Osn Monetization Models Pgsem Project Report

An empirical study on Monetization models for Online Social Networks PGSEM Project – FINAL REPORT Faculty Guide: Prof. Srinivas Prakhya Submitted By: Dharmesh Gandhi (2008019) Saurabh Jain (2008105) Indian Institute of Management, Bangalore Towards partial fulfillment of the requirements for the Post Graduate Diploma in Software Enterprise Management of the Indian Institute of Management Bangalore 1

Table of Contents 1. INTRODUCTION ..................................................................................................................... 5 2. ONLINE SOCIAL NETWORKS (OSN) – INDUSTRY OVERVIEW ................................... 6 3. MAJOR PLAYERS................................................................................................................... 6 4. PARAMETER MATRIX .......................................................................................................... 7 5. DETAILED ANALYSIS OF STUDIED PLAYERS ............................................................... 8 5.1 FACEBOOK ........................................................................................................................... 8 5.1.1 Comprehensive Details .................................................................................................... 8 5.1.2 Demographic Details and Growth .................................................................................... 9 5.1.3 Key Observations ........................................................................................................... 10 5.2 TWITTER ............................................................................................................................. 11 5.2.1 Comprehensive Details .................................................................................................. 11 5.2.2 Demographic details and growth.................................................................................... 12 5.2.3 Key Observations ........................................................................................................... 13 5.3 MYSPACE ............................................................................................................................ 14 5.3.1 Comprehensive Details .................................................................................................. 14 5.3.2 Demographic details and growth.................................................................................... 15 5.3.3 Key Observations ........................................................................................................... 16 5.4 Hi5 ......................................................................................................................................... 17 5.4.1 Comprehensive Details .................................................................................................. 17 5.4.2 Demographic details and growth.................................................................................... 18 5.4.3 Key Observations ........................................................................................................... 19 5.5 LINKEDIN ............................................................................................................................ 20 5.5.1 Comprehensive Details .................................................................................................. 20 5.5.2 Demographic details and growth.................................................................................... 21 5.5.3 Key Observations ........................................................................................................... 22 5.6 ORKUT ................................................................................................................................. 23 5.6.1 Comprehensive Details .................................................................................................. 23 5.6.2 Demographic details and growth.................................................................................... 24 5.6.3 Key Observations ........................................................................................................... 25 5.7 SECOND LIFE ..................................................................................................................... 26 5.7.1 Comprehensive Details .................................................................................................. 26 5.7.2 Demographic details and growth.................................................................................... 27 5.7.3 Key Observations ........................................................................................................... 28 5.8 QQ ......................................................................................................................................... 29 5.8.1 Comprehensive Details .................................................................................................. 29 5.8.2 Demographic details and growth.................................................................................... 30 5.8.3 Key Observations ........................................................................................................... 31 6. GENERAL OBSERVATION ACROSS ALL OSN PROVIDERS ....................................... 32 6.2 POSITION MAPS ................................................................................................................. 33 7. FINDINGS FROM SECONDARY RESEARCHES .............................................................. 35 7.1 SOCIAL MEDIA MARKETING ......................................................................................... 36 7.2 CONSUMER PACKAGED GOODS USING SOCIAL MEDIA ........................................ 36 7.3 Social Media marketing on mobiles ...................................................................................... 37 7.4 LOCAL AD SPEND ............................................................................................................. 38 8. VIRTUAL GOODS................................................................................................................. 39 3

8.1 VIRTUAL GOODS CONCEPT ........................................................................................... 39 8.2 WHY DO VIRTUAL GOODS WORK? .............................................................................. 40 8.3 VIRTUAL GOODS SURVEY RESULTS ........................................................................... 43 8.4 OBSERVATIONS FROM SURVEY FINDINGS: .............................................................. 51 9. MONETIZATION MODEL PROPOSALS............................................................................ 52 10. CONCLUSION .................................................................................................................... 54 11. REFERENCES ..................................................................................................................... 56 4

