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January 27, 2012

How social networks make money

by Josh Bernoff

We're arguably 10 years into the social network phenomenon (Friendster was founded in 2002). By now we should know the main business models. But popular sites like Tumblr (no visible means of support) raise the question, are there really any other good ways to make money other than advertising?

Here are the significant models:

  1. Advertising. Facebook is already making multiple billions on ads on pages. Networks without ads on pages make money form ads on search (Twitter promoted tweets, for example).
  2. Brand pages. Twitter has started to roll these out. As I understand it, you don't have to pay for the Facebook brand page, you just pay for ads to drive people to it.
  3. Premium accounts. The freemium model is in place at sites like Flickr and DeviantArt. Charge members more for extra storage or to avoid ads.

There are others you hear about that haven't gotten big yet. Second Life created an economy around selling land. There are virtual goods. Merchandising the vast amounts of data that these networks collect is a possibility, although obviously it has privacy implications (Is there a market for behavioral data in the aggregate? Is it legal to sell targeting data at all?).

And I'm discounting the "get a lot of users and then sell to a bigger company" model. This just shifts the revenue question to the new owner. (YouTube's model is advertising now, even if that wasn't that big at the time it was sold.)

I'm interested in what you've seen -- what other models are out there, and how promising are they? When this finally matures, will it all be advertising based?

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Comments

Oliver Young

Josh, don't overlook what LinkedIn has done with its professional network. They have done a nice job of monetizing the process for making connections within the network (services for job seekers and hiring managers) and for observing the network from the outside (market research).

This approach is pretty specific to LinkedIn at the moment but I suspect it is applicable to any narrowly defined social network where "narrow" refers to either the members or the focus. I could see similar monetization mechanics in place for a physician network, to name the first that comes to mind.

Cheoy Lee

I think that's kind of fair enough, as long as the ways those websites make money does not negatively impact on users' general experience of the website. We need to start worrying when making money is really directly favoured over user experience I think.

Brittany Ward

I am ALL for the advertising. It allows me to use most of my favorite website for FREE! So what I sit there and watch a 30second ad, usually tailored to my tastes anyways (thanks to google+ and Facebook who are more than willing to connect to these sites which can then access our personal info).

I'm a PR/Advertising major. My advertising professor has really emphasized that as soon as advertising goes away, all of our access to great free websites and services is out the window. There is a price for everything, and someone is going to pay for it...truthfully I'd rather it not be me.

Judy Caroll

Thanks for the knowledge Josh;) Everyone knows that social networking sites like Facebook and Twitter have thousands of users and are very popular. But one thing I guess we often forget is the fact that these social networks are businesses. They do employ people. They do have costs, and they do make money.

Syd

Josh,

As we see more and more commercialization of these website they will start to lose their value one bit at a time. I some distant future, these website will be nothing more than a page full of advertising and will people will start to get turned off by that. Remember at the start of the facebook there were no ads. Ever wonder why ? Visitors somehow put up with these ads but as soon as they find a clean land filled with info, they will start to move there gradually due to less spammy nature. Its all new now but in few years it will be considered as junk sites.

Kate King

HI Josh, I find this area particularly challenging because we target an older, educated market. Many of our customers rarely use social media and already award it few integrity points. The adopters need to be taken into account when we're using social tools to grow our customer base. Linkedin seems to appeal more. I would appreciate ideas on handling social media initiatives with the over 50 market.

Recruitment Agencies In Singapore

Hi Josh,

Most social networks do make money from ad, I agree. About Youtube, now there are ads in almost every videos with high number of views. When Facebook released a new layout last year (the layout before timeline), the advertising space clearly took more and more portion of the pages.

I am not sure yet about how to answer your question, but advertising will still be profitable revenue source to the networks. There is a possibility that more and more users will tune out, but they will never leave the site as they do enjoy using it and are greatly engaged in it.

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