Within the past two years, the amount of social networks and online communities have grown faster than anything else on the Internet and the number of people associated with those networks continue to dominate the Internet space. Unfortunately, almost all social networks today continue to endure very high costs with very low monetization rates. Monetization occurs directly (through monthly subscribers, “Freemium”, or virtual-goods models) or indirectly. Mainly through advertising based business models and first attempts to include e-commerce. Only vendors in Asia and some western platforms started to implement a virtual economy with goods and currency.
Most Social networks are today unsuccessful in their advertising strategy because they target an enormously large mass of heterogeneous users. First-generation targeting models (including semantic, contextual or behavioral targeting) don’t help either because these models are not tailored to the needs of social networks.
Social Profile Targeting leveraging the (demographic, interests and geographic user information), on the other hand, is built around the information within user profiles, users’ connections to other users, and the data entered by users themselves – to provide more exact data to reach target audiences.
ADTELLIGENCE offers exactly this kind of targeting technology, which provides an interface between individual user profiles and classic target-group descriptions. Through a simple user interface based on newest Web 2.0 technology, advertisers can easily define their target audiences / groups and in real-time, get reports on the success of their campaign and target delineation. ADTELLIGENCE’s targeting technology not only helps increase advertising revenue for social networks, but can also be used to implement other effective revenue channels like ecommerce, gaming monetization or marketing intelligence, social media monitoring and web analytics.
There is not just one perfect, “universal” business model for social networks, but nevertheless, the best business model will always be a mix of different approaches that can continuously be developed and combined. The users will decided which model they like. Ask them, they will tell you what they want, to deliver user generated content
1. White Paper “Cashing in” on Connections – Monetizing Today’s Social Networks ADTELLIGENCE GmbH Mannheim, Germany www.adtelligence.de michaelaltendorf@adtelligence.de
2. www.adtelligence.de 2 Authors 17-May-10 Michael Altendorf Dipl.-Volkswirt, Managing Director ADTELLIGENCE GmbHthe future of advertising michaelaltendorf@adtelligence.dePhone: +49 (0)621/87204066 Fax: +49 (0)621/87204068 Connect! www.xing.com/profile/Michael_Altendorf www.linkedin.com/in/michaelaltendorf www.twitter.com/Michael1980 Thomas Mehls Dipl.-Kaufmann, Consultant and Member of the Advisory BoardADTELLIGENCEGmbH the future of advertising thomasmehls@yahoo.com
3. www.adtelligence.de 3 ADTELLIGENCECompany Profile 17-May-10 Founded in May 2009, ADTELLIGENCE GmbH is an innovative German start-up business, located in the Rhein-Neckar valley about 30 miles south of Frankfurt. The company strives to… …offer today’s Social Networks and other Web2.0-related Web sites with an on-demand / SaaS targeting engine for precise modulation of online advertising campaigns …provide a thorough analysis of anonymized user data in Social Networks, communities, e-commerce, and gaming platforms …respect the privacy rules of all Internet users and groups …offer the “next generation” of marketing intelligence, social media monitoring and web analytics …enable real-time targeting and the possibility for any brand name to freely define and directly reach their individual target groups …minimize wastage with the modulation of online advertising and maximize the effectiveness of advertising campaigns
4. www.adtelligence.de 4 Executive Summary 17-May-10 Within the past two years, the amount of Social Networks and online communities has grown faster than anything else on the Internet. The number of people associated with these networks continues to dominate the Internet space. Unfortunately, almost all Social Networks today endure very high costs with very low monetization rates. Monetization occurs either directly through monthly subscribers, “Freemium,” and virtual-goods models; or indirectly though advertising based business models and first attempts to include e-commerce. Only vendors in Asia and some western platforms have started to implement a virtual economy with goods and currency. Most Social Networks today are unsuccessful in their advertising strategy because they target an enormously large mass of heterogeneous users. First-generation targeting models (including semantic, contextual, or behavioral targeting) do not help because these models are not tailored to the needs of Social networks. Social Profile Targeting on the other hand, leverages the demographic and geographic user information as well as the interests of the user. It is built around the information within user profiles such as their connections to other users and the data entered by the users themselves, to provide more exact data with which to reach target audiences. ADTELLIGENCE offers exactly this kind of targeting technology, which provides an interface between individual user profiles and classic target-group descriptions. Through a simple user interface based on the newest Web 2.0 technology, advertisers can easily define their target audiences/groups and get reports on the success of their campaign and target delineation in real time. ADTELLIGENCE’s targeting technology not only helps increase advertising revenue for Social Networks, but can also implement other effective revenue channels such as ecommerce, gaming monetization, marketing intelligence, social media monitoring and web analytics. There is no universal business model for Social Networks. Nevertheless, the best business model will always be a mix of different approaches that can be continuously developed and combined. The users will decide which model they like. Ask them, they will tell you what they want: to have user generated content delivered.
5. www.adtelligence.de 5 Contents 1. Introduction p. 7 2. The Global Market of Social Networks p. 12 3. Business Models for the Internet of the Future p. 44 4. Targeting Technologies for Social Networks p. 81 5. Future Strategies for Social Networks p. 129 6. Summary and Conclusions p. 144 17-May-10
11. “Traditional websites" are now building more community-oriented features into their sites to increase traffic, user growth, usage, and page impressions
12. Combined with rapid growth and billions of page views, Social Networks continue to increase costs
13. These companies continue to add resources by maintaining networks and building out IT infrastructure; all for the care of their end-users. This leads to an extravagant amount of unplanned costs
14. Most Social Networks, especially ones with enormous user bases, haven’t yet been successful in monetizing these masses
15. Only in specialized areas are subscription models successful
16. As the single source of revenue for most networks, the current ad model is insufficient, resulting in high scattering losses and putting even more pressure on CPMs
17. Today the debate within large Social Networks continues; the fundamental question of "Growth vs. Monetization”StrongUser Growth Increasing Costs MarginalRevenue
18.
