Media & Tech Tuesday - Online Communities: Part 1 – How to Monetise

  • Jun 2013
  • Media & Technology

It came as little surprise to read last week that Facebook’s UK user activity had plateaued over the last six months. Since 2012, there have been plenty of reports indicating that the site’s rate of growth in its core developed markets had begun to decelerate and even reverse.

Livingstone has had plenty of experience working with companies that serve online communities, ranging from subscription-based information portals to ‘freemium’ membership models.

This week’s media:tech Tuesday begins a three-part series in which we look at three key factors impacting Facebook’s growth and consider what their implications are for online communities in general …

Part 1: Monetisation vs. User Privacy

Although Facebook has a treasure trove of valuable user information with excellent marketing potential, it has really struggled to monetise its content. Recent attempts have been criticised for riding rough-shod over user privacy:

  • Following Facebook’s $1bn acquisition of Instagram in 2012, adjustments were made to the terms and conditions that gave it authority to display users’ name, likeness and photos in connection with paid or sponsored content or promotions, “without any compensation” to the user. This prompted swift protests from user groups and the number of active daily users halved.
  • It also drew criticism towards the end of 2012, following the discovery that Facebook was allowing companies to trawl through its user data looking for email addresses and phone numbers to improve targeted advertising (more valuable than standard blanket advertisements).

Despite a number of upgrades to its privacy controls, there are still concerns over their efficacy, particularly given the increasing number of affiliate relationships between Facebook and online retailers. These agreements provide partner sites with user data to allow them to ‘personalise’ a user’s experience on their site, whilst helping Facebook to generate much needed revenue growth.

So how do other online communities monetise their user base?

One of the simplest methods is through targeted advertising, and Facebook is not alone in trying this. Twitter is forecast to generate c.$600m from advertising in 2013, and allows companies to issue ‘Promoted Tweets’ for a price.

LinkedIn employs a ‘freemium’ model to generate subscription revenues, although this accounted for only 20% of Q1 2013 revenues (Marketing solutions generated a slightly larger portion, with the remainder driven by ‘Talent’ solutions). However, it is also possible that the service’s business focus makes this monetisation an easier pill to swallow. A survey of members in 2012 found that 87% of users trust LinkedIn as a source of information affecting decision making.

Youtube employs a different approach, in which advertisements are placed at the beginning of videos that it identifies as popular or ‘trending’. However, it must first contact the user responsible for uploading the file and reach an agreement (subject to copyright conditions), which typically involves sharing some of the advertising revenue with the user.

What can we take from this?

The ability to monetise depends much on the nature of the online community – demonstrated by greater monetisation of LinkedIn’s professional users than Facebook’s consumer social networkers. In Q1 2013, LinkedIn generated average revenue per user of $1.50, compared to Facebook’s $1.35. However, the differential is more significant when you consider that the average Facebook user spends over six hours on the site each month, compared to LinkedIn’s 18 minutes.

Online portals that provide key information that is of high value to a professional user base will find that user base more willing to accept subscription fees.

However, if the competitive advantage is the user-experience itself, then a disregard for privacy and intrusive targeted adverts may damage the very reason why that user joined. One only needs to look at MySpace to see how poor client management is enough to wipe out a first-mover advantage.

Online communities should take care not to ignore the specific characteristics of their user base when deciding on an appropriate monetisation strategy.

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