arrington of TechCrunch.com realised that entrepreneurs the world over want a slice of the social networking industry; you know you’re on to something when you have 500,000 RSS subscribers. The world over people want to know how to create the next big thing for the Web.
Part and parcel of this fascination is learning how to monetise a bright idea. I have limited hands-on experience with monetizing social web applications, and the same goes for many of the industry commentators and their avid blog followers (maybe even Mark Zuckerberg?). But I’ve started to define three differing approaches (or mindsets) which social web ‘apps’ may take towards making their money.
Big Bang
Build a great product, don’t monetise, if at all, to the extent that it may affect user interaction with your service, and build absolutely the biggest audience possible. You’re going to need a solid database of users anyway - do you really want to distract them from using your site with highly relevant advertising, when you can afford to hold-out on integrating your potentially hazardous monetization initiatives? I think we all know what the big bang refers to.
Pros: The path to the biggest audience, full concentration on product.
Cons: Revenue is a second class citizen to the product experience.
Example: Facebook/Twitter
Slow & Steady
Advertising from the offset. This means including a thought-out and carefully integrated advertising model. You want to cover costs as you go along, because you can’t afford a long-term position without revenue. However, you’ll be slower to build-up a user-base, because you’ll probably be migrating your users into other channels more frequently, all thanks to your well established ad click-through model.
Pros: Revenue is a first class citizen, you’ll be planning for more money in the short-term.
Cons: Your product may suffer - you’re not focused 100% on the interaction.
Example: I’m waiting for someone to show me one.
Premium subscription/content
This involves asking your users for money for whatever your product can ultimately achieve. Evidence suggests that you’ll need to offer a free version of your product, and also to ensure that a users’ interaction with the product will set them on a clearly defined path to purchasing your fully featured product/service.
Pros: You can offer a free version of your product without ads to other parts of the Web, and still plan for revenue from the non-paying to premium customer conversion. You’ll only need to know how to integrate ads for your own product, and not those of Adsense or advertising affiliates.
Cons: You need to get people (non-advertisers) to pay you money.
Example: 37 Signals
Conclusion
Which model do I like most? The first. It forms the basis of the best social apps on the web. If you can cut costs to a minimum and have the ability to produce something with your own hands, or you’re confident about your idea and can encourage others to buy into your vision, then you can concentrate on building an excellent product and a database choc-a-bloc with users. You’re always going to need users, and this model lets you focus on them and their needs. A web service with a substantial user-base can potentially be monetized, but a monetized web service without a user-base, is worth nothing.
As a user I prefer to slow and steady approach mainly because I like to know what I’m getting into. If I know the model is to make money from advertising then I can buy into that, but I don’t want it to be a surprise later on down the road.
I think the premium content is best for business solutions but poor from a consumer perspective; although there are exceptions I’m sure.
Personally I think the social market is nearing its peak. I think there will be a period of consolidation where the next social apps are designed only to pull content from all the others so that you can join one but still link to your friends on the others. After that the market will be dead and it will be a matter of coming up with the next big thing.
I may be wrong, but I just can’t see a place for anything more now than small improvements over what came before.
The one area I think that is open though is the right kind of business tool. Linked in isn’t engaging enough so there is scope for it to be overtaken.
Thanks Andrew.
Premium content models are a rarity in the consumer Web space, Flickr being one of the outstanding examples. I don’t subscribe to their ‘Pro’ level service, but I’ve met plenty of people who do, and they love it.
The social network market, whereby you attempt to build an entirely new eco-system and insist on people repeating the ‘add friend’ process, is a difficult one to break into. Anyone who wants a slice of this market will need to create something entirely different from what has gone before, and to create something that is incredibly feature focused. It’ll also need to leverage the excellent foundations that have been laid by the top social apps and their APIs/platforms.
LinkedIn certainly isn’t the most compelling of tools - it’s more like a database of business cards inter-linked with resumes than a fully fledged social network, e.g. Facebook.
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