19. Through increased communication and social pressure to “get involved,” users have created detailed profiles about themselves
20. Unlike traditional and professional editorial content, content from Social Networks has never been geared towards advertisers/marketers, even though the reach of social media is potentially huge.
21. In years past, specific target audiences within Social Networks were difficult to directly identify, leading to marginal advertising revenues
22. The core of this white paper deals with the future monetization of these special web pages - and takes the perspective of the business behind the social network
23. It aims to answer the questions: How can a “product” consisting essentially of user profiles, personal messages and photos, sell? And: Is it growth OR monetization, or is it perhaps a combination of both?Success of communication and user profiles Difficulty to identify target groups Future Monetization
32. www.adtelligence.de 12 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary
33. www.adtelligence.de 13 The History: Social Networks go from Niche to Mass Phenomenon 17-May-10 The term ‘social network’ was picked up by the media just a few years ago. The basic functions of any network, communication and interaction between two or more people, are not new technologies. They’ve been around since the beginning of the Internet. Chats, email, forums, and some specialized communities also have a long history, but were always very decentralized. Centralized systems, such as the “news groups” (i.e. Usenet) existed mainly in the IT sector and have played a special role in the open source movement since the early 90s. “Social networks” as central platforms where people could create user profiles mostly existed among online gaming communities, dating services, or information services and have been around since the turn of the century Since 2006, there has been a mass adoption of large Social Networks in Europe, since the advent of platforms such as StudiVZ, Netlog, Bebo, MySpace and Facebook Front Cover of COMPUTER magazine, September 1979
34.
35. Lack of broadband connections in the 90s prevented the breakthrough of many innovative Web technologies
36. In recent years, mobile Internet access has finally caught on in the private sector. This, after years of acceptance in the business sector, is finally giving way to the introduction of useful mobile applications and hardware
37. The mobile Internet is gradually replacing the asynchronous communication via e-mail through a permanent, active interaction between the real and virtual world. The “life” within Social Networks is slowly being merged with what’s happening in reality (1:n communication instead of 1:1)
38. Photo uploads to Facebook and Twitter and mobile “status-updates” are very ‘en vogue’ among young people and continue to become standard communication tools
39. Many Social Networks have opened their doors to external developers to increase the speed of innovation and connectivity. Some networks have bound together and have chosen an ‘open source’ standard for these developers, allowing them to “write once, install many”
40. Various open source Internet services and social networking sites have made it possible for end-users to keep one login scheme, which allows them to access multiple sites with one user profile or login (e.g. Open ID). This has cleared a very big hurdle for new Social Networks that seek new traffic and users .Broadband InternetAccess Mobile Internet Open SourceInterfaces
41. www.adtelligence.de 15 Social Networks Transforming our Communication 17-May-10 News from my Network – What are all myfriends up to...right now!? Chat with your network of newfriends Find new friends with similar interests Send Messages instead of sending Email Walls, blogs, videos, combined with editorial content Self-portrayal
42. www.adtelligence.de 16 17-May-10 Social NetworksConnecting our “Virtual” Lives with Reality „What ever happened to John Doe and Lieschen Müller after University?“ (Facebook, MeinVZ, stayfriends) „What event should I go to – and who’s going to be there?“ (Netlog, MySpace) „Who’s the good looking blonde girl in our Latin class?“ (StudiVZ) „What the heck is my neighbor up to?“ (Wer kennt Wen) „What music, fashion, etc. is in right now? Am I cooler, or are you? (MySpace) „What do you do, who do you know, and are you an important connection for me to have? (Linkedin, XING) The Success of Social Networks Social networks do differ from one another to some extent In particular, it is certain features, functions, and aesthetics that make up the attractiveness of individual social network Basic social networking features have existed on most platforms for a long time now. More modern networks have had massive growth breakthroughs because of good strategic planning of users and how they used the network effect. (i.e target users in regional areas, or certain ages groups, special interest groups) In addition, they have cleverly defined the local dominance in target groups. (For example, x% of a students’ friends belong to network XY, through the natural network effect, he will be encouraged to join them) Virtual communication and interaction is common among all Social Networks: chat, messaging, and related functions
43. www.adtelligence.de 17 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary
44. www.adtelligence.de 18 Social Networks What it all means on the Global Scale 17-May-10 Top Global Websites (Traffic) Six of the top 15 Websites in the world are Social Networks1) The high rate of growth for Internet usage in the past few months has been due to social network activity The top-ranked sites are continuously changing between Google, Yahoo, Facebook, and other major players Other top sites outside of “pure search engines” have incorporated more and more elements of classical Social Networks (Blogger, Twitter, YouTube, etc.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1) The distinction between "traditional" Social Networks like Facebook and the user-generated content side of Web 2.0 (eg. Blogger.com. Twitter) is extremely difficult. Therefore, we’ll keep the US-tradition (see, eg. TechCrunch) of the broad definition. 15
45. www.adtelligence.de 19 17-May-10 Social Networks In Germany, there is even more to the Story Top Websites in Germany (Traffic) Ranked in order of page impressions, more than half of the top 15 sites in Germany are Social Networks! In Germany, neither Google nor Facebook has been audited / approved by the IVW (Informationsgemeinschaft zur Feststellung der Verbreitung von Werbeträgern e.V.). Still, the dominace of social network in Germany is even more than that of theinternationalrealm Even in Germany, Social Networks grow with the same dynamic and faster than their competitors – similarly to the rest of the world 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
46. www.adtelligence.de 20 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary
47. www.adtelligence.de 21 U.S. & Chinese Sites dominate the Market for Social Networks 17-May-10 Trying to get hold of reliable statistics on the world's largest Social Networks is a task in itself. There is a huge lack of statistical comparisons and publications available, making it practically impossible to compare In addition, the difficulty is that the establishment of Social Networks has become much more complex since many websites incorporate community features The most relevant statistics can be found within blogs (Blogger, WordPress), and sites like Flickr, Yahoo!, and Geocities, which also include user-generated content. Statistical experts such as TechCrunch and Comscore have found analogous results. Strikingly, the global market is dominated by U.S. and Chinese pages (QQ, 56.com, Baidu Space) Social Networks, Global Ranking (ranked by unique visitors) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
51. www.adtelligence.de 25 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary
52. www.adtelligence.de 26 Facebook and Student Directory Networks dominate in Germany 17-May-10 In Germany, “student directories” (VZs) are mainly targeted to the students of German elementary schools, high schools, and universities. They continue to lead in the social networking space throughout the country and look like a Facebook copy cat but in red Facebook ranks at the top position as a stand-alone network in Germany, but its growth is accredited to its international momentum and its popularity as the major U.S. networking site With overall retention rates dropping off in Germany, Facebook is still ahead, but has decreasing retention trends
53. www.adtelligence.de 27 Emerging Top Social Networks in Germany 17-May-10 Source: IVW, AGOF , Blogs & operator pages, own analysis
55. www.adtelligence.de 29 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary
56.
