I’ve had the privilege to lead very talented teams in the creation of several of online communities, such as Families.com, Adoption.com, FertilityCommunity.com, and most recently LDS.net. On many occasions people have told me that online communities don’t make money, because the communities are made up in large part of the same people who come back to the site consistently, and as such they don’t click on a lot of advertising. I feel that exactly the opposite is true. The passionate group of repeat visitors is the strength and not the weakness. The “stickiness” of loyal members in online communities is the glue that holds entire websites together and makes them great destinations.
Facebook is one of the leading online communities, and the sixth most popular website globally (source: Alexa). Currently, Facebook has a revenue model based primarily on advertising revenue (although they are working to add revenues through music distribution). As a result of their historical focus on an advertising model, in 2007 Facebook generated $150 million (source: +8) and lost $50 million.
In contrast, QQ, the Chinese social network, generated $523 million in revenues during 2007, and reported an operating profit of $224 million.
What is the core reason behind such divergent financial successes in these online communities? The answer lies in the focus of revenues for the two sites. Facebook and other popular social networking community sites have relied almost exclusively on advertising sales to generate revenue. QQ generates two-thirds of its revenue from virtual games and services and 21% from mobile services. Online ad sales only accounted for $67 million, or 13% of revenue.
Online communities have the ability to leverage the fanatical loyalty of their repeat members to generate revenues in a variety of ways other than advertising banners, as QQ has demonstrated. As this model is successfully and profitably implemented, these loyal communities become the heart and souls of websites instead of liabilities.
Posted on March 27th, 2008 by admin
Filed under: Internet Marketing, Online Communities, Social Networking, e-Business
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