Social networks, development prospects and ways of monetization. Part 3

    The third part of my report at the UA WEB conference about social networks. Topic of the part: methods of monetization of social networks .

    For those who miss, I advise you to first read the first part and the second part. There are

    social networks, they are popular, they have excellent development prospects, but they still need to be monetized. This is a business, and a business must be profitable.

    3.1. Cost increase


    For projects such as social networks, selling is still one of the main methods of monetization, if it can be called a method of monetization in general.

    The scheme is very simple: we create an interesting project, we recruit users and are sold by Google, well, or, in extreme cases, Yahoo !, Microsoft, and for Runet - Finam.

    This is due to the fact that many social networks are unprofitable. They require a huge amount of resources to maintain performance (staff, servers and data centers, expensive development, etc.), and their profit is often not enough. Therefore, now, to create a good competitive social network, it is necessary to attract large investments.

    In 2007, Microsoft bought 1.6% of the social network Facebook for $ 240 million, thus evaluating this second most popular social network in the world at $ 15 billion! An ideal example to demonstrate the make-and-sell monetization strategy, although on the other hand there is an opinion that the cost was frankly overpriced, Microsoft didn’t let go of its main Internet competitor, Google, which pledged to pay the first-ever MySpace social network, owned by News Corporation, $ 900 million over 3 years for the introduction of Google’s search service with advertising messages.

    In turn, Google in 2006 bought a social network - YouTube, built on the basis of video content for $ 1.65 billion, and paying with its shares! At the time of purchase, the social network was unprofitable, it had 67 employees and large information storage capacities. To this step, Google was prompted by the promise of advertising in online video, its rapid growth and the desire to seize leadership in this market even at its inception.

    Earlier, there was an equally interesting purchase of the MySpace social network in 2005 by News Corporation for $ 580 million.

    It does not lag behind the West and drives the pace of sales of social networks. In March 2007, the Russian-speaking social network MyKrug was bought by such a giant as Yandex. The amount of the transaction was not disclosed, experts estimate it from $ 1.5 to $ 5 million.

    A bit later, the share of the most popular social network in RuNet was purchased - Odnoklassniki.ru in the amount of 30% for $ 10 million by the Latvian company Forticom, thereby valuing the resource as a whole at more than $ 30 million, and now some people estimate it at more than $ 100 million ., at $ 10 million for one million registrations.

    Observing such a tendency, many new projects, even at the stage of origin, immediately adopt a strategy to sell out soon, thereby confirming the words of A.V. Suvorova: "Imitation is a recognition of the lack of one's own abilities." Although the main objective of the business is achieved, a large profit is obtained in a relatively short period of time.

    Some experts believe that another bubble awaits us, like the collapse of the dotcoms in March 2000., and they call this phenomenon bubble 2.0. Although I do not share this opinion, in the 90s projects were bought for huge amounts, without any return on investment model, now there are a lot of return on investment models, the most common one is the model that Google actually created - the advertising one . And for social networks, this model is very useful: user information allows you to give the most accurate and interesting advertising, which, of course, significantly increases its effectiveness. Although there is still a reassessment of projects, and there is no escape from this.

    However, not all so simple. Effectively implementing this model is quite difficult, and the costs of social networks are high. It turns out that many projects are still unprofitable, which hides a big risk. After all, a loss-making business will be closed sooner or later. Thus, we get two sides of the same coin: on the one hand, there are quite a lot of opportunities for monetization and gaining profitability, and this can be done, on the other hand, this process is quite complicated, and so far few have been able to realize it. As usual, the west is ahead in this indicator, there projects are already starting to reach profitability (for example, FaceBook, which last year received about $ 150 million in profit, and its expenses for the same period amounted to only $ 30 million).

    3.2. Advertising


    Advertising is the most common monetization model in modern Internet projects and especially in social networks.

    Social networks have access to two important sources of information:

    1. Profile and information filled in by the user
    2. His behavior, this information is voluntary.

    Based on profiles, social networks can effectively target ads: by sex, age, income, profession, etc. . Thus, it is possible to show the most accurate advertising, which is likely to be of interest to the user.

    Let me give you an example: suppose an advertising agency from Kiev organizes a paid professional seminar-training on PR. The target audience is professional figures in the advertising industry, and it’s PR managers from Kiev with income levels of more than $ 1000 per month. The advertising agency has a large selection of media for this event (magazines, banner and contextual advertising, radio, television, etc.). Many methods imply specific targeting to a specific audience, perhaps this is a certain airtime on the radio, perhaps this is specialized marketing magazines, it may be contextual advertising targeting Kiev, but there is no maximum targeting! What can a social network give us? A social network can show an advertising message only to the target group: professional PR specialists, who have a similar position, aged 25 to 60, with income from $ 1,000 to $ 6,000, living in Kiev, who read and watch content on PR (based on an analysis of actions). The number of 1000 people is determined in advance according to the above parameters, with each advertising message addressed to each user by name and surname, with the words "Dear" or "Dear", and the advertiser receives a report on reading the advertising message or the number of page views with this advertisement.