57. Social Networks from Asia usually offer much more space on users’ profile pages for display, decoration, and self promotion
58. Anglo-Saxon players like Facebook have failed to fully meet the needs of users in Asia due to language and character barriers
59. Success of the large Social Networks in Asia can be similarly compared to that of dominance players like Facebook in the USAChina Japan South Korea
63. QQ is Chinas biggest community, but also the world leader in number of users and revenue
64. The business model started with free instant messaging services and up sells premium features, games and virtual goods. 90% of the revenues are created through premium services. Advertising is only 10% of the revenues
67. This creates a big opportunity to not only sell real goods, but virtual goods (see also in chapter 3) like skins, avatars etc for the users cartoon alter ego. This is comparable to a mixture of the Sims and Second Life or Habbo hotel
68. Virtual commerce is often combined with the generally known revenue models like advertisement
69.
70. www.adtelligence.de 35 Asian Social Networks top the Charts among World Players 17-May-10 Source: http://resources.emartin.net/blog/pic/China-SNS.jpg
71. www.adtelligence.de 36 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary
72.
73. Networks’ user alignment is usually due to the fact that Social Networks start in specific geographic locations. KWICK , for example, started as a regional social network in the Stuttgart (Germany) area and now has become a pan-regional social network, the same holds for Localisten.de and Wer-kennt-wen.de. (This is also true for vendors from other countries)
74. On the other hand, large Social Networks like Facebook or MySpace offer even the smallest communities a home merely through their large numbers
75. These smaller interest groups that focus on specific topics make it possible for users to exchange ideas with other like-minded users
76. In addition, “normal” websites that focus specifically on content, such as European Soccer (like kicker.de) are slowly evolving in the direction of social networking sites - incorporating features that better connect their community (forums, profile pages, personal messaging, etc.) Dynamic Development of a Network Specialized Communities and Interest Groups “Content Focused” Web Sites
82. Noovo.com - Information Worker / Business Users - Users of Social Networks with similar interests that filter the information "collaborative filtering" and "crowd sourcing"
83. Ning.com - Marc Andressen's approach combines thousands of niche networks on one single platform, rather than creating one “general” social network
88. Specialized groups and Social Networks like StudiVZ face the same challenges as their large, general counterparts. Not all students are the same; they want customized news & ads
89. “Long-tail” Social Networks are indeed an interesting, definable user base to advertisers, but they lack convincing “user traffic” numbers that are needed to attract advertisers to run a solid, lucrative marketing campaign
90. Therefore some specialized Social Networks use alternative methods, such as subscription-based or “Freemium” models, and are successfulThe following chapters will go into detail about how Social Networks of different structures create revenue today and in the future www.adtelligence.de 40 Specialization alone does not guarantee Successful Monetization 17-May-10
91. 41 17-May-10 Contents 2. The Global Market of Social Networks 2.1 Social networks – Part of Web 2.0 2.2 Importance of Social Networks on the Net 2.3 Largest Social Networks in the world 2.4 Largest Social Networks in Germany 2.5 Asia: A special scene in Social Networks 2.6 Specialized Social Networks 2.7 Summary www.adtelligence.de
92.
93. The result is “cut-throat” competition between established players and newer entrants which occurs globally.
94. The last few months have shown that users find newer, more innovative features enough of an incentive to switch platforms, despite the higher costs involved
95. Global players (particularly Facebook) heavily invest in the technical development of their platform with the hope that global market dominance is the key to rapid return on investment. Consequently, they have the ability to scale their development more quickly than others with development teams spread over several countries
96. Certain social network specializations (like special-interest groups or regional markets) can lead to successful business models
97. The question is, how far can they preserve the attractiveness of niche platforms for target audiences and to what extent will regional networks be able to withstand the pressure of global innovation?Global “Knock-Out” Competition Features Critical to Success Attractive Specialization
98.
