Social Media and Virtual
Communities
Business Models in the Social Media Industry
Agenda
The Business Model Canvas
 Business models of several social media
services
 A (short) discussion:

◦ How to monetize a successful service?
2
The Business Model Canvas
A general structure to the analysis of the
business model of a social media service
 Must answer a few fundamental questions

• The
infrastructure
on which the
service is
implemented
• The value the
service will
generate
• The customers
• Financial issues
revolving the
business
How ?
What ?
Who ?
Money ?
3
Infrastructure
What are the key resources we rely on to
run our business model?
 How does each of these resources relate
to:

◦
◦
◦
◦
Our value propositions
Their corresponding customer segments
Channels
Relationships
4
Partner Network
Which partners could help us
complement our value proposition?
 Which suppliers could help us streamline
our business model?

5
Key Activities
Are there activities we would better
outsource to partners?
 Are our activities adapted perfectly to
our value proposition?
 How could we streamline activities?

6
Key Resources
Are there some key resources we could
get rid of or substitute?
 Are there some key resources that could
be better supplied by partners and
cheaper?

7
Value Proposition
What do we offer the market?
 What is the specific bundle of products
and services we offer each of our
customer segments?
 Which customer needs does each value
proposition cover?
 Do we offer different service levels to
different customer segments?

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Value Proposition – Cont.
Could we offer our different customer
segments more tailored needs?
 Do our customers have other needs we
could satisfy relatively easily by ourselves
or with partners?
 Could we complement our value
proposition through agreements with
partners?

◦ Joint value propositions
9
Customer Relationships

What level of personalization do each of
our customer relationships require?
◦ Dedicated relationship manager
◦ Automated self-service
How can we spend less time and
resources on unprofitable clients?
 Should we introduce frequent buyer
programs?

10
Customers & Distribution Channels


Who do we create value for?
Do any of these customers merit to be
grouped into a distinct category, because:
◦ We propose them a distinct offer?
◦ We reach customers’ targets through different
communication and distribution channels?
◦ We entertain different relationships with them?
 More personal
◦ They have a substantially different profitability?
11
Customers & Distribution Channels – Cont.
Could we increase our customer base by better
using our channels?
 How can we better use expensive channels for
highly profitable clients and cost efficient channels
for unprofitable clients?
 Can we better integrate our channels?

◦ Better link websites with physical outlets

Could we introduce new communication and
distribution channels to reach our customers?
◦ Partner distribution agreements
12
Customer Segments
Are there new customer segments we
could serve?
 Could we regroup/segment customers
better according to their needs?

13
Revenue Streams

Could we introduce new revenue
streams?
◦ Lending/renting instead of selling

Could we do more cross-selling?
◦ Offer our customers other products of our
company or of partner companies
14
Cost Structure

Are there ways we could reduce our cost
structure?
◦
◦
◦
◦
Partnering
Outsourcing
New suppliers
Etc.
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Business Model Canvas – The Interconnections Diagram
HOW
HOW- -Infrastructure
Infrastructure
WHAT –
WHO
WHO
- Customer
- Customer
Product
Key
Activities
Partner
Network
Customer
Relationship
Customer
Segments
WHAT
- Offer
Value
Proposition
Key
Resources
Distribution
Channels
Cost Structure
Revenue Streams
MONEY - Finance
16
Revenue Streams Split in the Social Media Industry
Subscription
Sale
Advertisement
No business
model
http://web2.wsj2.com 17
Subscription
“Freemium”
• Basic service for free, while
charging for a premium service
with advanced features to paying
members.
• Advantage: Allows incremental
update of the service
• Challenge: How much to give
away for free so that users will
still need and want to upgrade to
a paying plan ?
Fee-based business model
• Pay a fee (generally monthly or
yearly) to access a product or
service
• Advantage over one-off sale:
creates a long term relationship
with user (“addiction”)
• Challenge: High value for money
expectation
Subscriptions help to create easy traction for the start-up
http://mashable.com/2009/07/14/social-media-business-models/ 18
Advertisement




Revenues through the sell of
advertising locations.
Classic trade-off between
connexion volume and ad value.
Main ad providers:
Examples: MySpace,Youtube,
Del.icio.us…
Ads offer an easy source of revenues, but can be intrusive and
are really viable for websites with large connection volumes.
19
20
Combinations are possible !
Yahoo! Add
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Sale
Pure sale
Transaction-based
• Pay for a product in the site
• Real (Threadless)
• Virtual (WoW, SL, Facebook)
• Best exemplified by companies
like eBay that charge for a given
successful transaction
Revenue sharing
• Last.fm provides its users with the
option to purchase the currently
playing music from Amazon.
Last.fm receives part of the
revenue.
22
What if companies follow other goals ?
• One of the most popular websites in the world
• Poor financial condition due to culture of voluntariness and
gratuitousness
• No ads, no subscriptions, no affiliation program with PR
agencies
• Wikipedia is a social media NGO
• Currently in severe financial problems.
craigslist
• “We really don't have a business model.” – Craig Newmark,
Founder
• Recruiters and employers in San Francisco, Los Angeles and
New York are charged for classifieds.
• Some companies pursue a pure growth-seeking strategy
• Their goal is to create signal and public attention, and
ultimately raise the interest of large investors.
It is all about “creating something valuable in the first place” !
http://blogs.harvardbusiness.org/haque/2009/03/ideals.html 23
Services Grouped by Revenue Streams Model
Subscription
Sale
Advertisement
No business
model
http:// www.vtt.fi/inf/pdf/tiedotteet/2007/T2384.pdf
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The Twitter Case: How to monetize tweets ?
Features
freemium
model (charge for
Keyword purchase
(every tweet mentioning
“Dominic Thomas” comes
with a link to dominict.net +
log of users posting keyword)
video/pictures storage)
Power user
freemium model
Sell data to 3rd party
companies
(charge for accounts with
more than 1K followers)
(working profile of users
through contextual analysis of
tweets)
Merchandise
(real and virtual
Twitter goods)
Cell-phone
service provider
(unlimited texting to
40404 plans)
Advertising
Charge
for it !
Removead fee !
(every Xth
tweet/on a right
panel)
Monetization can only make sense if it supports authentic, deep,
value creation
http://www.seomoz.org/blog/7-good-twitter-monetization-strategies-and-7-that-suck
http://blog.twitter.com/2009/05/does-twitter-hate-advertising.html
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http://mashable.com/2008/01/02/twitter-whats-the-best-business-model/
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