Social networking sites are all the rage, but how do you make money by providing online meeting places? Two In-Stat analysts issued reports this week highlighting the fast pace of change and the revenue opportunities. One report suggests that it may be more profitable to cater to adults who have higher income than to the younger people who today are flocking to such sites as FaceBook and MySpace. The other report, however, suggests marketers will continue to pour advertising dollars into sites that feature user-generated video clips.
Jill Meyers, author of the report “Social Networking: Finding Friends Online,” notes that social networking sites are struggling to find a profitable revenue model. “So far, sites have focused their attention on a younger demographic, which is finite, fickle and limited in expendable income.”
She says most of the sites are trying to generate revenue through advertising and selling premium services, such as a photo-sharing site offering easier uploads or increased storage space.
Advertisers want to see repeat traffic, and competition among the more than 400 U.S. social networking sites is intense, Meyers says. MySpace is the leading social networking site with 140 million members, she says.
As for paying extra for premium services, Meyers says a recent In-Stat survey showed fewer than 30% of respondents were willing to pay extra for those perks. That result came from a December survey of 583 Internet users familiar with social networking sites.
Meyers says the business model might be more attractive for sites that target the 78 million Baby Boomers born between 1946 and 1964. “They have more money,” she says. “For them to pay $10 or $25 a month for a premium service is nothing, compared to what it is for a 17-year-old.”
As a good example, she points to LinkedIn, a site geared to people in business that has three revenue streams: advertising, premium services and fees from recruiters who pay the site to go through user profiles looking for potential job candidates.
Meyers says social networking site operators accumulate a wealth of data about site users that could be sold profitably to marketers. She cautions, however, that a site selling personal data risks turning off those using the site.
The second In-Stat report suggests that, while the world of user-generated online video is “as dynamic as a feather in the wind,” advertisers are flocking to put their messages next to those clips of party hi-jinks and cute pet tricks. Worldwide spending on advertising tied to user-generated video will grow from $80 million in 2006 to $1.6 billion in 2011, predicts analyst Michael Inouye in the report “User-Generated Content—How About Just Content?”
He predicts Flash will continue to be the most popular output format. And he says much larger files will be transmitted as the move to watch user-generated video on television screens leads to the production of higher-quality content.
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