99. Although local specialized Social Networks (such as XING and LinkedIn) show a positive cash flow today, reviews from Facebook and MySpace, which follow the global, general pattern continue to raise the eyebrows of investors
100. Only the future will tell if there is a dominant model of success in this game. Specialized General Local/Regional
101. www.adtelligence.de 44 17-May-10 Contents 3. BusinessModels for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-Commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
102. www.adtelligence.de 45 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
103.
104.
105. Plenty of Funding, No Plans for Monetization Lack of pressure to monetize in the early stages of Web2.0 Growth was the main focus for companies and their investors during this time Recession forces them to monetize earlier than planned 47 17-May-10 www.adtelligence.de
106. www.adtelligence.de 48 Investors Relationships and Their “Network Effect” 17-May-10 For the investors of various Web 2.0. start-ups, the “network effect” and overall growth of the young social network’s user base was at the forefront of strategy. How to actually make money, on the other hand, wasn’t the focus of their equation at the time. Here is an example of the network effect from the sale of Friendfeed to Facebook. The VCs are often invested in many different companies which fit together only in a portfolio view.
107.
108. The pressure on the venture capital firms grew dramatically due to high cash burn rates of their newly created businesses
109. Even for the well established businesses, the pressure was increased by the high levels of debt built up from their acquisitions
110. The start-ups of investors’ portfolios were brought under even greater pressure to find ways to monetize their businessEconomic and financial crisis of 2008/2009
111. www.adtelligence.de 50 Rapid User Growth in Social Networks Show First Signs of Market Saturation 17-May-10 Nearing Market Saturation? Increased Growth Two-thirds of all Internet users visit Social Networks todayIn Russia, Internet users spend an average of 6.5 hours logged in to Social NetworksAlready 75% of the German, Swiss, American, and Australian online population are members of at least one social networkMore than 80% of all students in the United States and Germany have a profile on at least one social network Since 2004, Social Networks showed dynamic growth among users. Facebook, founded in 2004, registered its one millionth member at that time and currently has more than 290 million members “Student directories” of Germany currently have more than 15 million membersSince 2008, growth leveled off in most countries. This was partly due to the beginning market saturation and partly to new, specialized competitors (see examples) Also in 2008, the first signs of Social Networks trying to win over users from other networks became visible
113. www.adtelligence.de 52 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
114. www.adtelligence.de 53 Good Business Models include both Revenue and Expenditure Models, with an Emphasis on the Revenues! 17-May-10 “Business models are perhaps the most discussed and least understood aspect of the Web. There is so much talk about how the Web changes traditional business models. But there is little clear‐cut evidence of exactly what this means.” Professor Michael Rappa The real focus is here!
118. For the use of the network as a market research channelSubscription Freemium Virtual Goods Advertising E-Commerce Market Research
119. www.adtelligence.de 55 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-Commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
120. www.adtelligence.de 56 Subscription Models: The Challenge of getting Users to pay 17-May-10 Subscription revenue models charge for usage of services on a reoccurring schedule (daily, monthly, yearly, etc.)The advantage is that revenues are calculated well in advance, and the services are pre-financed by customers (Similar to the print media business models) Subscription models are only successful if users see a direct added value – especially in comparison to a similar service that is available for free. For example, streaming music directly rather than downloading it to a shopping cart, checking out, having to wait, etc. One challenge that businesses face is to get users to overcome the “payment hurdle.” In most cases, there is a free trial period (examples: myYearbook, Napster), which allow the user to test the network for limited time Despite these hurdles for first time users, many companies use the “Freemium” business strategy (see next chapter) where basic site functionality is freely available, and extra “premium” features must be paid for
121. www.adtelligence.de 57 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
122. www.adtelligence.de 58 Freemium Model Monthly Fees for Premium Features, Basic Versions for free 17-May-10 Freemium models combine free usage with premium features and functionality The term “premium” generally offers higher-quality services (more storage space, use of advanced archival or search functions, etc.). An excellent example of an Acquisitions Freemium model for specialized services can be found at www.myartspace.com For some services, the premium version is exactly the same in terms of performance, but is simply free of third-party advertising. (example: www.myyearbook.com) User fees for premium services are usually charged on a recurring basis, similar to the subscription model. The Freemium model has the advantages of predictability and pre-financing for the business, as already mentioned in the subscription model XING, a popular site for business networking in Europe, premium members have the advantage that they can see all users of the network and send messages to them (a powerful lead generation tool). Messaging is normally a standard function among social networks, but in the case of creating business contacts, it is a premium service.
123. www.adtelligence.de 59 Freemium ModelsAccepted only by Certain User Groups 17-May-10 When users make the decision whether a premium membership is worth it or not, features that help cut down time-to-information play a decisive role (quicker and easier search, less advertising, direct access, etc.). For this reason, the use of Freemium models in the business sector (where time equals money) is more widespread than with normal social networking sites that target students and young adults. It is clear from this example that a user’s willingness to pay for certain services are quite different. The “premium range” usually offers a package of functions and services that carry relevance to only a certain class of individuals (and higher pricing), and therefore may deter other users from purchasing those services. A solution to this dilemma could be the settlement of individual bids set up to be analogous with virtual goods, which are touched upon in the following chapter. Components of premium offers are subject to frequent changes in order to keep pace with future competition. For example, no one pays for access to e-mail today, but they do pay for mobile e-mail access - in the near future however, this may no longer be the case and new premium services will need to be developed in its place to continue to monetize the business.