1. INTRODUCTION Social networks are expected to play a very significant role in terms of making people stay connected with the friends, relatives and ‘net-friend’ throughout the world; and thus offer a significant opportunity to network providers to generate revenues. However, in order to do so, selection of an effective monetization model is very essential. Since there are no well established models for the Online Social Network (OSN) industry, the providers end up making huge losses. From the industry data, it is quite evident that the major issue faced by each provider of OSN is “drying-up cash flows”. As a short term strategy, most of them are looking for increasing their user base and putting up the monetization models concerns for the long term; but in order to support the growing demand of infrastructure they would require the regular cash flows. While companies like Facebook clearly say that they are focused on increasing their user base, it is getting increasingly difficult for them to justify their sky high valuations of 15-16X revenue multiple. When the current miniscule ARPU (Average Revenue Per User), $3 - $4 per year, and the huge expected market growth for the OSN, from 250 millions in 2009 to 2.5 billion in 2012 (Source: Juniper – as per Social Networking Forum); it is clearly evident that the current models of monetization as adopted by most of the organization will need to be carefully evaluated. There is a very high need for an effective monetization model that will help the organization from our study. In this project we have studied and analyzed the major OSN providers (in terms of their user base, geographical presence and popularity) and captured the essence of their monetization models. We have also identified the major trends the industry is tracking that can be used for alternate monetization models proposals. 5

2. ONLINE SOCIAL NETWORKS (OSN) – INDUSTRY OVERVIEW Online social networking industry has seen heady growth in the last few years. With most of the companies focused on increasing the user base, the infrastructure and maintenance costs are mounting and putting a question mark on the sustainability of the industry. A lot of the early starters in the industry are on a decline. This begs the question whether you can postpone the monetization question to a later date. The media darlings in Facebook and Twitter have racked up growth rates upwards of 100%. However, they have also required increased funding to sustain their operations as they keep losing money. What is also interesting in all this chaos is that a lot of small companies that run their businesses of social apps and social games on these platforms are profitable? A lot of small less known social networks have done a lot better in terms of being profitable. Probably the answer lies out there. The tricky part is whether these models are scalable and yield the same sort of ARPUs with millions of users. 3. MAJOR PLAYERS Major global players in OSN industry (based on the number of registered & active users) are: • Facebook • Twitter • MySpace • Hi5 • LinkedIn • Orkut • Second Life • QQ While there are a lot of other players in the market, with different and unique parameters, we have limited our scope to focus on monetization models primarily. Our objective here is to analyze these models, critique them, look at the problems abound with these models and look for the positive and negative aspects behind them. 6

4. PARAMETER MATRIX Social MySpac Second Networks Facebook Orkut LinkedIn QQ e 1 Life Twitter 2 Hi5 Text based ads Med Med Med High Low Low Zero Med Banner based ads Low V. High Low V. High V. High Low Low High Approx. Size(No. of active users) 250 mn 80 mn 45 mn 300 mn 110 mn <1 mn 2 mn 60 mn ARPU $2 ? $4 $3 $4 - $5 $125. ZERO $0.4 Premium Accounts Zero Zero High High Zero High Low Zero Virtual Currency Low Zero Low V. High Low V. High Low Low Applications / Widgets V. High Med Med High V. High V. High V. High Med Virtual Goods High Low Low V. High High V. High Zero Med Presence on Mobile V. High High Med High Med Zero V. High Med Top demographic USA Brazil India China USA Italy Brazil Peru Mature Mature Declin Stable Declin Evolution Stage Growth e Growth Decline Decline Growth e Significant Profiles Low Low High Low Med Low V. High Zero Groups, Events, confere Links, Events, ncing, Photos, IM, IM, chats, Videos, Videos, News concert, tag Other Services Notes Promote Low feeds shops cloud 1 http://moconews.net/article/419-myspace-mobile-grows-450-percent/ 2 http://www.bbspot.com/News/2009/03/twitter-unveils-premium-accounts.html, twollars 7

