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!