125. www.adtelligence.de 61 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-Commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
126. www.adtelligence.de 62 Pay-As-You-GoAn alternative to Subscription and Freemium Models 17-May-10 The willingness of the users to pay for individual services/ content is often very differentStandard-premium packages sometimes don’t offer enough value (It’s either “all or nothing”) Every single user pays for the same features and functions Subscription Model Some users don’t pay, and only use the basic version Freemium Model Some users pay for the Premium version “Pay as you go” model: Offering individual products 'on demand' for the customer (virtual goods) and can make for a happy alternative for the business(operator)
136. www.adtelligence.de 65 The Business of Virtual Goods: Second Life 17-May-10 In Q2 2009, $144 Mio of User2User transactions were made in Second Life. 750,000 new unique users join the network every month Source: Secondlife.com
140. Increases the attention span of users in the network, and benefits from the effects of new advertising methods.
141. Increases the attractiveness for external content creators (labels, publishers, developers) who can earn money by developing items for the platform
142. Creates rewards / opportunities for user-generated virtual goodsPut in perspective, virtual goods create an extraordinary revenue stream for operators of Social Networks. However, this model continues to pose some technical challenges for the operators.
143.
144. Changing costs for users to move from one platform to another is unclear for the user
147. Solutions need to be found to avoid the billing of small amounts or to enable cost-effective measure for smaller transactions.
148.
149.
150. Even in Social Networks, the situation is divided - as shown in this report’s previous examples from German “student directory” Social Networks vs. China’s QQ
151.
152.
153. Gross-Net Quadrant: Price lists have lost their binding character and can be interpreted only as a guide
155. Nevertheless: Today’s established advertising methods offer solid returns. But, in the online space, CPMs continue to be freely negotiable and are in the range of one Euro for Social Networks.1) Figures have relative tendency - real values are highly dependent on concrete performance indicators and parameters. Prices according to the supplier's price lists; population ranging from 14 years of data and the main form of advertising Source: Expert interviews
156. www.adtelligence.de 72 Intelligent online Advertising Models realize significant revenues 17-May-10 Social networks like MySpace and Facebook already earn significant advertising revenue. But in comparison to their scope and potential impact of communication, these numbers are still low. The key here is that by using the enormous amount of traffic, they should be able to monetize networks with simplest of methods. Also noteworthy is that both companies have developed specific targeting technologies and continue to refine them even further (see more in later chapters). Because specialized Social Networks lack the mass of users, they generally target their specific audience of users and concentrate on integration with the larger Social Networks. They haven’t yet been successful with this method. An example of immensely successful monetization of a huge amount of traffic is, naturally, Google. But even Google faces the problem of not being able to offer an environment for the traditional campaign – including testing and models to establish CPM-based advertising. Consequently, Google is focused on a very special auction model, which increases the value of frequently searched words.
157. www.adtelligence.de 73 MySpace and Google First Social Networks with Advertising Revenue 17-May-10 MySpace, Fanta, Band World
158. www.adtelligence.de 74 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-Commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
159.
160. By integrating directly into a social network, a business can significantly increase its revenue
161. Asian Social Networks have established “virtual stores,” which allow users to order “real goods” for virtual money. These shops, from their look and feel, are perfectly integrated into the world of Social Networks, allowing users to easily make the connection between the virtual and real world and recommend products (compare the Facebook Beacon idea!)
162. Amazon opened its platform to third-party vendors (Marketplace) and have helped monetize their own business by leveraging its large numbers of users.
163. The key to success is not only the target group, but the individual response of the user. E-commerce will only continue to be successful if the users continue to stay interested in buying online
164.
165. Nevertheless, the QQ currency continues to boom because of the difficulties in trying to ban a currency which only exist on PCs and mobile devices – like US dollars in developing countries76 Source: plus8star, own analysis http://english.mofcom.gov.cn/aarticle/newsrelease/commonnews/200906/20090606364208.html
166. www.adtelligence.de 77 17-May-10 Contents 3. Business Models for the Internet of the Future 3.1 The Pressure to Monetize 3.2 Direct or Indirect Monetization? 3.3 Subscription Models 3.4 Freemium Models 3.5 Virtual Goods and Currencies 3.6 Advertising Revenue 3.7 E-Commerce, Affiliate Models 3.8 Market Research 3.9 Chapter Summary
167.
168. This interactive behavior offers companies the chance to directly address and involve users (those fans of a certain brand or early adopter of a technology, for example) in their focus groups or new product launches
169. Social networks will be able to monetize by granting marketers this type of access when, and if they create the proper conditions:
170. If they are capable of clustering their users into these special interest groups, specific models for targeting are required and the ability to filter results from the focus groups, including Social Data Intelligence, is a key success factor
171.
172.
173. These methods have numerous possibilities in today’s Social Networks and haven’t been fully unleashed – especially for the Freemium and virtual goods models, where there is still a significant amount of untapped potential
174.
175.
176. The idea of user-generated content was introduced on many websites and led to new records in traffic on the Internet
177. Still, the main revenue source for many sites continued to stem from advertising
178. This raised the question of whether the same approach should be used in this “new” Internet world of Web 2.0Editorial Content Web 1.0 Additional User Generated Content Web 2.0 Advertising But: Should be used the same approach today? 17-May-10
179.