5. DETAILED ANALYSIS OF STUDIED PLAYERS 5.1 FACEBOOK 5.1.1 Comprehensive Details ATTRIBUTE DETAILS Image or text Ads, Ads can put on self page or some event Types of monetizing models specific page. Option to pay per click (CPC) or impression (CPM). Size of network 250 million active users. 94.6 monthly US visits Mainly Youth & Adults, Age range: 18 years - 35 years, Income ranging in and around $100,000. Interested in Target Audience photos/video sharing, movies, TV. 12% are addicts and just 34% are passer-bys Estimated revenue for 2009, $500-$550 million (with breakup - $125mn brand ads, $150mn deal with Microsoft, How much revenue $75mn virtual goods, $200mn self service ads) Approx $2 ARPU Loss of roughly ~$50 million. For 2008, EBITDA approximately $50 million. ($200 Profits million in capital expenditures, meaning negative cash flow of $150 million). A tried and tested model popularized by google. Mostly Positives about the current from ads but venturing into virtual goods and social gaming model because of which users spend more time in the network. Target audience was the college going crowd to start with. However they have stayed with the network as they have Is Revenue coming from TA grown to become professionals. The viral effect is probably higher in college going population. Now it has also started reaching the people in their 30s. The company has more than 30,000 servers , logs 25 terabytes of data daily,maintaining which costs more than $20 mn a year. Advertising does not seem to generate the money because the very purpose of visiting these social Sustainability networks is communication which is difficult to monetize.Targeted ads are there slow down the fall in ARPUs and virtual goods and currency is something that brings in a higher level of intent and purpose. The level of user interaction is higher. 8

5.1.2 Demographic Details and Growth 9

5.1.3 Key Observations • Performance advertising has been used, but it provides the strongest potential for growth. • Company is suffering terribly in terms of negative cash flows at cost of negative cash flows. This re-emphasize the fact is communication is hard to monetize and what ‘Facebook’ is essentially doing is just communication. • Facebook has overtaken MySpace in 35-50 populations. • Leveraging user profile data to connect to external applications. • The major users are in age group of 13-18 age group segments, with users in 18-34 age groups grown up recently. However the main audiences are college graduates. 10

• Games and applications are becoming popular in Facebook. Companies like Offerpal Media are using these social network app platforms to make money. Offerpal was founded as the first offer based payment solution for social applications on facebook. It generates publisher revenues at a network wide average of $80 per day for every 1000 daily active users. However facebook doesn't really get anything out of this, same is the case with MySpace. • Game developers are using tools like Offerpal Media to monetize their applications. However, Facebook does not directly benefit from this other than better applications which attract more eyeballs. • Something like QQ can be useful here wherein they charge 50% of the revenue earned by the developers. 5.2 TWITTER 5.2.1 Comprehensive Details ATTRIBUTE DETAILS Types of monetizing Is it even earning any money? Not really. models 5.33 million users Size of network 1.6 million active users Businessmen (started with this) , now has spread across all demographics.Median age 31, racially and ethnically diverse, 35% in Target Audience urban areas compared to 29% for internet users. Much more likely to use wireless technologies 57% are blog consumers. More business people than kids. How much revenue ZERO Profits ZERO Twitterpro, merchandise, twitter for business (customized secure Positives about the software), twitter forums ad supported, ad sense, marketing PR current model campaigns (charging for that), and analytics industry. Is Revenue coming NA from TA Sustainability is certainly in question with so many ifs and buts and still no signs of any money. It recently managed to raise $55 mn at a valuation of $1bn.Another bubble or something on the horizon? . Yet to Sustainability announce any concrete monetization strategy though we have a lots of instance of corporations making money through twitter. 3rd party apps coming up. Dell cites a sum of $3mn through its twitter efforts alone.3 3 http://bits.blogs.nytimes.com/2009/06/12/dell-has-earned-3-million-from-twitter/ 11

5.2.2 Demographic details and growth 12

5.2.3 Key Observations • Twitter has seen phenomenal growth since the turn of this year. • It started off mostly as a communication tool for the business men and served well as a platform for broadcasting offers, up to date news. • When the celebrities started to use twitter it really penetrated a new segment. It provides analytic tools to marketers for a fee to track the effectiveness of PR campaigns.It can be a useful tool to find out the mood of the nation, can be used effectively in elections. 13

