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Monetizing the Social Network


Online social networks are hot. Those who participate in them belong to two, three, four, maybe even more than 10 or 20 different ones. They enjoy their features, upload photos, request business contacts and talk with friends.

For now, consumers get to do this for free. For now.

Although social networking in the offline world may be well-established -- monetized through conferences, venues, referral fees and headhunters -- the online world seems to just be examining the methods of monetization. The general principle still stands: if you have a large database of active users, you can make money -- right?

Here is how it is being done today:

Advertising -- A quick review of ad dollar expenditures in the U.S. reveals that only a small portion of the total is spent online -- but that is going to change fast. Online advertising is once again booming -- and just as public television and print media often can be sustained from pure advertising models, online is no different. The leading social networking sites (MySpace, Friendster and LinkedIN, along with many others) are primarily supported by advertising. Although their aggressive growth strategies mean that some may still be losing money, advertising represents a substantial amount of revenue.

Revenue Share/Per Transaction Fees -- Someone clicks on her friend’s profile on Friendster and sees that he loves HBO’s hit series "Deadwood." Clicking on the term ‘Deadwood” brings up all the other members who have the same interest -- and an easy-to-purchase link for the "Deadwood" Season One DVD through Amazon. It’s essentially a focused advertising arrangement -- marketers now have precision targeting through social networking profiles, tapping into user interests -- and offering purchase options within very specific filters.

Events -- Although revenue numbers generated from MySpace-style events are difficult to come by, these events are known to be well attended and a driving force behind MySpace’s impressive growth. In general, while it’s unlikely that offline events account for more than 10 percent of any social network’s revenue, events do make for great content and word-of-mouth advertising.

Moving forward, compelling new ways to monetize social networks will continue to emerge. The downside, however, is that some of these methods may not be in the user’s best interest -- and they might end up taking the “cool” edge off these communities.

The Buying Club/Affiliate Revenue Models -- With Buy.com’s purchase of Metails, a major offline and online retailer has recognized the power of social networking and made a commitment to the space. Yub.com enables users to develop their own social network focused around products, product ratings and, more importantly, a point-based rewards system that lets members benefit from a friend’s purchases. While Yub.com feels like heavy retail -- with a full online mall that has grown rapidly in the last few months -- the site is building a large user base and enticing members to recommend products to friends.

Although the buying club mentality might work only within certain types of social networks, the notion of a point system that rewards users for certain activities should be embraced more broadly. By developing a currency system, a social networking site can create very real incentives (promotions, giveaways, contests, fundraisers) for specific actions, from which everyone can benefit.

Corporate Sponsorship -- Does being a fan of a brand mean that you want the owner of that brand to have all of your personal profile information? Practically speaking, the answer has to do with the type of brand and the reward the user receives for sharing that information. Corporations will take notice of these social networks and begin offering competitive services with products and (if they are smart) experience-based rewards. Just as Icelounge (described as a “MySpace for skaters”) was launched, larger brands will begin to do the same. Increased brand loyalty and sales opportunities will lead directly to monetization.

Country Clubs/Membership Fees -- The SNS world can be a field of dreams -- albeit for a price. As social networking site ASmallWorld.com has recently demonstrated, if you build a great social network -- making it “invite-only,” with restrictions on activities -- well, everyone wants to join. Naseeb likewise has proven that a focused social network, aimed at a specific niche, can justify an admission charge. From where I sit, I’d much rather be part of a social network with fewer members, no advertising, and no corporate sponsorship but that charges for entry.

Overall, social networking sites are experiencing hockey stick growth and, in the process, influencing new types of two-way brand experiences and community building on the web. Although the approaches to monetization outlined here just scratch the surface, revenue models abound. Any repository of personal data and contact information on a large group of users (perhaps better to call them “consumers”) inevitably translates to profit opportunities.

Let’s just hope that all our email accounts and personal profiles don’t end up in a spam database though a dot-com SNS auction.

Michael Jones is president of Userplane in Los Angeles, a provider of enterprise social software for online communities.

