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Merriam-Webster:“To utilize (something of value) as a source of profit” (“Monetize,” n.d.).Our definition: To make money. In the case of social media, using a platform or application to make profit from the social activities of users.
ROIA significant investment goes into the development of social media platforms and there needs to be a return on investment. It makes business sense. OpportunityThere is an opportunity to capitalize on users
Social networking is already reaching a maturity stageBy the end of 2009, 13.3% of the world’s population (917m), were on social networking sites (Data Monitor, 2010).By 2015, scale and reach of social media is estimated to be 27% of the population (1971.2m users) (Data Monitor, 2010).Rapid growth in Asia, rising from 42.7% to 52.8% by 2015.North American and Europe decline from 32.9% to 23.9% by 2015.From 2010-2015, online social networks will develop monetizable scale of a consumer expenditure.This will reach at least $200 billion in 16 countries (social networking opportunity). COPY GRAPHS ON PAGE 31 TABLE P. 34: proportion of population using social networks by region
Mass media modelThis is a one-to-many model of communication, meaning one voice speaks to a large audience within a short amount of time. The audiences in this model are determined by market research to try and target a message as much as possible. Companies are able to generate revenue as the biggest cost is the initial production and distribution is fairly inexpensive (Lyons, Messinger, Niu, & Stroulia, 2009). Often times, subscriptions allow a steady revenue flow for media producers allowing them to create consistent content. Examples of this include common mass media channels like television, newspapers, magazines, and radio. Three-party market modelThis is the model that most media take. With this, the producer offers a product to a consumer at a low cost, but in order to do this they need funding from somewhere else. This is done by a third party, the advertiser, who pays the producer for ad space in order to have access to the consumer with the hopes of the consumer purchasing their goods or services(Anderson, 2009).The web is able to extend this model as advertisers will pay to be featured where consumers are. Which we will discuss later.Online, this also includes companies selling customer information to third party organizations as a form of market research.
The “Dotcom Boom”During the pioneer days of the web, massive investments were put into online start-upsThere was a promise of massive profits in the new digital frontierOn March 10th 2000, the dream ended when the “dot-com bubble” burst. Ill-conceived business plans and lack of experience in monetizing the web was the downfall of many companies.Today's boom is quite different, with tried frameworks and more experience in ecommerce.
Others:Sponsored content: Sponsored content could also be considered advertising (Loayza,2009).Affiliate (mixed): An affiliate generates visitors to a business’ website or product for them (Loayza, 2009).In social media, affiliates can take an even larger role by bringing traffic to their own sites. For example, coupon websites or even Groupon. They can even boost their effectiveness by engaging with consumer. For instance, a UK coupon website gets consumers to ask them for deals (example: what offers do they have tonight for restaurants in a certain city). YouTube users and bloggers (content generators) can be affiliates, driving traffic and business for companies (Anonymous, 2011, p. 31).
Definition: User regularly pays a set fee to a provider for a serviceClass discussion: Are any of you subscribed to an online service like Netflix or an online magazine? Why or why not? Do you think it’s worth the money?
Formats:Selling access to online services such as digital content or digital storage. The subscription can take the form of weekly, monthly, or annual access. In each case, the user pays a set fee for access regardless of use(Anderson, 2009).Usage-based quotas: Digital subscriptions can also take the form of usage-based quotas, where a customer pays for access to a limited amount of content or storage.Pay wall model: users must pay a subscription fee for unlimited (or metered) access to newspaper content. Example: The New York TimesPositives: Access to content is protected and paid for.Negatives: Limited reach through services like Google news and Facebook sharing.However, pay walls are still new. While it works for the New York Times, do you think it would be successful for other newspapers?
ProsSimpler usage model: Users pay a fixed cost for usageMore predictable revenue streamMore committed user baseConsThe content provided must be valuable and protected in order for users to pay for access. Without protection of the content, other providers will offer the content for lower costs until all providers have equally low costs or the content is available for free. Need to providevaluable content that users cannot find in other locations for a cheaper price, or free.
