Revenue Models for Social-networking Sites

REVENUE MODEL FOR SOCIAL-NETWORKING SITES

Submitted by:

Mariyam Amreen,

Avanthi PG College

Introduction

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Some of the popular SNS

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Application domains of SNS

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Rankings of Social Networks

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REVENUE MODELS

• Premium Services

• Advertisements

• Micropayments

• Partnerships

• Branding elements with an application

• Virtual Currency

• Virtual Gifts

• Surveys

PREMIUM SERVICES

Premium Services

• Networks that cater to market niches have particularly thrived on hybrids of paid models and ad-based systems.

• Some of these, such as LinkedIn, Classmates.com and MyLife.com are earning atleast as much revenue from fee-based content and services as from advertising.

• Their “Freemium” payment model, allows users to access basic features for free but requires them to pay for premium services.

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“LinkedIn” As An Example

•  As of October 2009, LinkedIn has more than 50 million registered users (which includes 3m from India), spanning more than 200 countries and territories worldwide.

• LinkedIn has a “three pronged” revenue model i.e., through

1. Upgraded Accounts

2. Hiring Services

3. Advertising.

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LinkedIn’s Premium Services

• Upgraded Accounts: This model of LinkedIn is divided into Business, Business Plus and Pro Accounts.

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LinkedIn’s Premium Services

Hiring Services: • more access to potential job candidates• job seekers can look up the profiles of companies.• charges $195 (approx. Rs.9,028) per month.

ADVERTISEMENTS

Advertisements

• This is the bread n butter business model.

• It centers on showing Display/Contextual ads.

• The most important major forms of this are-

1. CPC (Cost per Click)

2. CPA (Cost per Action)

3. CPM (Cost per thousand viewers)

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Advertisements

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• For an example, with the ad above, the user clicks the ad, take a quiz, and usually fill out their email address or phone number.

•These types of ads can pay out a CPM of $0.05 – $0.80 (Rs.2 – Rs.37 approx.).

• Say there are 1 million impressions of these per day, at a $0.20 CPM, the developer makes $200 per day, or $6,000 a month.

Advertisement Spending

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MICROPAYMENTS

Micropayments

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•Good things come in small packages.

•The general idea behind micropayments is that the user base will pay small amounts of money for things that make their experience better.

•For example, someone might pay 15 or 25 cents to purchase an upgrade to their site.

Micropayments

• Considering the marginal cost of such upgrades are virtually zero, micropayments can be very lucrative at scale.

• This is done by making sure that the micropayment infrastructure does not bound the network or limit use.

• The users are given lots of add-ons, and as they progress they will start buying other add-ons.

• The micropayment offerings are designed so that the user feels they have paid for value.

PARTNERSHIPS

Partnerships

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• Social networks, especially those like Facebook and LinkedIn, have very targeted demographics.

• As a result, it makes sense for companies interested in these demographics to partner with them.

• For example, Apple's iTunes partnered with Facebook, while Simply Hired partnered with LinkedIn.

• Meetup, another SNS, has a network of thousands of local venues where members can, appropriately enough, meet up.These places, like coffee shops, can choose to pay a fee to be affiliated with the site.

Partnerships

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• Often, in a partnership, the SNS’ also create profiles for movie or cartoon characters, or organizations, and promote them as “featured members”.

BRANDING ELEMENTS WITH AN APPLICATION

Branding Elements

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• This model centers on branding a certain element with an application.

• For instance, Living Social is an application on Facebook where users can make a list of their favourite things.

• Big brands like Porsche, may want to get in front of their audience in a viral, social networking space. Therefore, Porsche will pay Living Social for each exposure to their audience.

• For each person that shares Porsche with their friends via Newsfeed, Porsche will pay, say $5, because these users are loyal and will argue why the Porsche is the best car via comments.

Branding Elements

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• If the application has 1 million daily impressions, 0.01% (or 100) users are into Porsche and post their Porsche list to their newsfeed. With 100 users sharing Porsche on their newsfeed per day, the application will make $500 a day, or $15000 a month.

VIRTUAL CURRENCY

Virtual Currency

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• The concept of virtual currency is profoundly simple. However, the numbers and revenue this churns out is eye-opening.

• About two thirds of the top 15 applications on Facebook are games, according to analytics firm AppData. Those ten games are said to draw more than 100 million users a month.

• With these games, the users are in for instant gratification: playing with friends, showing off to others and have them see all the virtual goods they have bought for themselves and even for them.

Virtual Currency

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• Often available for a $1 or less, virtual goods range from video game accessories like extra weapons for shooting games to buying furniture for pets to menu items for the restaurant.

• "Virtual goods is the whole story in the world of social games. It accounts for 90-95% of revenue for a lot of these social game developers.”

• "The way we look at it is it's no different from paying money to go and see a movie or rent a dvd. What you are paying for is the experience and that notion of entertainment."

In focus:

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• Launched in June 2009.

• 63.7 million active users (as on 9th Nov. 2009)

• Players grow crops, raise animals, put up buildings, and visit other players' environments, while earning coins to "unlock" items that help them advance.

• “Real” money for “virtual” goods.

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• “Real” money for “virtual” goods.

• On any given day 500,000 tractors (which are $20 “virtual” Farmville tractors) are sold on Farmville.Coins and cash are purchased through PayPal, credit cards, and mobile phones.

• Annual revenue at the two-year-old firm, Zynga, was estimated to surpass $100 million in 2009.

VIRTUAL GIFTS

Virtual Gifts

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• Virtual gift as a real gift.

• Users pay for virtual goods, such as digital birthday cards, champagne or flowers.

• Increasingly as people's relationships migrate online, interactions occur there.

Virtual Gifts

• That makes it more natural for those acknowledgements of how important someone is to us to occur there also.

• Buying something like virtual champagne or a birthday card is telling someone they are important to you.

• Virtual Gifts are expected to surpass $1 billion for U.S. users in 2009.

An Example : NING

• Ning Virtual Gifts is the first revenue-generating feature on Ning.

• A Network Creator can pick and choose from hundreds of virtual gifts. Best of all, they can add their own custom gifts to the Gift Store.

• Each Network Creator is given 100 credits and each gift costs 75 credits, or $1.50.

• Buys credits through the Gift Store with a PayPal account.

NING VIRTUAL GIFTS

• Virtual Gifts Incentive Program. Once enrolled in the Incentive Program,

they are eligible for a 50/50 revenue share with Ning on

all qualifying gift transactions.

SURVEYS

Surveys

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• Social media sites are all searching for ways to make a profit, especially in a stalled economy, and they have found an alternative in the forms of surveys.

• They pay members to participate in surveys and profit from selling access to its successful audience.

• For LinkedIn, the survey route looks particularly promising, in part because of the network’s ability to sort the sample according to specialized areas of expertise, experience, seniority and geography.

Surveys

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• Survey-based earnings don’t seem like a complete business model in the making.

• Business-to-Business survey market is “capacity constrained”.

• That gives an indication that the survey system is bound to grow and establish a dominant market share.

Conclusion

• Due to ever increasing globalization and the need to stay connected, the world is taking up to social networking sites in a big way.

• There are numerous opportunities in the arena of social networking for the one with a keen eye and creativity.

• From designing applications and games for which these networking sites pay handsomely for, to coming up with your own models which can attain instant success due to easier reach to the masses through online advertising.

THANK YOU