4 ms·

Ask HN: Why is it so hard for social media/networking sites to monetize their users?

12 points by zitterbewegung 18y ago

It seems like the business plan for yet another social media / networking plan is as follows. 1. Create a interesting web app 2. Get people to use your application 3. ????? 4. Profit Unfortunately, it seems like there isn't a method of getting to profit. When I asked the cofounders of reddit my question at pycon they said that advertisers don't understand web 2.0 companies. If that is true then maybe what is needed is a web 2.0 advertising company?

aristus 18y ago
That's not the whole story. Plentyoffish is highly profitable. Why not other social networks? Because they have a less-effective ad model but think they can spend like a search engine. A lot of people (whether or not they "get" Web2.0) have unreasonable expectations for demographic and behavioral targeting of ads. When you advertise on Google you are targeting not only a specific word, not only a specific person who is interested in that specific word, but right at the moment they are looking for it. For this reason I believe search advertising will always be an order of magnitude more effective than demo-targeting, and at least a few times better than the loftiest pipe-dreams of behavioral targeting. So. Your ad model is 0.1X as lucrative as search advertising, yet your infrastructure costs are comparable to a search engine. You lose. PoF wins because Markus doesn't have 100 employees.
- yummyfajitas 18y ago
  PoF has another advantage. If you are at PoF, you are searching for a date. PoF makes a lot of money selling ads for better dating sites, something it's users are almost already looking for.
  - ajcronk 18y ago
    If PoF is a launchpad to premium dating sites, how do people end up on PoF in the first place? I assumed SEO, and I searched for "dating" and "online dating" but PoF didn't rank high. Maybe they go after more niche keywords.
    - iigs 18y ago
      Google search for "free dating" put PoF at #2
    - mikeyur 18y ago
      PoF is mostly word of mouth, it was the only 'good' free dating site for awhile and they're still banking off that.
- charlesju 18y ago
  Plentyoffish makes almost no money, they made $10 M last year and they're one of the top site on the internet. You need to think relative.
  - HeyLaughingBoy 18y ago
    Is it just me or is there something fundamentally wrong with saying that something "makes no money" and in the same breath saying "they made $10M last year" when they have only a handful (if that!) of employees? I think some people's definition of what constitutes a successful business are a tad inflated :-)
    - trickjarrett 18y ago
      All internet businesses get compared to Google, and that causes this inflation in terms of successful. Golfers aren't satisfied with par, they want the hole in 1, they want to be Tiger Woods even though Tiger can't always be Tiger. It's the nature of the beast.
vaksel 18y ago
because people go on a social networking site to socialize, they focus their attention on their profile page, most people won't even let their eyes wander to the ad portion of the page
tokenadult 18y ago
How do websites in general make money? (Or do they? Do they have revenues but not have earnings?) http://news.ycombinator.com/item?id=542656 http://news.ycombinator.com/item?id=542656
staunch 18y ago
http://andrewchenblog.com/2007/09/26/5-things-that-make-your-social-network-monetize-like-crap/ http://andrewchenblog.com/2007/09/26/5-things-that-make-your...
benmathes 18y ago
People don't like ads interfering with their social interactions. It's much more intrusive to be hanging out with your best bud and see an ad for Old Navy than it is to be shopping for stuff and see an ad for Old Navy.
antiismist 18y ago
Advertisers want two things: people to buy stuff via some conversion funnel that starts with the ad, or "brand lift". The best way to get people to buy stuff is to find intenders - those people who are about to buy something in your category. Think google adwords. This doesn't work too well on social media, because people are interested in hanging out, not on thinking about some purchasing decision. "brand lift" - advertisers in this bucket are super sensitive to their brand image, and they won't be getting the lift they want if it's next to some random comment stream.
erlanger 18y ago
Because they try to profit through traditional business channels. By effectively leveraging social pressure, these things could be a gold-mine.
mattmaroon 18y ago
The one thing I can tell you for sure, having done affiliate marketing on the big 3 search engines and the big 2 social networks, is that users on social nets click often but don't convert. The click through rates are lower than you'll see on Google, but not as much lower as you might think if you do a good job with the ad and the demographic targeting. But the conversion rates are beyond abysmal. That seriously depresses CPC bids, which will prevent Facebook/Myspace from really monetizing well from that source. It's a shame too, given that the reach is massive. I think it's because people just go to social networks to hang out. They specifically don't want to buy stuff, and when you try, you're like a telemarketer calling a college kid at a frat party. I was really on the fence about whether or not Facebook would ever be able to somehow find a business model that didn't involve people whipping out a credit card somewhere (i.e. not freemium, virtual goods, etc.) until I tried that experiment.
- aristus 18y ago
  That's exactly it. Before all of this interweb stuff the highest-margin ad venue was the phone book. Every business and trade professional spent at least 50 bucks and every lawyer, national chain, auto dealer, etc splashed out for more. YPPA are still pulling about $10B per year. The phone book is kind of the upper bound for behavioral and demo targeting: everyone who sees your ad wants to buy what you are selling right now. The only question is which ad they see first. A social network simply does not have that kind of audience. A site that is not in the business of telling people things they want to know is never going to make the same margins from ads.
iamelgringo 18y ago
There is a way to get profitable, companies like Twitter, Digg and Facebook haven't figured it out, yet, and it gives the whole web 2.0 business a bad rap. MySpace is quite profitable to the tune of pushing $1 Billion in 2008: http://bit.ly/PJPc2 http://bit.ly/PJPc2 Dogster has been doing quite well in the advertising space: http://bit.ly/7WZL http://bit.ly/7WZL and http://bit.ly/ytNf http://bit.ly/ytNf They've been able to be profitable by hiring their own advertising sales team. They are getting CPM's of $20-40 for their email newsletter: http://bit.ly/p9nB http://bit.ly/p9nB CuteOverload.com is profitable. icanhascheezburger.com is profitable. Part of the problem with web 2.0 companies, is that a lot of them don't realize that they are media companies. Mainstream media companies figured out the monetization bit years ago. They make money by selling the content (Movies, Music, print media), selling advertising space on the content (TV, print media), or by branding and merchandising themselves (Star Wars, Saturday Morning Cartoons). * See Footnote Mainstream media has also learned a long time ago, that you can charge a premium for delivering a targeted demographic. If you were able to launch a Social News site devoted to the people interested in buying car insurance, or people intersted in investing in day-trading stocks, your CPMs would sky rocket. Dogster is making money because they figured out the setting up their own ad network and selling ad space on it was much better than using Adsense. TV stations, radio stations all have their own sales teams that sell ads on their networks. * Newspapers and Print media are really struggling because their overhead is so high, and can no longer compete with online media. But, for years, these companies have been cash cows. Just look at how Rupert Murdock made his money.
- vivekamn 18y ago
  I second that. Having their own ad network has worked out great for cafemom.com a ssn for mothers.
njharman 18y ago
It's not. It's hard to to monetize with advertising which is all most sites even try. Virtual goods, premium accounts, merchandising those are methods that work. Also thinking it in terms of monetizing users instead of monetizing your site/products is symptom of failed thinking. Users aren't cogs in your money making machine, they resent being used/abused for your profit. Do something your users want, offer something they will pay for.