Example: Spark Networks The Spark Network owns various “niche” dating websites, including ChristianMingle and JDate for Jewish singles (The Star Phoenix, 2008; Dealbook, 2008)It is believed that their success can be attributed to both the niche aspect as well as the amount of users. When a site has many users, it becomes more attractive to potential subscribers (Dealbook; Pascal-Emmanuel Gobry).- How does it work for SPARK? They charge a membership fee or subscription fee and in turn singles within certain dating communities have full access to the services within the SPARK network.-Thousands of subscribers across their different dating networks- In terms of profit, since the recession all dating sites have suffered a profit loss, as a dating network is obviously not a necessity in life. That aside, Sparks Network had revenues of $45.4 million in fiscal year ended December 2009. With an operating loss of only $4 million(Data Monitor, 2011).
Definition: Currency used to purchase virtual goods in various online marketplaces.These goods are intangible but can have real world value.Class discussion:Have you ever bought anything inan online game? Have you ever used micropayments like PayPal?Formats: Selling or buying virtual objects, experience, or information.Example: Facebook. In 2008, it was estimated that they made $50-60 million a year on their virtual gifts (Shukla, 2008).They closed the “Gift Shop” in 2010, but they’ve moved onto using credits in their online games (Cashmore, 2010)Micropayments: Online transactions dealing with small sums of money. PayPal describes micropayments as equating to under $12.00 USD.
ProsThe goods cost almost nothing to produce since labour is the primary cost and there is no limit to production quantity.Virtual economies within sites allow users and owners to make a profit, such as in Second Life. ConsThere is a large amount of risk involved since it doesn’t translate into tangible goods and it isn’t backed by legal tender laws.Risks involved in online storage of goods (security and hacking)Typically small payments and can be an inconsistent revenue stream (unless you’re Second Life…).
Second Life incorporates freemium but is mostly virtual currency.The game is free to play, but to get deep into the world and set your roots you have to buy land.This is how Linden Labs (the creator) makes their money. Their currency is called the Linden dollar. Buy your own island for a one time fee of $1,675plus $295/month“AnsheChung,” who is AilinGraef in real life, is a virtual broker and businesswoman in Second Life. She buys up land and develops it using Photoshop and even hiring subcontractors to design houses. She then rents or sells the properties. She has been called the “Virtual Rockefeller” by CNN and Linden Labs estimates that she makes $150,000 in cash per year. (Sloan, 2005)
Definition: “Content, services, and software are available in multiple tiers of use, including a basic free tier. In this model, perhaps only 1% of the customers pay; and, since the actual cost of the product/service is low, the paying customers bring in enough to cover the costs for the 99% of customers who use the free version.” (Lyons, 2010, p.32)Class discussion: Have you ever upgraded an online account from a free version to a paid? Why or why not?
Formats:Conversion from free to paid: A platform begins as a startup project which offers free usage to all users. Later, based on the growth and success, they introduce a usage hierarchy with multiple price points. Typically, this means either charging for beyond basic usage, or adding more advanced features for different price points (Gobry, 2011).With the freemium model, only a small percentage of your overall users will pay. This means it is necessary to have a lot of (loyal) users in order for the paid content to be profitable.Examples: Hootsuite, LinkedIn, and FlickrTraditional freemium hierarchy: With this model, a platform begins with having a free and paid version of this service. This can be seen in many mobile apps, where users have access to content in both versions, but the free version will have advertisements (Pascal-Emmanuel, 2011).
ProsOnce hooked, customers can be motivated to pay in order to save time, for status, or because they love the service.Allows users to trial the service before deciding to upgrade Easily adaptable modelCons (Sawers, 2011)Can be difficult for a company to switch from a free to a paid model when users are accustomed to a free model. Users become too accustomed to consuming content for freeIf they can get everything they need in the free version, there is no incentive to upgrade (Loayza, 2009)Companies need to have enough people who use the paid version of the service in order to breakeven.
Examples:Hootsuite converted from an all-free to a freemium model. Managed to retain a large number of customers.
Ning tried to use a freemium model for its niche social network but it failed. They now use a premium (subscription) model with different pricing options (Gobry, 2011).
