How to Start a Social Networking Website Part 2 - Business Models and Revenue Streams

What are possible business models for social networking websites? How does the entrepreneur create revenue streams, or monetize the community? I’m no expert, but I’ve rounded up links to alternatives from pros and others. I’ve briefly listed the main revenue sources or summarized content of the links.

As a SCORE volunteer counselor, I look at the business plans of those starting or struggling to grow social networking websites. My impression is that there are many potential but few proven and profitable revenue streams.

Why do I think that many entrepreneurs create these sites in hot niches not necessarily to make them profitable but to sell them to a big player with deep pockets who can pour in marketing dollars and hold out for a long-term payoff?

What’s the big picture? Wikipedia on Business Models for Social Networks

“Few social networks currently charge money for membership. In part, this may be because social networking is a relatively new service, and the value of using them has not been firmly established in customers’ minds. Companies such as MySpace and Facebook sell online advertising on their site. Hence, they are seeking large memberships, and charging for membership would be counter productive. Some believe that the deeper information that the sites have on each user will allow much better targeted advertising than any other site can currently provide.] Sites are also seeking other ways to make money, such as by creating an online marketplace (Facebook’s Marketplace) or by selling professional information and social connections to businesses: such as LinkedIn.

“Social networks operate under an autonomous business model, in which a social network’s members serve dual roles as both the suppliers and the consumers of content. This is in contrast to a traditional business model, where the suppliers and consumers are distinct agents. Revenue is typically gained in the autonomous business model via advertisements, but subscription-based revenue is possible when membership and content levels are sufficiently high.”

What are alternative business models?

Startup Metrics 101: Product and Marketing Workshop (sideshow presentation) Interesting slideshow on this blog, which discusses the basics: get users, get usage, drive revenues. Offers details on user acquisition, activation, retention, referral, revenue. “Revenue tips: Don’t rely on Adsense, Start free and go premium, Subscriptions and recurring transactions, Qualify the customer, Sell something physical or virtual.” Source: Master of 500 Hats, A blog about Geeks, Entrepreneurs, & Startups in Silicon Valley, by Dave McClure.

Business Models for Social Networks: Monetizing Social Capital, The Long Tail of Cool, & The Friends List. . “We need to do more work on social network monetization and business models.” Includes slideshow on “Business Models on Facebook” slideshow. His recommendations: 1. Integrate Apps, Pages, & Advertising , 2. Offer Targeted Social Search & Commerce Features, 3. Monetize The Long Tail of Cool, 4. Accelerate Off-Platform Transactional Behavior. Source: Master of 500 Hats, A blog about Geeks, Entrepreneurs, & Startups in Silicon Valley, by Dave McClure.

Facebook’s real problem isn’t Privacy, it’s Monetization. 3 possible solutions… His solutions (his new terms): feedsense, feedsearch, fanpage applications. Source: Master of 500 Hats, A blog about Geeks, Entrepreneurs, & Startups in Silicon Valley, by Dave McClure. The Internet Revolution, Act II.

VC confab: Please, no more social networks At this March 2008 event, VCs doubt that social networks have a viable business model. Source:CNET News post.

Social Networks Tempt Investors -IPOs and Wall Street opinions. Source: Georg Szalai and Paul Bond in Adweek, August 2007

Monetizing the Social Network Methods are: advertising, transaction fees, affiliate marketing, corporate sponsorship, memberships. Source: Imedia Connection, Connecting the Marketing Community March 2005

5 Ways to Monetize A Social Network Those five are advertising, subscription, data mining, sponsorship, affiliate marketing. Source:Take a Peek: Sports Business, Social Networking and More April 2008

A Guide to Monetizing Social Networks and MMPGOs Problems are that either monetization isn’t planned into the application, or that it’s pure monetization. Need a valuable user experience and permission-based marketing. Source: WhoIsAndrewWee.com: Blogging, Affiliate Marketing, Social Traffic Generation

Selling Social Networks Discusses traditional choices of ads, product affiliation groups, partnerships, micropayments, user payments. Adds alternative markets, brokering trust and negotiation of community. Source: Unit Structure: Thoughts about Information, Social Networks, Identity and Technology. October 2006

Social Networking Services in the U.S. - Popular, Yes, But How to Monetize Them? (IDC #208115 “describes the opportunities and challenges social networks present to companies that do business in the digital marketplace. An overview of the current state of U.S. social networking services is provided …Additionally, the business models social networks support and the money they can bring to these businesses is outlined.” Source: IDC, August 2007. Consulting report, 21 pages, $3,500.

Social Media’s Future Looks Bright, Apply Sunscreen “Promising companies are new advertising networks, e-commerce applications, payment systems, and infrastructure providers for social networks, according to executives here at the Dealmaker Forum 2008.” Social commerce, the intersection of online socializing and shopping, is the future? Foresees the same business models as earlier. But with social networks, advertisers know more about consumers, so better targeted. Early social ad companies are Lookery and Social Media Networks. Source: CNET News, May 1, 2008

What about a pure membership model?

How to Create and Run a Profitable Membership Site Part 1 “… there are still relatively few membership websites. This makes it the perfect time to start your own member-only site, since there is still little competition. The most critical process in membership sites is choosing a specific topic that will encourage people to pay money for information on it.” Source: “I supply info” on Article Café.

Part 2 Link Three types: 1) profitable Adsense keywords, 2.0 contents or article packages, and 3) ready- to-make-money packages. “The more members you are catering to, the lower the membership fee should be. Adjusting the price to these factors is a key in finalizing the key dividend and profitability of your membership site.”S ource: “I supply info” on Article Café.

Part 3 Link Target the right market, make it unique and different, find good people, generate quality traffic. Source: “I supply info” on Article Café.

How do I get a critical mass of users?

Critical mass in a user community. Brief post that advises: Get celebrity people and internet aficionados. Source: Complexity and Social Networks Blogs. February 2007

5 Keys to Social Networking Success Start with friends, enable narcissism and vanity, enable voyeurism, enable user judgment, enable expansion. Source: Information Week, Andrew Conry-Murray. August 2007

What did I miss? Why not send me a good link or make a suggestion in a comment?

See also How to Start a Social Networking Website Part 1 - Background, Manuals and Lists

(Pics are from a recent trip to Lotusland in Santa Barbara. Vegetarian networks, I think.)