aristus 18y ago

That's not the whole story. Plentyoffish is highly profitable. Why not other social networks? Because they have a less-effective ad model but think they can spend like a search engine. A lot of people (whether or not they "get" Web2.0) have unreasonable expectations for demographic and behavioral targeting of ads. When you advertise on Google you are targeting not only a specific word, not only a specific person who is interested in that specific word, but right at the moment they are looking for it. For this reason I believe search advertising will always be an order of magnitude more effective than demo-targeting, and at least a few times better than the loftiest pipe-dreams of behavioral targeting. So. Your ad model is 0.1X as lucrative as search advertising, yet your infrastructure costs are comparable to a search engine. You lose. PoF wins because Markus doesn't have 100 employees.

yummyfajitas 18y ago
PoF has another advantage. If you are at PoF, you are searching for a date. PoF makes a lot of money selling ads for better dating sites, something it's users are almost already looking for.
- ajcronk 18y ago
  If PoF is a launchpad to premium dating sites, how do people end up on PoF in the first place? I assumed SEO, and I searched for "dating" and "online dating" but PoF didn't rank high. Maybe they go after more niche keywords.
  - iigs 18y ago
    Google search for "free dating" put PoF at #2
  - mikeyur 18y ago
    PoF is mostly word of mouth, it was the only 'good' free dating site for awhile and they're still banking off that.
charlesju 18y ago
Plentyoffish makes almost no money, they made $10 M last year and they're one of the top site on the internet. You need to think relative.
- HeyLaughingBoy 18y ago
  Is it just me or is there something fundamentally wrong with saying that something "makes no money" and in the same breath saying "they made $10M last year" when they have only a handful (if that!) of employees? I think some people's definition of what constitutes a successful business are a tad inflated :-)
  - trickjarrett 18y ago
    All internet businesses get compared to Google, and that causes this inflation in terms of successful. Golfers aren't satisfied with par, they want the hole in 1, they want to be Tiger Woods even though Tiger can't always be Tiger. It's the nature of the beast.