Definition: “Content, services and software are offered for free because the advertisers (third parties) are willing to pay for access to customer communities with distinct interests, exemplified by their use of the offerings.” (p.32, 2010, Lyons)Class discussion: What are some ads you’ve seen on Facebook or Gmail? Do you feel they’re appropriately targeted? Have you ever clicked on them?
Formats: Common formats include: Pay per click, pay per share, banner ads, sponsored searches, sponsored content,and contextual mobile advertising.Pay per click- Companies pay the host each time someone clicks on their advertisement. Such as Google AdWords, or Facebook ads. Pay per share- Companies pay the host of the ad each time somebody shares their content on social media.Banner ads- Advertisements at the top of websites or on the sides, common in blogs. Sponsored searches- Similar to search engine optimization where companies pay search engines to direct certain keywords to their sites. Sponsored content- This can be product placement on a website, such as funded reviews or posts. Also promotions of some content over other content, as with Twitter.Contextual mobile advertising- In mobile apps, advertisements related directly to the location, preferences, and search history of the user.
ProsMost successful monetization model of the net to date (Tuten, (2008). Provides large visibility for a company if they are regularly searched on the Internet or are willing to pay to increase their visibility. This is specifically notable in large general ads, such as sponsored trending topics on Twitter. Online advertisements can be extremely targeted as hosts have information regarding users location, demographic, and psychographic. In many cases allows access to a platform or content to be free to users in exchange for the willingness of users to view ads. ConsRequires a company to optimize their target audience in order to be effective, they must know who they want to reach.Consumers dislike advertising as they feel the ads are forced upon them.They also feel that advertisements reduce the credibility of an online site. Instead, they place value in websites that feature user reviews and ratings. This is related in the culture switch between online and offline media. Consumers are used to seeing advertisements in offline media, but online they feel it doesn’t have a place and that standards are different.
Example: Twitter In April 2010 Twitter began an advertising program in order to monetize the website. This has taken the form of sponsored tweets, sponsored accounts, and sponsored trending topics. Through these various levels, companies are able to choose the size of their reach and able to target their audience based on searches and demographics. By the end of 2010, Twitter recorded $45 million profit as a result of this model (Anonymous, 2011). While these are not record numbers, Twitter has tried to gradually implement this in ways which it feels are effective for the user base.
Comparison All social media monetization models are somehow related. In many cases, a platform or service will mix multiple formats into one in order to produce a model which is the most viable for their needs.This chart represents one of the many ways in which the relationship between the models occurs.In many cases, a service will be provided for free and feature advertising. If people do not want to see the advertisements, or want more content, a freemium will be used to provide them with this. Once using a freemium model, the users will pay through a subscription service or micropayment system. This type of system can be seen in LinkedIn and Second Life. In other cases, a platform may start as a subscription based, but later switch to an advertising model or freemium to gain a broader audience.
Problems with Social Media Monetization Social media was originally designed for social purposes, not market purposes. There is a level of trust within the communities, and the introduction of commercial interests can be seen as devaluing to the community. However, online communities can be helpful for businesses: Amazon has a user review community that aids consumers with purchases, either on their site or elsewhereCan be unpredictable: new sites and services rise and fall quickly
Present Dominant Strategy URL: Ubiquity first, Revenue LaterFocus was on numbers of users rather than sources of profitLack of clarity surrounding monetization strategy Quantifying the value of online social networking markets and establishing how best to monetize users (this has proven difficult).
Future directions (social media opportunity)3 models of future monetization (Data Monitor, 2011):1.Currently, there is a large amount of monetization on social media, but this is not being fully optimized. There are more ways that companies can gain revenue through their social media.2. This means, in the near future we should see more companies coming up with strategies of how to monetize their site or participating in models like advertising to gain revenue. 3. As more niche social network sites develop, those users will be more likely to pay for use of these specialized areas, while generalized ones will be harder to monetize.
