Do social networks have a freemium future?
How to monetising social networks, and social media, is one of the biggest discussion points for entrepreneurs and marketing agencies operating in the space. Most aim to fund themselves through advertising models, but this is becoming more of a challenge. Facebook appears to be managing it and claims are that it turned a solid profit in 2009. But Bebo is set to close its doors after failing to find the scale needed for an ad funded model failed and with Myspace’s user base declining they could be next on the list.
So what does the future hold for monetising social networks? One option open to them is a “freemium” model where the basic account has limited functionality and to free up more options you have to pay a fee.
LinkedIn have decided to go down this route (on top of their advertising channel) with three levels of premium account available to those looking to free up all the available functionality.
The problem I see with the approach LinkedIn however, is twofold:
The price: $24.95-$99.95 a month. I really cannot see how I am going to get enough value out of a premium account to warrant such a fee. Surely only head hunters and sales people are going to see this as a valid option. And even if they did get an influx of recruiters and sales people paying for a premium account, opening up the network to these types could potentially devalue it and turn off other users.
The additional functionality is limited: The added value that comes with looks very limited. I use LinkedIn for making business connections and online networking, and I have only come across a small number of actions I would like to take which would involve me paying for a premium account. Whilst this remains I can’t see many people paying.
The existing social networks already in operation are always going to struggle to move to a “freemium” model. As we have seen with the newspaper industry online, once you offer something for free, it is then very difficult to start charging for it. Also, there is likely to be a backlash on the first provider to try it. Also any new entrants to market are going to struggle to gain a user base and any great traction if they were to launch with such a model.
There’s no doubt social networks need to find new ways of monetisation. Only Facebook to date has found real success with ad funding, and that is down to their sheer scale and dominance. Additional revenue channels such as music sale and marketplace schemes will generate some income, but unlikely enough to keep a network afloat.
Whether “freemium” is the right way forward it’s difficult to say. Unless you can prove real value in your service, you are always going to struggle to charge for access to information or tools in a world where they are so readily available elsewhere for free. But without a sustainable revenue model, future networks are unlikely to get off the ground.
Image credit freemium.org
All Comments
Who wouldn’t want something for free. Facebook’s biggest commercial challenge is using the data their users provide with agreement. Additional functionality, unless profound as in Linkedin’s case, is always going to be difficult to justify when putting your hand in your pocket.
Arguable the most important asset to a social network is data. So a possible new way could be for social networks to operate, is to offer exactly the same service to everyone for free. All elements available. Where the fee comes in, is if you wish to not be advertised to or your data to be shared. If the network is providing a service that is valuable, then paying for it to not be advertised to, or your data shared, in my opinion, a good option – providing the price was right. So:
1. A pay service – where all user data is private.
2. A free service where all data is made public.
That way, the revenue is protected in both instances and all users benefit from the same functionality. The added-value elements could differ for both types of user, making them equally attractive depending on your need.
@Yush Good point Yush, paying not to be advertised to ala iphone apps could be a good route forward although price could still be barrier. In the case of Linkedin, prices remain too high, micro monthly subscription payments would certainly be more palatable for users.
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