vaksel 18y ago

because people go on a social networking site to socialize, they focus their attention on their profile page, most people won't even let their eyes wander to the ad portion of the page

tokenadult 18y ago

How do websites in general make money? (Or do they? Do they have revenues but not have earnings?) http://news.ycombinator.com/item?id=542656 http://news.ycombinator.com/item?id=542656

staunch 18y ago

http://andrewchenblog.com/2007/09/26/5-things-that-make-your-social-network-monetize-like-crap/ http://andrewchenblog.com/2007/09/26/5-things-that-make-your...

benmathes 18y ago

People don't like ads interfering with their social interactions. It's much more intrusive to be hanging out with your best bud and see an ad for Old Navy than it is to be shopping for stuff and see an ad for Old Navy.

antiismist 18y ago

Advertisers want two things: people to buy stuff via some conversion funnel that starts with the ad, or "brand lift". The best way to get people to buy stuff is to find intenders - those people who are about to buy something in your category. Think google adwords. This doesn't work too well on social media, because people are interested in hanging out, not on thinking about some purchasing decision. "brand lift" - advertisers in this bucket are super sensitive to their brand image, and they won't be getting the lift they want if it's next to some random comment stream.

erlanger 18y ago

Because they try to profit through traditional business channels. By effectively leveraging social pressure, these things could be a gold-mine.

mattmaroon 18y ago

The one thing I can tell you for sure, having done affiliate marketing on the big 3 search engines and the big 2 social networks, is that users on social nets click often but don't convert. The click through rates are lower than you'll see on Google, but not as much lower as you might think if you do a good job with the ad and the demographic targeting. But the conversion rates are beyond abysmal. That seriously depresses CPC bids, which will prevent Facebook/Myspace from really monetizing well from that source. It's a shame too, given that the reach is massive. I think it's because people just go to social networks to hang out. They specifically don't want to buy stuff, and when you try, you're like a telemarketer calling a college kid at a frat party. I was really on the fence about whether or not Facebook would ever be able to somehow find a business model that didn't involve people whipping out a credit card somewhere (i.e. not freemium, virtual goods, etc.) until I tried that experiment.

aristus 18y ago
That's exactly it. Before all of this interweb stuff the highest-margin ad venue was the phone book. Every business and trade professional spent at least 50 bucks and every lawyer, national chain, auto dealer, etc splashed out for more. YPPA are still pulling about $10B per year. The phone book is kind of the upper bound for behavioral and demo targeting: everyone who sees your ad wants to buy what you are selling right now. The only question is which ad they see first. A social network simply does not have that kind of audience. A site that is not in the business of telling people things they want to know is never going to make the same margins from ads.

iamelgringo 18y ago

There is a way to get profitable, companies like Twitter, Digg and Facebook haven't figured it out, yet, and it gives the whole web 2.0 business a bad rap. MySpace is quite profitable to the tune of pushing $1 Billion in 2008: http://bit.ly/PJPc2 http://bit.ly/PJPc2 Dogster has been doing quite well in the advertising space: http://bit.ly/7WZL http://bit.ly/7WZL and http://bit.ly/ytNf http://bit.ly/ytNf They've been able to be profitable by hiring their own advertising sales team. They are getting CPM's of $20-40 for their email newsletter: http://bit.ly/p9nB http://bit.ly/p9nB CuteOverload.com is profitable. icanhascheezburger.com is profitable. Part of the problem with web 2.0 companies, is that a lot of them don't realize that they are media companies. Mainstream media companies figured out the monetization bit years ago. They make money by selling the content (Movies, Music, print media), selling advertising space on the content (TV, print media), or by branding and merchandising themselves (Star Wars, Saturday Morning Cartoons). * See Footnote Mainstream media has also learned a long time ago, that you can charge a premium for delivering a targeted demographic. If you were able to launch a Social News site devoted to the people interested in buying car insurance, or people intersted in investing in day-trading stocks, your CPMs would sky rocket. Dogster is making money because they figured out the setting up their own ad network and selling ad space on it was much better than using Adsense. TV stations, radio stations all have their own sales teams that sell ads on their networks. * Newspapers and Print media are really struggling because their overhead is so high, and can no longer compete with online media. But, for years, these companies have been cash cows. Just look at how Rupert Murdock made his money.

vivekamn 18y ago
I second that. Having their own ad network has worked out great for cafemom.com a ssn for mothers.

njharman 18y ago

It's not. It's hard to to monetize with advertising which is all most sites even try. Virtual goods, premium accounts, merchandising those are methods that work. Also thinking it in terms of monetizing users instead of monetizing your site/products is symptom of failed thinking. Users aren't cogs in your money making machine, they resent being used/abused for your profit. Do something your users want, offer something they will pay for.