By 2015, online social networking will offer advertisers access to 80% of global consumer expenditure, a potential $29t marketDirect revenues flowing to platforms will have increased from $6.22b - $12.6b. (social network marketing opportunity)-Highly lucrative markets will offer global advertisers and brand owners scalable opportunities, and can be expected to generate most advertising revenues, and direct sales via online social networking (Data Monitor, 2011, p112) -Advertisers will need to get more targeted and to layer marketing campaigns. Platforms will need to respond to these needs. Meanwhile, advertising expenditure on online social network platforms will increase from $2.2n in 2010 to $4.22b by 2015. (social mkting network opp.)-Most networks are embracing a ‘double niche’ strategy – focusing upon clear customer segments and service categories. LinkedIn, for example, targets professionals aged 30-55, and offers professional and career networking services. Hi5 is becoming a specialist gaming network aimed at the 16-29 audience.
Craigslist started in 1995 and became for-profit in 1999, but has not fully embraced a monetization model. They support their website and 30 staff members through “posting fees for jobs in 18 metro areas, brokered NYC apartments, and therapeutic services.” In your envelopes, each team has one of the four models. The challenge is to find a way for Craigslist to use that model to generate revenue. You have five minutes for this.At the end, one person in each group will present their case to the class. Everyone has three bills. Once everyone has presented, you will choose (as a group) how much you would “invest” in each group, without choosing your own group.The team with the most investments for their group wins. Good luck!http://www.craigslist.org/about/factsheet
Sources: (Saskatoon), T. S. (2008, June 16). Niche websites help picky singles find love. Canada.com. Retrieved from http://www.canada.com/story_print.html?id=d1271f6b-dddf-4faf-8f11-51cde4e7e133&sponsor=Anderson, C. (2009). Free: the future of a radical price. Hyperion.Anonymous. (2011, February 19). Twitter. Canadian Business, 84(1/2), 31.Cashmore, P. (2010, July 8). RIP Facebook Gifts. Mashable. Retrieved from http://mashable.com/2010/07/08/facebook-gifts-rip/Corwin, P. (2009, December 7). Virtual Currencies and Virtual Goods — Definitions and Revenue Streams in Social Networks. How To Start A Social Network. Retrieved March 12, 2012, from http://howtostartasocialnetwork.com/2009/12/07/virtual-currencies-and-virtual-goods-definitions-and-revenue-streams-in-social-networks/Datamonitor. (2010). The Social Networking Market Opportunity. London: Datamonitor.Datamonitor. (2011). Spark Networks, Inc.: Company Profile. London: Datamonitor.Dealbook. (2008, January 4). Parent of Dating Sites Looks for a Match. New York Times. Retrieved from http://dealbook.nytimes.com/2008/01/04/parent-of-dating-sites-looks-for-a-match/Digital report: Affiliate- the new age of affiliate marketing. (2011).Canadian Periodicals Index Quarterly, 31.FarmVille Freak. (2010). Retrieved from http://farmvillefreak.com/farmville-freaks/farmville-offers-grey-goose-for-facebook-creditsHootsuiteVsSeesmic: Pros&Cons. (n.d.). Retrieved from http://www.onbile.com/info/pru-hootsuite-vs-seesmic-proscons/Loayza, J. (2009, July 14). 5 Business Models for Social Media Startups. Mashable. Retrieved from http://mashable.com/2009/07/14/social-media-business-models/Lyons, K., Messinger, P. R., Niu, R. H., & Stroulia, E. (2010). A tale of two pricing systems for services. Information Systems and e-Business Management, 10(1), 19–42. doi:10.1007/s10257-010-0151-3O’Neill, N. (2010). The Secret To How Facebook Makes Money. Retrieved from http://www.allfacebook.com/facebook-makes-money-2010-01OmniTI ~ Case Studies ~ Ning. (n.d.). Retrieved from http://omniti.com/helps/ningPapworth, L. (n.d.). Social Networks Monetized Revenue. SlideShare. Retrieved from http://www.slideshare.net/Silkcharm/social-networks-monetized-revenue-presentationPascal-Emmanuel, G. (2011, April 8). What Is The Freemium Business Model? Business Insider. Retrieved from http://www.businessinsider.com/what-is-the-freemium-business-model-2011-4Sawers, P. (2011, September 10). The Freemium flaw: The challenges faced by digital’s default business model. The Next Web. Retrieved from http://thenextweb.com/insider/2011/09/10/the-freemium-flaw-the-challenges-faced-by-digitals-default-business-model/Shukla, A. (2008, December 