Social networking is at the forefront of online technology right now, pushing the whole of the Internet together like twin beds in a cheap hotel room, but the biggest ‘business’ on the web also revolves around offering free access to the user. Or at least, this is the theory. While a Utopian world where the Internet provides a free exchange of limitless information is a nice idea, people need to be paid to design the sites, moderate content, keep the servers running and convince the papers that social media is not tantamount to The Decline of Western Civilisation.
So although John and Jane Doe can register and use these sites in all their glory without paying a penny, they are only free in theory. The rule is if it’s free, then YOU are the product. Call us cynical, but rarely a breath is taken in this world without someone getting paid and the whole idea of social media would be unsustainable otherwise. Mark Zuckerberg may have convinced the world that he doesn’t care for money – only for ‘sharing’ and ‘liking’ – but his grand vision could not be brought to life without capital.
Facebook is a good place to start in discussing how social networks generate revenue – with a projected turnover of $4billion dollars in 2012 and enough clout to launch an IPO they must be doing something right. Facebook’s bread and butter is advertising; 175 million people log in every day, and each one sees a number of adverts on the right of the interface with which they can interact in a variety of ways. Nothing new there, as 90% of websites make at least a portion of their revenue from advertising.
However Facebook holds the ace, as not only does it possess one of the biggest databases in the world, it is also one of the most thorough. Facebook users love to share everything with their online friends from their marital status, age, address, current location, occupation to their favourite dessert. The attraction to marketers is that they can laser-target their campaigns to the right demographic in order to spend their ad budget more responsibly, and this is available to anyone from your smallest Mom and Pop business to giant corporations.
Much like television, the end user doesn’t pay with anything except consumer power and data, although Zuckerberg et al are quick to refute any accusations that they are selling information on to third parties. New systems are seeing users pay real money to participate, in the form of virtual gifts and credits – a form of online currency – which can be spent on enhancing the wide variety of games available within Facebook such as FarmVille. If you want a new chicken coop then it will cost you a certain amount of Facebook credits which you buy from the site using PayPal, and although some may find it strange it has a long history in China with Tencent’s Q Coins, that can be used across many popular networks.
Yet more opt-in payment schemes play on the vanity of users. Traditionally, dating websites charge a monthly subscription fee, but fast-growing social network Badoo an online dating website, – which leans strongly towards dating – offers all of its features for free just like MySpace or Facebook. Instead, users pay $1 at a time to put themselves at the top of the local listings so they will rise in popularity. Of course, it doesn’t take long to start sliding down the list and if you want to stay ‘hot’ you have to keep topping up.
Badoo have posted turnover of over $100m for 2011 without displaying a single advert as their members get addicted to the thrill of finding new friends. Facebook and Twitter utilise a similar system where brands can promote their posts to reach users who are out of their existing network and although it won’t supplant advertising as social media’s big cash cow, it does mean that the profit is in the user’s hands.
For the first time since MySpace took over our lives in 2004, it has been proven that social media CAN make serious money, albeit in very few instances. Not only that, but using it as a marketing tool can generate a healthy return for businesses of all sizes when done right. As long as the users understand who is making money off them and how, then there will be progress ahead.
Guest Author: This article was written by Barry Cooke. Barry has been working in search and social media for over 15 years with a number of well known household brands and currently is the production director for advanced digital marketing agency, QDOS Digital Media.