5.3 MYSPACE 5.3.1 Comprehensive Details ATTRIBUTE DETAILS Offerpal media.virtual currency monetization ($80 per day for every 1000 DAUs), music promotion,hypertargeting (twice Types of monetizing models CPMs), overlays at the bottom of music videos in partnership with Auditude 1.2% CTR, CPC , CPM MyAds, google adsense Size of network 76 million myspace US users slightly more than Facebook. more high school population. Music centric. Increase in 35+ age group user base but its less than facebook' s growth in this segment.Majority demographic are 13-17 years of age.Most of Target Audience them have no college education. The income level hovers around $30,000. Interested in communities, apparels and photos/video sharing. $750mn in 2008 How much revenue $4-$5 ARPU Profits $7mn/quarter A MySpace user spent 266 minutes each month on the site Positives about the current which is 100 more than Facebook. Pretty focused on USA. Has model always focused on making money unlike Facebook. Well defined audience niche of music lovers and tie up with google. Is Revenue coming from TA Yes Primarily banner ads. However the CTRs of banner ads have Sustainability been going down. Banner ads have lost popularity. The deal with google ends in Q410. 14

5.3.3 Key Observations • MySpace homepage is all about celebrity updates, music, trailers- Express Yourself!! • MySpace Apps: Services like "Make a photo cube of your friends" or "Make your cartoon" • Advertisements are placed right at the top. • It offers its own email address. • Very easy for a musician to publish music. • Sale of ringtones through partnership with jamster • Events , shows: announcements 16

• Social Networks like facebook allow ads to be posted very easily allowing small advertisers to also jump in. Nothing like that is here. However , the same is true for music publishing which is made very easy in myspace clearly positioning it as a network for music lovers. • Focus on banner ads and google ads (tie up with google). • MySpace music (JV with major labels) allows users to stream music on demand, create playlists, etc. To buy, visitors are directed to Amazon to buy the artist’s albums. • The MP3 files are not encrypted and will be playable on every computer - Economicswise, Amazon splits its revenues with Myspace and the record labels. 5.4 Hi5 5.4.1 Comprehensive Details ATTRIBUTE DETAILS classified listings (partnership with OLX),downloadable games from Real Networks (hi5 games), orange advertising network(specializing in management of premium websites) in Types of monetizing Spain. Hi5 Spain has more than 1.5 mn unique users and more than models 170 mn page views. Tie up with Playspan's global payments services for virtual world. International virtual games store. hi5's proprietary advertising platform .targeted ads., already gives developers access to its virtual currency 60 mn monthly unique visitors each month, top 20 website Size of network globally, number 1 social site in dozens of countries across latin america,europe and asia Teens and twenties, more than half under age 35. Most of them Target Audience have income < $30,000 and most have no college education. Hispanics, photos/videos sharing and communities How much revenue $25 million estimated 2009 4 Profits currently 90% from ads striving to get 50% from virtual goods Focussed on casual gaming, Micropayments, Partnership with Positives about the current paymo to power mobile payments for virtual goods, Movement model away from traditional ad based models which have not served them too well. Is Revenue coming from Yes TA Sustainability User to user communication is inherent & very hard to monetize. 4 http://www.forbes.com/2009/03/16/hi5-social-networking-technology-internet-hi5.html 17

5.4.3 Key Observations • Dominant group 18-34, mostly popular in South America, just 8% in USA. • Introduced casual games with virtual currency. Range of more than 40 arcade, casino, card, sports and strategy games. The company is already starting to make money from the site’s new section. The games are Flash-based, and already a place where hi5 is starting to serve “pre-roll” ads that run before a user can begin playing a game. • The site is popular among a Hispanic and African American, young adult, slightly male slanted audience • No college education group with income less than $30,000 is dominating the demographic 19

5.5 LINKEDIN 5.5.1 Comprehensive Details ATTRIBUTE DETAILS Upgraded Accounts Hiring Services Types of monetizing models Advertising like WSJ Demographics Opening up its network of affluent professionals to B2B research No. of unique users (as of 2009): Size of network 45 million, 420,000 premium users 14.2 mn monthly US visitors, 27.7 mn global monthly visitors Affluent, ambitious and influential businessmen. In the US people tend to visit this site from both work and home and worldwide they visit it mostly from home.2% people are Target Audience addicts constituting 40% of the visits. 59% people are passer- bys.89% are caucasians.Most are grad school educated with an income > $100,000. 35-49 age group is the dominant profile.Primarily US and India. Projected Revenue in 2008, $100 million, 25% of this from How much revenue advertising Apprx $4 ARPU Profits No public records but assuming 10% of revenue = $8-10 mn The revenue model is more robust in a downturn and the premium subscription model is probably less susceptible to Positives about the current economic downturn when ad spending goes down. It has WSJ model type of demographic and growth of user base is in fact higher in a downturn. Is Revenue coming from TA Yes As described above, it seems to be a sustainable model which Sustainability is less susceptible to a recession and less affected by shrinking ad revenues. 20