18). Beyond Facebook Gifts: Virtual Currencies 101. Mashable. Retrieved from http://mashable.com/2008/12/18/virtual-currency/Sloan, P. (2005, December 1). The Virtual Rockefeller - December 1, 2005. CNN.com. Retrieved March 12, 2012, from http://money.cnn.com/magazines/business2/business2_archive/2005/12/01/8364581/index.htmSpark Networks. (n.d.). Retrieved from http://www.spark.net/about.htmTuten, T. L. (2008). Advertising 2.0: Social Media Marketing in a Web 2.0 World. Praeger Publishers.Twitter squeezing ads among tweets. (n.d.).CNET. Retrieved from http://news.cnet.com/8301-1023_3-20021490-93.htmlVirtual Goods Mean Real Dollars - eMarketer. (2009, August 13).Emarketer.com. Retrieved March 12, 2012, from http://www.emarketer.com/Article.aspx?R=1007226
Bus450 Social Media Monetization
SOCIAL MEDIAMONETIZATION#BUS450 SPRING 2012 Larissa, Prianka, Katherine, & Mackenzie
Agenda1. What is monetization2. Why monetization?3. Market growth and scalability4. Traditional offline media monetization5. Online monetization6. Social media monetization frameworks Subscription Freemium Virtualcurrency Advertising
What is monetization?Merriam-Webster Us ―To utilize To make money. (something of value) as a source of profit.‖
Market growth and scalability Social networking is already reaching a maturity stage 2015 predictions: Growth in Asia Decline in North American and Europe Online social networks will reach a monetizable scale of consumer expenditure of at least $200 billion in 16 countries
Traditional offline mediamonetization Mass media Ex. Television, newspapers and magazines, radio Three-party market The web extends this model
Online monetization The ―Dot-com Boom‖ Massive investments in startups Promise of profits March 10, 2000: Bubble burst Todays boom is different Tried frameworks and more experience in ecommerce
Video http://www.youtube.com/watch?v=exmwSxv7X JI
Social media monetizationframeworks1. Subscription2. Virtual Currency3. ‗Freemium‘4. AdvertisingOthers: Sponsored Content Affiliate
1. Subscription Definition: User regularly pays a set fee to a provider for a service
Virtual currency cont‘dPros Cons Low cost Risk No quantity limits Small payments Virtual economies can be profitable
Example: Second Life Incorporates freemium but is mostly virtual currency Free to play, but limited
3. Freemium Definition: Content, services, and software are available in multiple tiers of use, including a basic free tier.
Freemium: Formats Conversion from free to paid Traditional freemium hierarchy
Freemium cont‘dPros Cons Customers can be Difficult to switch motivated to pay from a free model Free trial Must create a need Easily adaptable for premium content model Need paid users to break even
Example: HootSuite Transitioned from an all-free to freemium model Successful transfer because of loyal user base and added features.
Example: Ning Attempted a freemium model for a niche market Now use a subscription model with different pricing options
4. Advertising Definition: Content, services and software are offered for free because the advertisers (third parties) are willing to pay for access to customer communities with distinct interests
Advertising formats Pay per click Pay per share Banner ads Sponsored searches Sponsored content Contextual mobile advertising
Advertising cont‘dPros Cons Successful Need well-defined Provides large target audience visibility Consumers dislike Targeted ads Pays for content
Example: Twitter Introduced an advertising program in April 2010 Advertisers can choose scale of audience
Comparison All models are linked and rarely is one used exclusively. Subscription Advertising Freemium (optional) Virtual currency
Problems with SMMo Social media is meant to be social, not commercialo Can be unpredictable
Present dominant strategy URL: Ubiquity first, Revenue Later Quantify the value of online social networks
Future directionso Current: not fully optimizedo Short Run: developing strategiesoLong Run: niche markets todominate monetization
Future Directions cont‘d Insight to 2015: Access to 80% of a $29 trillion market Highly lucrative markets and scalable opportunity More targeted and layered marketing campaigns ‗Double Niche‘ Strategy
Activity – 20 minutes maxo Craigslist started in 1995 and became for-profit in 1999, but has not fully embraced a monetization model.o They support their website and 30 staff members through posting fees for jobs in 18 metro areas, brokered NYC apartments, and therapeutic services.
