Online Social Networking Revenue: Part II

submitted by Ken Allard

In the first post in this series, I wrote about companies that have new online revenue potential by virtue of being brokers of goods or services or by owning a significant share of market.  In this entry, I will explore the revenue opportunities for more traditional content owners who answer yes to question number 3:

1. Do you act as a broker of goods or services?
2. Do you provide content or advice to a significant percentage of a specific industry or consumer segment?
3. Are you facing new competitors who generate revenue by aggregating audience around your content or by providing meta-content?
4. Do you have data or knowledge within your organization that is obscure to your clients?
5. Do you serve an audience that is highly fragmented?

Most traditional media companies have faced dramatic profit losses as their audiences have flocked from physical products to online alternatives.  It is ironic that their proprietary content gained intrinsic value online while simultaneously losing its ability to generate income.  Music labels have watched in dismay as their content is shared, and worse yet distributed to thousands, without resulting in direct sales.  Publishers have seen the value of their vast collection of high-priced text-books diminished as students rely on digital sources of  content and publish notes and answers to study questions on their own personal sites.  Even super-star authors like J.K. Rowling, find themselves battling superfans who create valuable media properties by adding meta-content (e.g. character lists, family trees, etc.) around their published works.  (She won that court case, but who wants to start suing fans?)

It is an unfortunate paradox, that while the Internet has dramatically increased the popularity, utility, and accessibility of all kinds of proprietary content, it has simultaneously and systematically erased the revenue models that most traditional companies have relied upon.  Nearly every consumer content company has decided that both paid subscription and fee per article/data slice business models are dead online.  (Consumer Reports is one of the last notable hold-outs.)  Proprietary business to business content services have not been as severely impacted, but they too are not recognizing opportunities to increase profits.  I believe that these organizations are failing to monetize their content because they are failing to take advantage of the fact that it is more popular, useful, accessible and social once it is available in online media.  The key to new revenue is to exploit these inherent benefits:

1. 1. Popular – Content should be marketed to , optimized for, and appreciated by the broadest possible relevant audience
   2. Useful – Content should be helpful, active, purpose driven and immersive
   3. Accessible – Content should be open, pervasive across devices, and present in the right context
   4. Social – Content should be viewed as the basis for an interaction between people, author-consumer, consumer-consumer, consumer-group, author-group

The most successful online initiatives exploit these online advantages.  Let’s look at a few different examples of companies who have already taken the right steps or who may be missing new revenue opportunities:

Universal Music (various artist Web sites) – Universal Music, like most other major music labels, is failing to monetize its content online, abdicating the revenue to various unrelated 3^rdparty entertainment sites, direct to consumer commerce sites, and fan sites.  Music labels have always treated their artist Web sites as marketing brochures for new album releases.  Rather than taking advantage of a direct to consumer connection that could deliver revenue from direct sales of music content, advertising, sponsorship, auctions of unique memorabilia, ongoing engagement with fans, and countless other revenue opportunities, they have simply failed to connect with their audience online. Despite the fact that the “official artist Web site” typically appears first in organic search results, fans spend very little time on most artist Web sites.  Instead they are shuttled off to other media properties, e.g. MySpace,YouTube, or fan run sites, where they have richer opportunities to interact with each other and the music content.  While the music labels do in fact face numerous obstacles in securing all of the rights (because of complicated artist royalty contracts) to generate revenue by using the content online, they often fail to make even a modest attempt to take advantage of the enormous online social energy that propels popular artists.

Nelly is a multi-grammy winning hip-hop artist on a Universal music label.  His official Web site is www.nelly.net.  It is a good example of the typical artist Web site.  It scores moderate to very low on the four measures outlined above:

 

Popular – While the site is optimized to be the top returned site for organic search for the word “nelly”, many other sites (e.g. YouTube, MySpace, nellyhq, and lastfm) appear just below the top result and offer better content.  Also, other entertainment sites like AOL and Yahoo have bought paid search results that draw fans away from the official site.  Lastly, the site content is not really targeted to the fans that would likely be searching for it.

Useful – If you are a Nelly fan, it is unlikely that you would find any content on this site that would make you want to come back.  It is generic, “official,” promotional content with no special features (behind the scenes, personal interactions with the artist, “bootleg” versions of the songs) that real fans would likely be looking for. 

Accessible – The site does allow users to buy ringtones for mobile devices and subscribe to a basic RSS feed. 

Social – In terms of generating revenue from an online fan base, this site is a total failure.  Fans who click on community are shuttled off to myspace.  There is no opportunity for fans to upload photos or videos from concerts.  There isn’t even an opportunity for basic fan interaction.  While the site apparently is generating some add revenue, it does little to engage fans to stay on the site or to ever come back.  Conversely, the two sites below are both aggregating an audience based on nelly’s content and monetizing the audience much more aggressively with direct commerce opportunities, numerous advertisements, and offers to join communities of users with like interests.

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Universal Music has abdicated the energized network of online fans to a multitude of unaffiliated sites.  While music labels have historically generated revenue by earning royalties on the sales of recorded music, they certainly have the opportunity to gain more rights from artists by creating immersive music experiences for their fans.  Instead of taking advantage of their relationship with and unique access to their artists to create a deluge of fresh, “meta” content online, music labels have resorted to keeping their official sites as anemic online marketing brochures.