When using the Google Translate product, brand names in the translated language that match the requested translation would be shown. Rather than default text ads, the ads would appear in the language of the user and help to whet his or her appetite for the other language product.

As an example, you translate the word "refrigerator" from English to German. The translated word, kuehlschrank, appears as normal. Below the translation, rich-media ads (including video, audio, et cetera) appear for companies that produce refrigerators in Germany, including Miele, AEG, Bauknecht and Liebherr.

A company can create "skins" for GoogleTalk that would allow the chat to be in a branded environment. Every 5-10 minutes, the users would see a 10-second advertisement for the brand.

Yahoo! offered this option years ago with its messenger product and it was very popular with advertisers. While this would not be for every demographic set, it might work well with pre-teens and teenagers. Imagine them chatting in an environment with Hanna Montana, Hillary Duff or John Cena.

I think it’s critical for Google to take this further by adding in newer technology such as Flash and Ajax. Interactivity with the characters and the brand would make this very sticky.

With the launch of the newly renamed iGoogle, what if users could select from
pre-defined branded layouts? Users would still be able to add their own widgets, gadgets, feeds, et cetera.

For example, you could select the Nike layout, which might include an exclusive Tiger Woods widget that is only available when using the Nike layout.

The product or service would "own" the page for the purchased period of time and could rotate the branded layouts as needed. For example, a company like Bath and Body Works could provide its beauty products based on seasonal changes. It could also offer exclusive coupons for iGoogle-branded users.

Another option with the branded layouts could be a point system. Each time you login to the Pepsi-branded iGoogle, points would be added to your account. And interacting with the layout would provide additional points. Those points could be traded in for Pepsi-related prizes.

Rather than displaying the typical text ads that Google is known for with its AdWords product, the mockup below shows what might be possible if Google was to allow video ads on the site.

Perhaps that larger advertisement in the middle might be on autostart with no volume until the user interacts with it. As text ads are so yesterday, this might be a way for Google to leverage the video platform and offer advertisers a new way to interact with their customers.

Finding the right strategy

Soon after making image-based social media marketing a hallmark of its social strategy, Alex and Ani sought new ways to use it to engage fans and turn them into brand loyalists. One of the ways the brand made this happen was with a "behind the scenes" approach to engagement. By bringing fans into the process of helping to choose, create, or vote on the next charm or bangle, Alex and Ani was able to cause its fans to go nuts. Employing an inclusive tone, as well as using images to show progress, new ideas, and upcoming products, was a highly engaging way to bring fans into the fold and connect personally to them.

Pinterest and Instagram were growing rapidly for the brand. In Q4 of 2012, Alex and Ani knew that it needed new, accurate ways to make its social interaction as personal as possible, especially around the holidays. By partnering with Curalate, Alex and Ani began measuring the science of its visual marketing efforts with huge clarity.

Ryan Bonifacino, VP of digital strategy for Alex and Ani, continues our conversation by explaining how the company found Curalate and began to shift its marketing approach for the holiday season.

Achieving a fanatic fan base

This case study serves as an example of what can happen when a brand takes an image heavy approach to its social media marketing efforts and employs a streamlined strategy for tracking and learning. By utilizing this approach, Alex and Ani was able to go from a brand simply promoting awareness to a brand absorbing affinity and loyalty from its fans. By using a visual strategy on social, the brand was able to open up its content to a wide degree and do new, highly creative things.

Turning fans in fanatics is something every brand aims to do, and images serve as an excellent conduit to bring a customer closer to a product and brand message. If you are able to attract an audience that feels personally attached to your brand, your products become more than just products -- they become a lifestyle and statement.

Marti Funk ends our conversation by speaking with Apu Gupta, CEO of Curalate, about why visually based social media marketing is so effective at attracting a personal, fanatic fan base and why measuring an audience's engagement closely can help you adjust your efforts to achieve the highest possible ROI.

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Michael Jones has over twenty years of experience as a financial professional. Mr. Jones strategically plans and develops private equity Notes, conducts research, sales, and management for this boutique consulting firm that assist emerging companies...

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