    The cost of one such message is one dollar. As a result, the advertiser will pay only $ 1000 for reading the advertising message to 1000 people from the target audience, and the social network profit of $ 1000 in just one message and in one day. Efficiency is obvious, as, however, is the complexity of implementing such a mechanism.

    But there is always a problem, and here the problem lies in the person himself. After all, nothing prevents me and any other users from indicating in the profile that I am Bill Gates and work for Microsoft, and the system is unlikely to find an error until social networks have artificial intelligence. Then the second big mechanism comes into action - the analysis of user actions .

    I will give an example. I, as a person engaged in advertising on the Internet, Internet projects, social networks and similar things, can go to the MyKrug social network and indicate the position “electrician”, PromStanok plant, in the interest of writing “electrical wiring, sockets, wires”, income - 200 $ per month, and age - 50 years. But in my interests there is absolutely nothing related to electricity, and therefore it is quite clear that I either will not go to this social network or be interested in my real interests - advertising on the Internet and the system may well understand this. The easiest option: by the communities I joined ,; on the analysis of the text in the comments; the headings and texts of articles and news that I read; by people with whom I communicate, etc. And based on these data, show me specific ads.

    The system can be built using both parameters at the same time: if my profile and behavior match, I am 100% customer; if not, then advertising can be shown according to interests, or, in extreme cases, by profile, if there is no other advertisement more suitable.

    But targeting is not the only advertising advantage of social networks. There are quite a few other ways in the field of branding, PR, viral advertising and other advertising that will be effective thanks to the very concept of social networks.

    For example, a rather interesting and very popular reception in the West is branded communities.. The idea is to create a community of companies in which the lives of these companies are actively covered, employees write, offers on the most popular social networks are discussed, and inviting everyone who wants it there. This is not a direct and unobtrusive advertisement; users treat it loyally.

    Separately, it is worth highlighting political advertising on social networks. There are very interesting examples of this advertisement: for example, there was an interesting case when the Australian politician Kevin RuddIn 2007, he used such social networks as MySpace, FaceBook, YouTube and others to build his advertising company and achieved great success! Although he did not win the election, he was close to that. This says only one thing: social networks are no longer just fashionable entertainment, but a powerful advertising tool, and if people and companies can achieve great goals with their help, then they are ready to pay big money for this, it remains only to give them such an opportunity.

    Another technique for advertising on social networks is recommendations.. As you know, psychologically the most powerful advertising is the recommendation of friends, relatives, acquaintances to buy a product or service. FaceBook understood this very well and at first tried to introduce a similar mechanism by force when the “recommendations” came from the user without his consent, which caused a wave of discontent, and over time this social network replaced this function with a more loyal one - Market Lodge, when users give recommendations on their own desire and receive for this 10% of the value of the advertised product. By the way, thereby he began to implement another strong model of monetization, in which a social network shares part of its profit with users.

    Another interesting way could be to create an advertising platform similar in principle to contextual advertising, with bid determination based on the auction, text ads (and in some cases, image ads). But you also need to give advertisers the opportunity to more targeted advertising message at least on the basis of the profile and the data in it. Such a technique will significantly increase the effectiveness of advertising and at the same time increase the cost per click on many topics and bring it to the permissible maximum that companies are willing to pay. Especially this method will be effective for networks with a large audience, for example, MySpace or Odnoklassniki.ru, which can easily find advertisers.

    Further, you can consider social networks as an excellent platform for launching viral ads.(an advertising message, which is distributed on a human-virus basis, from person to person, is considered a relatively inexpensive and effective advertising technique), which is often done now. But so far there has been no purposeful functionality for these purposes. You can quite easily come up with a mechanism for delivering a viral message to top participants, the so-called opinion leaders, who will easily spread it further (especially if they receive a percentage for this). In this case, the social network acts as an intermediary and receives a percentage. It is possible to launch virus messages directly to users on their own through a social network, but this will be more difficult, although there will be more potential profit.

    We must not forget about such a powerful tool as sponsorship.. There are many communities on social networks, each of which can be sponsored. This can be expressed in a variety of ways: from banal payment for placing a logo to organizing professional or amateur meetings at the expense of the sponsoring company.

    In addition, no one took away standard advertising from social networks , for example, banners or context.

    3.3. Paid Services


    Paid services are the second most popular way of monetizing social networks. Most networks have some kind of paid services, most often, these are inexpensive ways to highlight users or help to achieve a goal, for example, selling something.

    The most “delicious” method is mediation.. Humanity has long been engaged and is engaged in intermediary services. The main thing in this method is to create a convenient mechanism for sellers and buyers of something + the popularity of the social network, as a result, a constant cash flow to the cash desk of the social network is obtained, while the social network does practically nothing, the correct mechanism automates everything. The cost should be small and accessible to almost all network users. It is also very important that services can be easily paid, it is unlikely that an ordinary person will run to the bank to transfer $ 5 of a social network. A good example of this concept is the same FaceBook and its marketplace tool (http://www.facebook.com/marketplace/) - a platform for users to sell products: each has its own page and special small ads, which for money can be advertised to other network users, the cost is from $ 1. The tool brings a social network of about $ 1 million per month.

