5 Ways to Monetize a Social Network

Even though social networking is such a hot topic right now, we’re still trying to figure out what the best way to monetize them is. So I wanted to explore some ways I’ve seen that social networks are being monetized.

1) Advertising supported - This is the main way social networks are trying to generate revenue. It’s good for the users as they get free access in exchange for seeing a few ads. This has the potential to be great for advertisers, too, as they can often target users based on various demographic info and interests. But here’s a dirty secret–click-through rates on social networks (especially Facebook) are horrible. Last I saw the CTR was about .04% …. This actually makes sense, because people go on social networks for specific purposes—they want to check out their friends profiles, pictures, videos, etc. Social network users aren’t in a shopping mindset and so aren’t likely to be looking for information about products or services. But, social networking is still a good option for increasing brand awareness as Disney found out with its MySpace page for “Step Up” and “Step Up 2 the Streets.”

It doesn’t look like ad spending on social networks will be decreasing any time soon. eMarketer says that about $2.1 billion will be spent on social networking advertising this year, with the number rising to $4.1 billion in 2011.

2) Subscription Model – This involves charging users a fee to use a site. Dating sites have been very successful with this model, but outside of this space, I’m not sure who’s operating this way. People are so used to getting things for free, that its hard to convince them to pay for social networking. There would seem to be an opportunity to offer free services and upsell people on something that includes exclusive content, access, etc…In a way, some of the college sports recruiting/news websites operate this way–gives some basic content for free and charge for premium content and message board access.

Something to think about is whether there will ever be other niche or local social networks that people will pay to be a part of…sort of like online country clubs, where membership is seen as a privilege and a status symbol. What do you think?

3) Data mining - This model involves collecting data about a group of people and selling it to an advertiser. So say Nike wants to learn more about what kind of music and movies guys 16-19 like, they would be able to purchase data from a social network that tells them what they need to know. I’m not sure if any sites are currently doing this, but it may be something to think about. Do you know any sites doing this?

4) Sponsorship – Instead of just having advertisers, it would seem to make more sense to have sponsors who are invested in helping the site grow and adding value. Sponsorship could be something as simple as giving Brand X complete ownership of a contest or section of the site, or a sponsor could take things further and partner with the site to bring users something unique and valuable.

5) Affiliate Marketing – Affiliate marketing is basically selling an outside party’s goods/services and getting a commission or fee for each sale that is made. In my opinion, this is an under-utilized method of monetization. Instead of putting up some Google ads that no one clicks on, why not offer a relevant product or service to your users? While we’ve seen that most people aren’t in a shopping mode when they’re social networking, it never hurts to test offers, especially on niche sites.
It would be pretty easy to add a “store” to the site and feature relevant products. A couple sites are currently utilizing this method:

  • Go211- They are using their status as an Amazon Associate to sell products and get a commission off of each product sold in their “store.”
  • SkiSpace – It looks like Bode Miller’s site has a partnership with Backcountry.com to sell items in the “gear” section of their website

That’s all I’ve got for now. I’d love to hear your thoughts on this stuff.

Have a great weekend. Hopefully the Heels can pull out the W against Kansas for a shot at the National Championship. Let’s go boys!

  • Alex F.

    Nice roundup, Jason. Often people forget there are subtle ways to monetize a website that is not easily recognized.

  • http://www.steven-mills.com Steve Mills

    Thanks for the simple overview Jason

  • Greg

    Jason,

    Check out http://www.latenightshots.com. It is technically a social network for it allows you to check out your “city’s social landscape and bar scene,” but similar to what you discussed in your post, some members see their membership as a privilege or status symbol for membership is gained through invitation only. Have you done any research on this site or have any further thoughts?

    Big fan of the blog and the heels…

  • http://www.northhillsbuzz.com Jason Peck

    Greg,

    I hadn’t seen that site before but it does look like they’re trying to make membership seem like a privilege. Seems like a good concept, but haven’t heard anything about it.

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  • http://www.istadia.com Rob

    When we set up iStadia.com we thought we’d just go the subscription route. As a niche network we thought that professionals would go for this. We’ve not yet had the numbers to say whether or not the model is working – we expect a low proportion of members to upgrade – but let’s say we’ve not been confident enough to cut off functionality to non-paying members and we’re about to start advertising, which we’d hope (maybe naively) not to do.

    I know that we could improve layout etc, but we are learning as we go, and numbers are starting to pick up – so please have a look and sign up:
    http://www.istadia.com
    http://www.istadia.com/register.php

  • http://www.socialadblog.com Hussein Fazal

    I noticed your comment on CTR. The low CTR on social networking sites comes because of the reason you mentioned plus users just block out those standard ads. However, on applications, users are more engaged and publishers have seen a much higher CTR. I have commented on this at my blog. Please have a read and let me know your thoughts:

    In Response to ‘eMarketer Lowers Social Networking Ad Spending Estimate’

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  • http://www.mytenniscircle.com Alberto-Tennis Social Network

    That’s a helpful article Jason, thank you.
    When I started http://www.mytenniscircle.com (a social tennis network) I was thinking about how to monitize it and I put a “tennis shop” section hoping to get some sales for extra revenue, I also added a affiliate section.
    The site is fairly new and still on beta, so I have no results to share with you at this time. But will share them once I got some numbers.

  • http://www.dissolvemedia.com Chris Strange

    I see connections between the sponsorship of social sites and popular music acts. Redbull is co-sponsoring tours with hip-hop bands like Team Facelift, as a way to build cache for the RB brand among core drinkers, and Facelift get the exposure / PR. Hard to say whether real $$ makes it into the musicians’ hands, but it’s an experience at least.

  • http://www.VisionKingdom.com Matt Beaty

    Thanks for broaching this subject. I am going to test a new monetization strategy with my Social Networks. I intend to populate my networks with a minimum of 1,000 unique members and then I will launch a Directory that is plugged into the Networks. There are tons of Directories out there but what if you plugged that into a live thriving online community where the Directory will actually start to be used on a daily basis?

  • http://www.keplarllp.com Alex Dean

    Thanks Jason, interesting post – it’s rare to see the various different monetisation options set out so clearly in an article.

    On #5, affiliate marketing – in its simplest form affiliate marketing is really just CPA advertising, but your examples refer to something much more ambitious e.g. including a transactional store in your social network.

    At the consultancy I run (Keplar) we’ve been working for community sites looking to go even further than this in monetisation – through a technique we’re calling “value chain mapping”. We talk about it further on our blog if you’re interested to read more.

  • John Mattews

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    JohnMathews