180. Most of the new tools are used to present the same old methods of advertising: PR and news over blogs or Twitter
181. The focus of interest within advertising has moved to viral marketing - network-based campaigns that spread a message via “virtual” word-of-mouth – or “word-of-mouse”
182. Despite the success stories of these creative campaigns, their overall efficiency can not be estimated beforehand, and the campaigns remain singular; they don’t repeat very well, nor are they scalableWeb 2.0 Marketing Toolbox Viral Marketing Early Adopter Marketing Buzz and Guerilla Marketing Blogging and Twittering Brand Page “Become a Fan” of a Brand - Facebook Fan Pages Online Events/Webinar YouTube Video PR Company Radio & TV
183. www.adtelligence.de 84 17-May-10 Contents 4. Targeting Technologies for Social Networks 4.1 Marketing Channels: Social networks and Web 2.0 sites in 2009 4.2 Data privacy is the critical basis of targeting 4.3 Overview of first generation Targeting Technologies 4.4 Targeting for Social Networks and Web 2.0 sites 4.5 Outlook on the trends of the next generation
184. www.adtelligence.de 85 The Need for new Forms of Online Advertising 17-May-10 The old and new terminology of online marketing Display Ads Affiliate Marketing Performance Marketing Suitable for sites with user-generated content? Behavioral Targeting Semantic Targeting in Video Ads For Social Networks, the starting point is no longer the static page for online marketing, but the entire site itself is dynamic and interactive New forms of advertising are necessary!
185. www.adtelligence.de 86 Traditional Targeting Technologies don’t meet the expectations for Social Networks 17-May-10 Previously for advertising technology, there was no difference between static websites such as Spiegel, CNN, or FTD.de and dynamic Social Networks HOWEVER: There was the assumption that current targeting technologies could work for Social Networks – but were not likely to meet revenue expectations NOW: In today’s Social Networks there is no central topic, nor is there any edited, professional content People are now in the and center of the their interests equation
186. www.adtelligence.de 87 What advertisers need to learn about Web2.0 17-May-10 Users of a Social Network What are the needs of these users? Passive users become active consumers, shareholders, make comments and PR on the brands that make them feel good and the ones with which they closely identify Advertisers need to learn to address these specific users according to their interests!
187. www.adtelligence.de 88 Targeting makes it possible to reach every user systematically 17-May-10 Today’s social media approaches Social Networks ? Become a fan of my brand! Comment on my blog! Is every user interested in listening to this? Can you monetize a social network this way? Send a Beck’s Beer to a friend! Come to an online event! How would you rate this advertisement? Install our song on your site! Each user needs to be targeted according to their interests in order to maximize the advertising impact - targeting makes it possible, and complies with data protection
188. www.adtelligence.de 89 17-May-10 Contents 4. Targeting Technologies for Social Networks 4.1 Marketing Channels: Social networks and Web 2.0 sites in 2009 4.2 Data privacy is the critical basis of targeting 4.3 Overview of first generation Targeting Technologies 4.4 Targeting for Social Networks and Web 2.0 sites 4.5 Outlook on the trends of the next generation
189.
190. Some users tend to gladly and willingly expose personal information – however, if they feel their data has been unwarrantedly reused and their personal privacy and legal safety are in danger, they will most likely take legal action
191. In the case of semantic advertising with GMAIL there is the continual discussion whether “Google is reading emails”
192. Today, data protection laws stipulate that Social Networks can only use personal data if the users grant them the right to do so (using “opt-in” clause)
193. The re-use of their personal data has serious legal consequences if any violations of their personal rights have been breached
194.
195. www.adtelligence.de 92 Wer-Kennt-Wen (Germany) Communication for data privacy 17-May-10 An excerpt from one of Germany’s largest Social Networks, “Wer-Kennt-Wen” privacy policy: “Section 4.2 The advertisements for Wer-Kennt-Wen are supplied by third parties, for example, by our contract partner, “Google”. The third advertisers place a unique, temporary or permanent cookie in your browser that can be accessed and read. When clicking on a particular advertisement via Wer-Kennt-Wen, information about how many times you have viewed a particular ad, for example, is collected and anonymously passed on to the advertisers. There is NO personally identifiable information, such as your name or address, generated or forwarded on. Nor can you be identified by any of the details of this information.” A typical, open and clear correspondence from a large social network.
196. www.adtelligence.de 93 17-May-10 Contents 4. Targeting Technologies for Social Networks 4.1 Marketing Channels: Social Networks and Web 2.0 Sites in 2009 4.2 Data Privacy is the Critical Basis of Targeting 4.3 Overview of First Generation Targeting Technologies 4.4 Targeting for Social Networks and Web 2.0 Sites 4.5 Outlook on the Trends for the Next Generation
204. www.adtelligence.de 96 Semantic TargetingRecognizing meanings within Web sites 17-May-10 Semantic targeting evolved out of context-sensitive advertisingKey concepts are examined in relation to one other by sophisticated database technology, and their significances are analyzed. For example, in an article about Boris Becker and tennis = glamourSemantic targeting is especially suitable for high-content pages - the advantage is that the technology “picks up” or “understands” what the user is reading and delivers related advertisements
205. www.adtelligence.de 97 Behavioral TargetingInterpreting users’ tastes and preferences 17-May-10 Behavioral targeting attempts to draw conclusions about a user's interests and evaluates their target group membership based on the websites they’ve visitedThis only works by storing a cookie in the web browser of user’s computerThe data stored in the cookie is reconciled with the supplier’s database (on the basis of statistical forecasting models) and assigned to individual target groups Simplified Example of Behavioral Targeting User Surfs the Net.... Website 1 ESPN.COM Website2 CNN.com Website 3 Porsche.de Soccer News Automobile ADServer synched ADServer synched ADServer synched Cookie saves: Sports Cookie saves: evtl. Male Cookie saves: Male, Sports, Car
206.
207. However, it tries to draw conclusions from past data (web pages visited) along with the help of statistical data and forecasting models
208.
209. Due to the amount of wasted spending, this approach will be replaced by modern targeting technologies
214. As sites increase with mixed content and user-generated content, semantic targeting will continue to grow in importance
215.
216. This makes the use of semantic and context-based technologies very inefficient.
217. Even the statistical forecasting methods of behavioral targeting are inefficient for Social Networks
218. Users spend lots of time in Social Networks, but the simple fact that they visit one is not enough for solid interest categorization
219. Users can also “drill down” and specify their interests on their profiles - you can then identify the user and evaluate the data with modern targeting technologies
220.
