“Freemiums” present a big opportunity
While mainstream social networking sites such as Facebook and MySpace have always been free to users, paid social network content models are alive and well. Networks that cater to market niches have particularly thrived on hybrids of paid models and ad-based systems. Some of these, such as LinkedIn, Classmates.com and MyLife.com, are earning at least as much revenue from fee-based content and services as from advertising.
“As the online ad market continues to struggle, paid services including membership fees, premium features and virtual goods will take on increasing urgency for social networks, either as primary revenue generators or as ancillary income sources,” said Paul Verna, eMarketer senior analyst and author of the new report, “Social Network Content: Are Users Willing to Pay?”
Advertising has been the main focus of social network monetization, but data points to paid content as an important revenue source. In July 2009, Piper Jaffray forecast that US paid social networking site revenues will surpass $1.4 billion in 2013, more than doubling the 2009 figure of $627 million.
Piper Jaffray expects the lion’s share of this growth to come from a combination of new, paid services from new and existing networks, and also from increased usage of premium services from established players such as LinkedIn and Classmates.com.
According to eMarketer estimates of social network advertising spending, even though advertising represents a larger revenue stream than paid services, the gap should start to narrow as social networks experiment further with fee-based approaches.
The “freemium” payment model, which allows users to access basic features for free but requires them to pay for premium services, is emerging as a key way for social networks to increase revenues. More than 45% of social media leaders in North America surveyed in February 2009 by Abrams Research considered freemiums the best way to monetize social media.
Social networks that are currently free, such as Twitter and Facebook, will be able to create new revenue streams by targeting premium content at portions of their user bases that are willing to pay for such services. At the same time, services that operate on some form of paid model should be able to continue charging as long as they keep delivering value.
The bottom line is that users are willing to pay for social network content as long as sites cater to specific market niches as opposed to broader, mainstream audiences.
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Check out today’s other article, “Keys to E-Commerce Success.”