    To create another trouble-free paid service, you should turn to the device of a person , and, in particular, psychology. It is known that it is important for any person to attract the attention of others, it is important to stand out, show yourself. This is especially true for a teenage audience. And for such opportunities people are willing to pay and pay. All kinds of dating services show us well, they checked this principle first. On social networks, people also get to know and communicate, and it is also important for them to stand out. Therefore, the creation of such services is especially important and can bring big profits (for example, this method has recently been used by the VKontakte social network, it has a service with which you can vote via sms for your rating and thereby stand out). This technique is applicable not only for teenage social networks, but also for business networks, for example, you can give an opportunity to stand out in a particular thematic community, in a special place “Looking for a partner” or “Looking for an investor”. For a certain amount, people will be ready in a similar way to find the right contacts.

    Of course, a separate item should be allocated virtual goods . The most common can be considered gifts. In many social networks, such virtual items are free, but there are also paid ones. Ideal to give a lot of free and some unique paid gifts. Then users will not remain offended, and the social network will earn. Such gifts are, for example, in FaceBook (paid) and MoiMir (free). However, you can sell anything, it’s more a matter of fantasy.

    3.4. other methods


    The main and most common methods of monetization were listed above, but monetization does not exhaust itself on them. There are some, less well-known, but no less promising methods.

    One of these methods can be called recruitingon a social network. As mentioned earlier, social networks are a huge storehouse of information given voluntarily and involuntarily by different people. Therefore, it is logical to use social networks in order to select personnel at the level of social networks themselves, and not individual users. In social networks you can see the user's profile, you can determine his behavior, exemplary knowledge, attitude to work, character and much more. With this information, companies can select new employees according to a pre-compiled portrait that will most effectively fit into the team, who will have confidence in the knowledge and experience, as well as other equally important features of the person. Naturally, this opportunity is of great interest to many companies, and, most importantly, the business is willing to pay for these opportunities and often not a lot of money because human resources are one of the main assets of a modern company. According to rumors, this method of monetization is actively using the social network VKontakte, however, official statements refute this and say that they do not receive money for it.

    A bit about knowledge. What is the most valuable thing in the world in the information age? Of course, the information! Therefore, another very promising method of monetization is the sale of information . It is especially effective for large networks: they can massively sell statistical information, conduct custom research, including quantitative marketing research, and trade access to selected content. You can even sell personal data (although this method raises great doubts because of its unethical and illegal nature, but if there is demand, then sooner or later an offer will appear). There are a lot of options, you just need to research what information is needed and how much people and companies are willing to pay for it.

    3.5. Niche social networks and unique ways to monetize


    In the second part of the report, I talked about the development trend of the niche social networks and explained why this is happening. In the third part, I called monetization methods, which will mainly be effective in large social networks. Niche social networks are most often interesting to a limited circle of people. This begs the logical question: “How to monetize niche social networks?” The answer to the question is obvious and incomprehensible overnight: "Monetize with niche monetization methods!"

    For specialized or niche social networks, you can come up with your own monetization methods that will use the unique sides of the projects. In each case, these methods will be different. For example, you can attach your own photo bank to the social network of photographers, where any network member can sell their photos through this service, and the social network can receive a percentage of all transactions. People communicate, sell and make money from it, customers buy photos, and the social network considers money and everyone is satisfied.

    But with all methods of monetization, it’s important not to forget about the user.: Do not overload the social network with advertising; not to go into the user's personal space (his profile), to give the opportunity to abandon certain functions and actions of the system, and, on the contrary, share with the user the profit, at least a small part of it. Then the user will thank the social network and bring it even more profit! And I believe that in the future it will be those social networks that build their monetization specifically on “love for the user” and will share with it.

    Sources:


    1) telnews.ru - Internet news
    2) www.habrahabr.ru - Habrahabr
    3) www.cybersecurity.ru - World news of high technology and science
    4) webplanet.ru - Webplanet
    5) cnews.ru - High technology publication - Cnews
    6) webmilk.ru - Internet milk news
    7) www.seonews.ru - Seonews.ru
    8) internetno.net - Internet things
    9) www.vz.ru - VIEW
    10) www.w2.com.ua - Web 2.0 magazine
    11) www.wikipedia.org - Wikipedia
    12) dp.ru - DP.RU
    13) www.social-networking.ru - Social care network - ABCs of Social Networking
    14) www.emarketer.com - Market research & statistics: of Internet marketing, advertising & the demographics - to eMarketer
    15) kommersant. ru - Kommersant Publishing House
    16) www.liveidea.ru - LiveIdea
    17) www.comscore.com - comScore, Inc

    This is my report. Everyone who liked it - thank you very much! Everyone who did not like it - I will try better! Waiting for replenishment in karma :)

    Copyright 2008, Semenov Nikita Andreevich
    SECL GROUP , General Director

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