221.
222. Soccer and sports are interesting for the user who visits a professional soccer club page, but this information is not sufficient for a precise description of the target group (Is he an “active” or a “passive” soccer player, wealthy or poor?)
223. On Web 2.0 pages and especially on Social Networks, the user creates his profile and adds his interests, what he likes, and describes his attitude. This allows for a systematic approach
224. MySpace and Facebook, as technological newcomers, have realized that the user is focused in the center and content revolves around him. Therefore, the main focus of the marketing strategies must be on the user
225. They allow advertisers to reach interested users right away and make it possible to take out ads efficiently without having to consult imprecise data from traditional surveying methods102 17-May-10 www.adtelligence.de
226.
227. People like to write about themselves, their interests, and their dreams and so provide information on the internet
228. Personal data is displayed: it is no longer a secret but rather an instrument of communication
229. Hence, user generated content for Social Networks is created voluntarilyPersonal data Demographical data: age, profession, income, etc. Interests (music, movies, books, sports or things like favorite quotations, etc) Geographical data such as place of residence, studying or travel destination Friends and social graph Group activities Wall and comments Photos Specials such as Blogs or Video podcasts 103 17-May-10 www.adtelligence.de
230.
231. He automatically is always the “first” friend/contact after registration at My Space
232. Like most of the other users of a social network, he describes his interests, his tastes in music, the movies he likes, his age, where he lives and much more
244. Besides data protection, there is also the User and his/her sense of privacy which has to be considered105 17-May-10 www.adtelligence.de
245.
246. There are some restrictions to this technology: Only one banner size can be selected, the website is divided into general advertising space and advertising with interest targeting and there is no help in the selection of the interests.
247. Therefore, clients do not know if their target groups play soccer as often as they watch a movie – which makes it difficult to evaluate the data correctly
248.
249. Yet, the interest targeting of MySpace is not able to implement the definition of the target group for advertisers, since its capacity is not sufficient and MySpace is aimed rather at smaller clients in special niches
250. According to MySpace, hypertargeting enhances the usually low click rate in Social Networks from below 0.5% to a minimum of 3 times more, and with sponsorships to more than 6 times more (3%).
251. This shows a huge potential, if this method is extended106 17-May-10 www.adtelligence.de
255. Facebook does offer interest targeting, but the possibility of geo targeting or selection of a certain place such as a specific university is limited
256. As shown, the big US networks have already started to offer some targeting solutions
257.
258. StudiVZ militates against using the interests of the users – they will probably not be able to maintain such hard a line, since the monetization of the platform would be nearly impossible otherwise (they might concentrate on the group memberships of the users)
259. WKW (‚Wer-Kennt-Wen‘) holds a clause in their data protection regulation which aims at utilizing data for advertisement and market research but so far nothing important seems to have come from itIdea of ADTELLIGENCE: Offer a modern targeting-solution to the German market for targeting in Social Networks 109 17-May-10 www.adtelligence.de
260.
261. The approach of MySpace has already demonstrated the successful increase of response rates – with the ADTELLIGENCE approach the expected results will be even better
262. An integration into the value added chain makes it possible to display each campaign only to those who belong 100% to the previously defined target group
263. No expansions, surveys or statistics will be taken as a basis except by the individual user himselfWhy isn’t anyone else already applying these possibilities? In August 2009 the startup Rocket-Fuel near Stanford University in the Silicon Valley was launched and partly aims at improving advertisement at Social Networks, too Advertisers are not necessarily active users in Social Networks and therefore must be made familiar with it step by step 110 17-May-10 www.adtelligence.de
264.
265. In Social Networks, millions of users do not only give their socio-demographic data voluntarily but also their interests and further information – ADTELLIGENCE provides the possibility to adjust the delivered data to the description of the target group. This is a huge advantage for Social Networks and can be done with all kinds of data (age, favorite movies, hobbies, etc.)
266. For this, a technical high-performance database has been built which allows millions of page impressions within only few seconds
273. Clients are able to select standard milieus directly with a mouse click and then adjust further details
274. Here you can see a screenshot from the menu:1) Sinus, Sigma are incorporated brands of Sinus Socio Vision in Heidelberg and the Sigma GmbH in Mannheim 113 17-May-10 www.adtelligence.de
283. …as well as more characteristics and interests
284. only users who match the target 100% are being addressed!
285. Waste? Absolutely none!Screenshot aus dem Targeting Menü www.adtelligence.de 114 17-May-10
286. ADTELLIGENCE Targeting Engine user-optimized interface every imaginable selection can be made Reporting & Analysis Unlimited Targeting Options Recommendations 115 17-May-10 www.adtelligence.de
287.
288. The target group definition which has been developed through market research and surveys, can be checked in real time and optimized
289. While the campaign is active, feedback about its success can continue to be gathered.
290. Result: A better approach to marketing. www.adtelligence.de 116 17-May-10
291.
292. Operators can both gain new clients because of the added value and increase the CPM with already existing clients, as the response-rates will rise considerably (e.g. MySpace)
293. Commercialization of Social Networks as a whole can be replaced with precisely adjusted target group marketing:
294. With this method even profitable affiliate models can be leveraged to specific target groups
295. The disadvantage of having a huge heterogeneous amount of users can be turned into an advantage
297. In addition, marketers and operators can provide their clients with detailed reports about the effect of campaigns in certain target groupswww.adtelligence.de 117 17-May-10
300. Readjustments, as well as a sudden change to the target group, are possible in real time, which can have a positive effect on the campaign
301. Testing campaigns for different target groups as well as scenario models is easy and cost-effective.
302. In order to accommodate advertising clients with specific preferences, multi-leveled campaigns are made possible to spark their interest118 17-May-10 www.adtelligence.de
303.