Sources (Saskatoon), T. S. (2008, June 16). Niche websites help picky singles find love. Canada.com. Retrieved from http://www.canada.com/story_print.html?id=d1271f6b-dddf-4faf-8f11- 51cde4e7e133&sponsor= Anderson, C. (2009). Free: the future of a radical price. Hyperion. Anonymous. (2011, February 19). Twitter. Canadian Business, 84(1/2), 31. Cashmore, P. (2010, July 8). RIP Facebook Gifts. Mashable. Retrieved from http://mashable.com/2010/07/08/facebook-gifts-rip/ Corwin, P. (2009, December 7). Virtual Currencies and Virtual Goods — Definitions and Revenue Streams in Social Networks. How To Start A Social Network. Retrieved March 12, 2012, from http://howtostartasocialnetwork.com/2009/12/07/virtual-currencies-and-virtual-goods-definitions-and-revenue-streams-in-social-networks/ Dealbook. (2008, January 4). Parent of Dating Sites Looks for a Match. New York Times. Retrieved from http://dealbook.nytimes.com/2008/01/04/parent-of-dating-sites-looks-for-a-match/ Digital report: Affiliate- the new age of affiliate marketing. (2011).Canadian Periodicals Index Quarterly, 31. FarmVille Freak. (2010). Retrieved from http://farmvillefreak.com/farmville-freaks/farmville-offers-grey-goose-for-facebook-credits Hootsuite Vs Seesmic: Pros&Cons. (n.d.). Retrieved from http://www.onbile.com/info/pru-hootsuite-vs-seesmic-proscons/ Loayza, J. (2009, July 14). 5 Business Models for Social Media Startups. Mashable. Retrieved from http://mashable.com/2009/07/14/social-media-business-models/ Lyons, K., Messinger, P. R., Niu, R. H., & Stroulia, E. (2010). A tale of two pricing systems for services. Information Systems and e-Business Management, 10(1), 19–42. doi:10.1007/s10257- 010-0151-3 O‘Neill, N. (2010). The Secret To How Facebook Makes Money. Retrieved from http://www.allfacebook.com/facebook-makes-money-2010-01 OmniTI ~ Case Studies ~ Ning. (n.d.). Retrieved from http://omniti.com/helps/ning Papworth, L. (n.d.). Social Networks Monetized Revenue. SlideShare. Retrieved from http://www.slideshare.net/Silkcharm/social-networks-monetized-revenue-presentation Pascal-Emmanuel, G. (2011, April 8). What Is The Freemium Business Model? Business Insider. Retrieved from http://www.businessinsider.com/what-is-the-freemium-business-model-2011-4 Sawers, P. (2011, September 10). The Freemium flaw: The challenges faced by digital‘s default business model. The Next Web. Retrieved from http://thenextweb.com/insider/2011/09/10/the- freemium-flaw-the-challenges-faced-by-digitals-default-business-model/ Shukla, A. (2008, December 18). Beyond Facebook Gifts: Virtual Currencies 101. Mashable. Retrieved from http://mashable.com/2008/12/18/virtual-currency/ Sloan, P. (2005, December 1). The Virtual Rockefeller - December 1, 2005. CNN.com. Retrieved March 12, 2012, from http://money.cnn.com/magazines/business2/business2_archive/2005/12/01/8364581/index.htm Spark Networks. (n.d.). Retrieved from http://www.spark.net/about.htm Tuten, T. L. (2008). Advertising 2.0: Social Media Marketing in a Web 2.0 World. Praeger Publishers. Twitter squeezing ads among tweets. (n.d.).CNET. Retrieved from http://news.cnet.com/8301-1023_3-20021490-93.html Virtual Goods Mean Real Dollars - eMarketer. (2009, August 13).Emarketer.com. Retrieved March 12, 2012, from http://www.emarketer.com/Article.aspx?R=1007226 Datamonitor. (2010). The Social Networking Market Opportunity. London: Datamonitor. Datamonitor. (2011). Spark Networks, Inc.: Company Profile. London: Datamonitor.