I am often asked: “what exactly is an online community and, since everything they provide their members is free, how can they keep going?”
Which I must say is a very good question.
Now after 7 1/2 years of intense development with YOC, involving building numerous websites, implementing three content management systems, establishing three communities, completing a masters degree, raising three rounds of venture capital and registering a patent on the subject I still think I can only give you a half sensible answer.
Of course online communities or, as they are called these days, social networks, have been around for a long time - certainly since the very beginning of the internet as we now know it ie about 15 years – which by my reckoning in the fast moving IT sector is equivalent to about a century in the real business world!
So there is no question about their basic appeal. Certainly if you are offering services such as a forum to express views, small business news, sports results, local history, video sharing and directories – delivered completely free and without obligation to your office or home - why shouldn’t they be popular?
But given that hundreds of millions have been poured into regional community portals, here in Australia, mainly by the Howard Government, with only a handful showing any signs of real sustainability it is clear that notwithstanding their obvious popularity the question of sustaining them remains problematic.
On the world stage the most well known examples such as Facebook, Wikipedia (meant to be a non-profit) and YouTube are still struggling to find a business model despite being extremely popular all around the globe and their organisations being valued, by the likes of Google and Yahoo, as in the billions!
There is a now famous saying from the Kevin Costner film ‘Field of Dreams’ - “Build it and they will come!” which, although referring to a baseball stadium in the movie, underpins the logic to all these sites. Certainly this approach is analogous to free newspapers (anyway even the most prestigious newspapers only earn about 15% of total revenue from their sale price or subscriptions) so the idea of subsidising media products is fairly central to all traditional media these days – think of free to air TV and radio.
Which brings us back to good old advertising - and based on the mass media experience for the past 100 years or so should be a fairly straightforward proposition.
By this I mean banner adverts on popular portals should be just like any other advert but with some unique advantages such as linking directly to the advertiser’s website. In fact in my experience response rates online are very similar to tabloid newspapers – which explains why you usually need to use websites with very high traffic to obtain good results (there are some exceptions).
Mainstream media portals such as NineMSN, News and Fairfax Digital are profitable examples here in Australia but they are not social networks per se – although News Corp now owns MySpace one of the most popular of this genre around.
The big problem here for the likes of YouTube and Facebook is that their users have become accustomed to all the free services and they (quite unreasonably in my view) resent the intrusion of advertising material of any kind into ‘their’ space.
Having invested squillions into these properties the owners understandably fear they will scare the regular community members away but deep down know sooner or later they will have to come up with some mechanism to justify their massive valuations.
In my view the inclusion of advertiser material in some form or other is inevitable, of that I am certain - as much as I am certain the users themselves will never agree to pay a cent towards the real cost of providing all ‘their’ goodies.
The only question for operators of social networks basically comes down to: how much advertising/product placement will your existing community members accept before they decide to move on to newer and freer pastures?
In the medium term it is likely the established social networks will actually offer more freebies, to increase what economists and marketers dryly call switching costs, in an effort to dissuade their members from being tempted away.
In the longer term I suspect there will be a proliferation of networks within networks, each catering to a smaller sub-group, but whether these will be communities of interest and/or geographically based – only time will tell.
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