These are random and slightly haphazard, so bear with me.
I’ve been part of a few discussions the last few weeks that have resulted into me going back home with the ultimate question in mind: how do you monetize a community? Or rather – can a community even be monetized?
Everyone is trying to do this – from our clients to startups and even Facebook (did you see that Facebook’s internal evaluation went down to $4Billion from the earlier estimation of $12.5 Billion?)
The only successful case-study that I can think of is Threadless.com. They have nailed the revenue model and the community aspect both – a feat very difficult to achieve in today’s web world. Also, they have done so without really relying on “Advertsing” or “subscription” (the most commonly resorted to rev. models for communities)
I have a theory as to why they are so successful: threadless.com set the expectations from their community from the very beginning.
Threadless was in the business of selling T-Shirts that people will want to buy. That’s it. The way they find out what people will want to buy is by soliciting designs and having others vote on them which has resulted into a strong community around the core proposition. (Which, btw is not revolutionary – this is how traditionally communities have formed around products, movies, stores etc. – The expectation is always set) In these cases, communities may also stand for “fans”
When I look at some of the recent start-ups and existing networks, – it clearly comes off as these sites were started to 1) build a community first and 2) figure out a rev. model then.
The risk these companies run with such a model is that the expectation for the community is already set: the community already believes that this is a free service and they begin to conform/ expect and fall in love with that frame of reference.
Once you try to change that frame of reference, you risk uspetting or even losing your community or your fans. And rightfully so – because you are trying to change the core product that the community first fell in love with.
Which is why, it only took Threadless 3 years to make profit and neither of the companies stated above are even breaking even yet.
Which is also why, I think Opensource and crowdsoucring and “Free” are the domains of companies that already have money and are not particularly expecting to see a return on investment. I also think Opensource is a fantastic domain, and possibly, should become the only domain for social good/ social design and social causes. When the collective agenda is to ultimately “do good” – concepts like open source and crowdsourcing are not only incredibly useful, but also cost-effective.
However, for a first-time entrepreneur (like majority of cases) I’m not convinced that Opensource or even “community” is a way to go. While having a community of supporters is incredibly instrumental for any new business, I’m not convinced that this community will convert into paying customers unless the expectation is set at the very beginning.
And lastly, for corporations and clients – I think every established company or organization already has a built-in community. The job of social media/ web is to bring together this community under one umbrella (or at the very least, be findable when they come looking for you) and treat them well and continue the relationship.
Brilliantly put and of course you’re right.
Stand alone communities which think they can build a community and then get businesses to leverage that community don’t know either of their clients. Neither wants to be ‘pimped’
I’d encourage organizations to engage and converse with users using the community. Forget monetisation – get ideas on usability, design, service and make your products and solutions better.
That should be ROI enough!
Gautam – Precisely. I think, “communities” are not the product anymore. Thanks for writing! Hope all is well with you! Btw, I’m coming to Bbay in Dec. Will you be around ?
Two other examples of monetized communities done right:
1) Sitepoint Marketplace (http://www.sitepoint.com)
This is actually true of most job boards or professional interest communities. The monetary aspects of the community are directly in line with the needs and desires of the community. You could cynically claim that the folks at Sitepoint spent over a decade to get to the point they’re at, making a pretty penny … or you can capitulate that commercialism and wanting the best for a group of people are not necessarily at odds. The money that flows through the Sitepoint marketplace is a boon to every person in that community.
2) Kongregate (http://www.kongregate.com)
I’ve just recently become most impressed with this gaming site. You can play flash games for free there, winning points and prizes, but also develop games and share in the revenue. I haven’t fully thought this one out, but I suggest you take a look yourself.
I think it’s important that a community is monetized in a way that is strategically aligned with the interests of all parties. I also think that is possible with nearly any community … you just need to be creative enough to make it happen.
Money does not inherently corrupt relationships, unless the interests are purely short term.
In the long run, the only path to greatness is greatness.
If we take twitter as an example (simply because it is so far entirely advert-free). I think they have the scope to make money from it, but currently no clue how they even survive.
With API’s we have others like slandr.net making money from ad’s where twitter isn’t. I find this odd. Given time it would not surprise me if they start charging for the use of their API & I think this is okay, even if they put up adverts in my timeline I don’t think it would bother me much, but charging me for the service I’m used to would be a total no-no.
As for business plans, I don’t think they would be at a loss by not planning ahead. In the early stages, throwing prototypes out there to see how people get on with them is far more important. No point over-planning something that’ll be dead in a month or two.
Sure, once the user-base is flowing, maybe they should start planning, but by this point they are successful enough to wash their hands of the whole thing (sell it on to some BigWig Google / Microsoft type), in which case from their initial outset, they’ve suceeded.
my $0.02
silent salutes
_ram-jaane’
Am in Delhi now.. if you come to Mumbai via Delhi we can meet
Josh – Will check those out. thanks for the perspective.
Ram Jaane – Very interesting take – but apart from selling to one of the big comapanies – do online communities have an exit strategy?
Gautam – Alas, not this time!
Monetizing communities is such a big issue today.
I have been involved in 2 communities which were for branding purpose and were getting money from the company owning the brand but neither lasted too long mainly cause those brands stopped the budgets. Unfortunately brands want too much to be a quick fix online.
I am not too sure how you go beyond advertising, subscription or payment for premium features etc for revenue generation for sites like Facebook, YouTube, Twitter etc. Eventually funding from VC or parent company is going to dry up. Look at Lively. I’m actually glad Google decided to shut down a venture of theirs that isn’t working rather than pushing it a lot more.
Totally agree that few communities that are free will have similar success if they change their model after being in existence for a while but I don’t know how much success a community will have when you pay from the start (unless it in some ways guarantees some return value to the members). And what do you do when you charge for services but there are others offering the same service for free?
I am actually waiting to see how Twitter decide to generate money. I personally don’t believe it will be something new. If they decide to go with ads I don’t know how they will manage to make it contextual. Maybe it could target demographically.
I am all for advertising revenue going to communities but there has to be the right sort of advertising/marketing on these communities. It will keep everyone happy if ads are better targeted to the users on these sites.
I’d love to see a new model but I personally can’t see beyond what is already out there.
great post. it’s started up some cogs and wheels and levers in my brain…
Deepali – Hi! You make some very interesting points. actually, I’m eager to see how Twitter figures out its rev. streams as well. Esp. after they turned down Facebook. Regd. communities– they existed on the net even before social networking (forums, diaries, livejournal etc) and they existed purely around a common goal or purpose. So it will be interesting to see if we crack the code on monetizing them.
MBH – Hello to you too! I’d love to hear what you think.
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