RESEARCH REPORTS
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Potential revenue sources [Web 2.0 - Social Networking Websites]
Because social networking websites bring together whole communities through the use of technology, the online world increasingly resembles the real life: people chat to each other, create and post images, music and videos, shop around, ask for advice and look for dates. This represents a whole new world that is waiting to be used by businesses to generate revenues. Let’s see what possible sources of revenue exist for such website owners: Obviously, advertising, which at the moment is the biggest revenue source for social networking websites, and is not likely to give up its importance. This can come in several shapes, beginning with the annoying popup ads and ending with content-sensitive search-based advertising. Currently, the most promising ad types are the ones based on content. Content-based ads on users’ pages advertising products and services that are closest to a particular page’s content. This could potentially bring in millions of dollars each month, especially for websites with multimillion audiences. However, copyright issues and lack of content screening prevent many advertisers from having their ads shown on such pages. Search-based ads. This kind of advertising actually is considered as one of the biggest trends at the moment. A lot of discussion was held when MySpace was ‘shopping’ for a search solution for its website until a multimillion deal was struck with Google in the summer of 2006. When users conduct millions of searches monthly, this represents a good opportunity to show them ads based on their search criteria. Thus, advertisers are protected from having their ads shown next to some shady content. As an option valid only for video hosting websites, such as YouTube, advertising videos preceding the video content have been discussed in the media. However, the consensus is that the length of such ads must be limited, as today’s internet audience is an impatient lot and many users do not hang around for more than several seconds if they don’t see the content they expect to see within this time. Besides, it is not clear how to make such ads relevant to the videos they precede. The attractiveness of this particular segment, i.e. video content, is illustrated by the following US statistics:
The advertising potential of social networking websites is of little doubt. Thus, for example, Hitwise reported in August 2006, that for the week ending August 26 th MySpace sent more US traffic to online retail sites than MSN search, the third largest search engine on the web. Subscription fees. Subscription fees may be difficult to implement, mainly because users are used to free services in this domain. Thus, it is easier to offer premium content for a fee, rather than making everyone pay a membership fee. This is similar to what happens in the web hosting and web mail arena: the basic package is free but has a lot of advertising and offers limited resources to the user, while additional services and freedom from ads (at least relative) costs money. Making the whole service paid may be disastrous for MySpace and similar websites. The paid-only model can be successful only for a limited audience, who can identify with each other by some criteria, i.e. be more of a club than a portal. Obviously, the latter solution is very limited in terms of revenue generation, but can be successful on small scale. Premium content sales. This is another business model that is being currently tried in the industry. With YouTube having to take down an increasing amount of copyrighted content posted by its users illegally, the company’s management is trying to strike deals with copyright holders to host such content legally. Not everyone agrees to do it, and not everyone of those who agree are prepared to do it for free. Thus, some content will have to be sold rather than shown for free to keep at least some of the audience. At the same time, MySpace and other social networking websites are trying to duplicate iTunes Music Store, selling music created by the many musicians and bands that they host. The wide audience of MySpace allows to deploy such a service and realise revenues relatively quickly, while smaller players may have difficulties in attracting enough buyers. Revenue share. This is a new trend that may grow into a much stronger factor in the future. It can be realised through several channels:
Events. Events accompany social networking websites because events are the means to bring users together in real world, beyond online communication. Currently, events are limited in terms of revenue generation and come as a complimentary service. However with a little ingenuity, events can be turned into a much bigger revenue driver. Besides, events are a great way to attract advertising and sponsorship fees. Corporate sponsorship. This source of revenue may also be a limited one, but it still can provide material revenues. As brand owners realise that social networking sites bring together millions of potential buyers, they will most likely try to exploit this opportunity. Sponsoring particular pages or events will create additional exposure. Besides, the possibility of organising contests and other events to attract users will be beneficial for such brands in terms of customer reach. The above list is by no means exhaustive, and more ways to monetise audiences are likely to appear in the coming years. However, it will take time before the most effective ways to generate revenues are identified and fully implemented. A few barriers are still waiting to be overcome, such as the user’s addiction to 100% free content with little advertising, or advertisers’ wariness about trusting the websites with placing their ads on users’ pages. Such barriers are discussed in detail below. Next: Web 2.0 - Social Networking Websites: Main challenges Previous: Web 2.0 - Social Networking Websites: The Web 2.0 Phenomenon Contact: research@gempick.com |