304. User acceptance can be gained through open communication about exactly what data is being used and how, and by pointing out the advantages for the user
305. Through a targeted drive, every user receives less and more specific advertisement
307. Relevant advertisement is happily accepted by every user – overall media surveys have shown the same results again and again119 17-May-10 www.adtelligence.de
308. ADTELLIGENCEA targeting solution completely based on commission Clients only pay for their benefit! It’s a real commission model as everyone in the value-chain can use the advantages from targeting, reporting & market intelligence and recommendations To build and scan target groups Campaign Mgmt Real time Reporting & Mafo To control campaigns This produces a win-win situation in the value –chain for all parties concerned! ADTELLIGENCE Targeting Engine On-Demand Business model 120 17-May-10 www.adtelligence.de
313. Optionally: a total integration into the Campaign-Mgmt or supply of a distinct system is possible121 17-May-10 www.adtelligence.de
314.
315. Thanks to the new targeting technology of ADTELLIGENCE, the dilemma of having to address the entire community as a whole, which agencies and marketers in Social Networks had to face up until now, has come to an end,
316. The heterogeneous target group of a social network becomes a huge advantage and unique feature and enables operators to…
322. Alternatively, a combination with previous technologies such as semantic or behavioral targeting is possible, but only in consideration of data security122 17-May-10 www.adtelligence.de
325. Social Hub (which has particularly many contacts): can be used to spread the advertising message
326. Expert Hub (which is the expert in his field): can be used to implement new technologies and solutions (e.g.: iphone, VDSL, etc)The identification and address of these Early Adopters is possible with the technology of ADTELLIGENCE Expert Hub Social Hub Expert in his field. Gives recommendations based on experience and knowledge – very good for experience- and search customer Spreads the message faster, as they have many contacts– excellent for consumer products 17-May-10 www.adtelligence.de 123
327.
328. ADTELLIGENCE offers the possibility to gain and process new data while the campaign is still active
329. This helps to control the target group and offers an enormous advantage for market research
330. Insight into the desires of the clients and target groups is possible and there is no need for expensive and time-consuming market research data
331. Additionally, you get the opportunity to receive a matched analysis to arrange further campaigns and use cross-over effects more efficiently – you gain lots of new information about the client: ADTELLIGENCE calls it “New Market Intelligence” 124 17-May-10 www.adtelligence.de
332. www.adtelligence.de 125 17-May-10 Contents 4. Targeting Technologies for Social Networks 4.1 Marketing Channels: Social Networks and Web2 .0 sites in 2009 4.2 Data Privacy is the Critical Basis of Targeting 4.3 Overview of First Generation Targeting Technologies 4.4 Targeting for Social Networks and Web 2.0 Sites 4.5 Outlook on the Trends for the Next Generation 125 17-May-10 www.adtelligence.de
333. Better understanding of the individual users within Social Networks In the future, it will become increasingly important for businesses to know what has been written about them on the Internet and how advertisements can be effectively implemented in order to obtain viral effects and authenticity Social networks qualify for an analysis of how people cope with new products and how they define themselves in their social environment Tools have already been developed to help understand people in Social Networks and evaluate their interests Analyze Toolset Collaborative Filtering Recomm-endation Engine Social Graph Analyzer Early Adopter Identifier … 126 17-May-10 www.adtelligence.de
334. New Market Intelligence A mixture of quantitative and qualitative collected data The next generation of market research collects a combination of statistics from quantitative data and qualitative evaluation in order to draw conclusions such as: “How do people living in NYC judge my campaign compared to those living in Tokyo?” Users already express themselves in the Net. Increasing interrogation is not necessary, instead what are needed are better analytical tools which are linked to the product, and marketing strategy in real time Analytics Reporting Recommendations Did you know that your target group also likes… Soccer ABBA Cinema Social Graph Analysis Blog Opinion Tracking Social Network Trends Analysis Twitter Buzz Monitoring 127 17-May-10 www.adtelligence.de
335. Customer relationships will direct the future of targeting and integrate customer feedback into sales Traditional Customer Relationship Management moves more and more toward the customer. They update their own data in the C2C network which is linked to CRM People will become directly integrated into the Production & Development Process. Undesirable development of products can therefore be minimized. Social networks are the interface to the client User Generated Shoes? …will supposedly be on the fringes since not everyone is a designer. But: The user possesses an opinion that should be listened to, since no one wants to be just a number in a survey Super Distribution It will become much easier to interact and communicate with the customer via Social Networks and to respond to their wishes. If a client then recommends something to someone else, he should get a bonus or commission Promoter Relationship Management = CRM 2.0? Suppliers like Earthfaves.com offer solutions for clients who want to bind faithful clients and reward them. To automize and evaluate this kind of customer loyalty is becoming more and more important. It could be the prototype of a new sort of management software that could also be implemented in other areas The new targeting solutions approach the individual user within a network – Social Networks can increase their competitiveness if their clients are satisfied 128 17-May-10 www.adtelligence.de
337. ChallengeInnovation Footrace of Social Networks to receive Advertising Revenues Competition for User Market Saturation Cut-throat competition Competition for Advertising Revenues Innovation Footrace of Social Networks 130 17-May-10 www.adtelligence.de
338.
339. Global competitive pressure and faster innovation cycles lead to a development of products and methods of offering them to create distinguishing features
340. New competitors with new software can still be possible (e.g. Twitter) – network effects and venture capital will help