MLB Advanced Media (www.mlb.com) – While there are thousands of fan sites and sports sites, MLB.com is undisputed premier site for baseball.  It is the opposite of the official artist Web sites most music labels develop.  Major League Baseball has been extremely aggressive in monetizing its content online, transforming what was once printed pages of scores and sports stories controlled by hundreds of physical media newspapers into a bonanza of advertising, auction, gaming, merchandise, and subscription revenue.  It gets high scores in all respects:

Popular – The site is optimized to be the top returned site for organic search for the word “baseball” or any professional baseball team on major search engines.  It almost always is one of the top 3 choices for player names as well.  It either advertises on or has affiliate relationships with other top baseball or related content sites like baseball.com.  Registration for any feature is easy.  All that is required is an e-mail address and a password. Yet, the site is establishing opportunities to learn more and more about its users over time as people flesh out their profiles as they participate in games, contests, and sign up for additional services.

Useful – If you are a baseball fan, this site has everything baseball related that you could possibly want to consume.  It is completely immersive.  Team sites, player sites, online games, auctions, subscriptions to streaming video, tickets, history, stats, blogs, forums, etc; It is hard to imagine what other kind of content they could add.  The content is active.  Users of the site have a plethora of opportunities to interact with the content.  They can play any number of fantasy sports games, some of which offer opportunities to stay engaged for a whole season, others which offer faster gratification, asking users to compete on the basis of their ability to pick streaks (e.g. winning, hitting, stealing, etc.) 

Accessible – The site allows users to deliver the content to any device.  It has numerous mobile offerings.  Users can also subscribe to RSS feeds by team or for the whole league.

Social – MLB.com has truly exploited the social nature of its entertainment content.  The fantasy sports games are an excellent example of an online social networking revenue opportunity.  Commodity data is used as the basis to bring fans together to compete in fantasy leagues.  These games increase engagement, impressions, repeat visits, duration of visit, and switching costs to competitive sites.  While fantasy sports is perhaps the best example of a social application based on content, the site also seeks to build community through more common approaches such as blogsmessage boards, and forums.

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MLB.com uses its content to aggregate an audience and generate revenue through many mechanisms: direct sales of merchandise, auctions, advertising, sponsorships, subscriptions, and ticket sales.  While not all of these opportunities are directly related to online social networks, the users of the site and their ability to interact with each other and the content are what make it successful and differentiate it from static print-based publications and many online versions of traditional media.  Also, instead of giving its content away and allowing a plethora of 3^rd party sites and superfans to monetize its assets, MLB.com has taken an aggressive approach to be the best place to immerse oneself in baseball and get the most unique, exclusive access to players and memorabilia.

BusinessWeek(www.businessweek.com) – BusinessWeek is a traditional print publication that targets a general business audience and has developed an effective online version of its publication.  It is filled with breaking AP stories, proprietary news stories and commentary and is suffering from the same decline in revenue that most traditional publishers are facing.  In 2008, BusinessWeek launched Business Exchange, pithily marketed with the tag line, “Track and share business stories across the Web.”  The Web site allows users to “create business topics, collaboratively aggregate content from the entire Web and connect with other business focused users around these topics.”  It is a great tool for business users to research and/or stay current on business trends that are important to them.  The tool is easy to use and seamlessly integrated with LinkedIn.  While the service is still new, I think that it has the potential to truly differentiate and potentially transform BusinessWeek.

Popular – Business Exchange is presented to users as a tab off the home page.  It is unlikely that non-BusinessWeek users will find it because it has not really established itself as a “destination site” yet and it is unlikely that users will start searching for it.  The popularity of the site could be significantly enhanced with some marketing and PR.   Still, activity on the site is certainly respectable, and any curious business person could easily lose themselves browsing through the many user-generated blogs and stories that are posted there.

Useful – The site offers a lot of utility.  In fact, in my opinion, it notably beats search engines for getting up to speed about new issues or tracking new stories about chosen topics.  It is also provides integrated, contextually relevant opportunities to network with other users and find potential thought partners, new employees, or prospects in a targeted way.  The site has the opportunity to add twitter like capabilities in the future that might add to its overall utility.

Accessible – User profiles are seamlessly integrated with LinkedIn.  This makes it easier to sign up and start with a well-populated profile.  The LinkedIn integration also sets the right context for users. 

Social – In terms of generating revenue from an online user base, this new service has the potential to really impact BusinessWeek’s success.  The magazine has truly embraced the open, collaborative nature of the Web.  Rather than trying to cling to a strategy of differentiation by content, the site is transforming itself into a useful business tool.  While the BusinessWeek brand and content are still important, Business Exchange recognizes that the vast network of readers may have as much or more content to offer than its own staff of writers and editors.  Also, the service has an opportunity to segment and even publicly “tag” users by their reading behavior in addition to users’ explicit self-ascribed tags and interests.  I hope that this service gets some more press and attention as it is an ambitious step forward for a traditional print publication.

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At the most basic level Business Exchange will help increase revenue by helping the magazine to grow its user base and dramatically increase user engagement and thereby advertising revenue.  As the service evolves and learns more about its users, it will have opportunities to offer additional business service products such as recruiting and marketing services.

Social Networking Revenue Strategies
There are three basic approaches that these companies have pursued or should pursue to generate new revenue.

1. Transform traditional content sites into tools by embracing the open, collaborative nature of the Web. (http://bx.businessweek.com/)
2. Aggressively exploit all aspects of your content and your community, paying special attention to meta content opportunities (e.g. baseball stats, behind the scenes artist information), user-generated content (e.g. bootlegs and concert videos), and other forms of user interaction (e.g. games, lists, contests) (www.mlb.com)
3. Treat highly fragmented media properties (e.g artist Web sites) as a network.  By aggregating the audiences of smaller sites, companies have an opportunity to increase potential advertising and commerce revenue.