5.5.3 Key Observations LinkedIn is backed by world-class investors including Sequoia Capital, Greylock Partners, the European Founders Fund, Bessemer Venture Partners, Bain Capital Ventures and now Goldman Sachs, The McGraw-Hill Companies, and SAP Ventures. • Business grew even in a recession. • Popular in US and India. • LinkedIn currently has around 45mn mostly professional members, whose average age is 41 and household income is $110,000. 22

• Subscription model is where people can pay sums of $25 to $50 a month to have more LinkedIn access, things like deeper searches and being able to send requests for introductions • ‘Intent’- specific purpose and the intensive features for the same are the key to this network. • Job postings, tools for HR departments, and a 1.5 yr old advertising business. • Ads currently contribute equally to the revenue. • Also launched LinkedIn research network (e.g. surveys being circulated to a target audience). 5.6 ORKUT 5.6.1 Comprehensive Details ATTRIBUTE DETAILS Types of monetizing models Banner ads. Text ads.Ads in communities, targeted advertising. Size of network 422,000 estimated monthly US people. Apparel, instant messenger, government sites. People who visit orkut also visit malayalammanorama.com, globo.com, manoramaonline.com, guruji.com, bharatmatrimony.com, indiatimes.com, indiainfo.com (all popular indian portals). Asians, Hispanics. Most have income Target Audience around $ 0-60,000 and most have grad school education. [Typical profile: Educated, young asian/hispanic adult, male] The income figure might not be comparable because of skew towards Brazil and India. 14% are addicts and 32% are passer-bys How much revenue Estimated as $50 million per year Profits ? Not known Positives about the current A very typical ad driven model. model Google advertising platform is a key strength. Is Revenue coming from TA ? Not known Hard to comment. Might be a part of google 's long term strategy to build a huge customer base which can be used to Sustainability further analyze consumer behaviour. But require a larger reach than it currently has. Primarily restricted to Brazil and India. 23

5.6.3 Key Observations • Very simplistic and a light site design • Probably targeted towards emerging economies • Not too much innovation in types of services offered when compared to Facebook. • Their philosophy of not focusing on monetization is very evident by the almost non- existence of ads. Nowadays one can still see some ads on the top right corner 25

5.7 SECOND LIFE 5.7.1 Comprehensive Details ATTRIBUTE DETAILS Premium subscriptions, virtual land, virtual goods lindex Types of monetizing models dollars, trading of user generated content,live concerts, education, live concerts, business meetings 800,000 active users, 70,000 premium users Size of network/Reach 78000 monthly US people. 226,000 monthly global people 18+ attracts people from many segments.They typically also go to sites like kaneva.com, habbo.com , zwinky.com and are serious gamers.Teens, teen communities, gaming.Socialize, Target Audience connect and create. Most have income < $30,000 and are not college educated. Caucasian is the dominant community. <1% are addicts and more than 81% are passer-bys. Most people tend to visit this site from home. Estimate 2009 revenue of $100mn How much revenue $125 ARPU (annual) $35mn Profits $44 per user annually A niche player with very high ARPU that is not dependent on Positives about the current the questionable ad model. The players who are trading/playing model are directly contributing to the revenue hence do not need a very high user base to sustain. Is Revenue coming from TA To some extent, Yes. ARPU is very high. However, whether this is sustainable is the question. Most of the people are passer-bys. The site visits Sustainability peaked in 2007 after which it has just gone down-hill. So was it just a fad? 26

5.7.3 Key Observations • A virtual world • Explore, meet, socialize • Vibrant marketplace for virtual goods and services • Fully integrated economy built on residents’ ability to buy and sell their virtual creations • $35mn traded between residents each month • 40% time spent by US residents followed by Germany and UK. • Max time spent by age group 25-34 • No college education with income less than $30,000 demographic dominates Second Life 28

5.8 QQ 5.8.1 Comprehensive Details ATTRIBUTE DETAILS IM user accounts, QQ Game Portals, Internet Value added Types of monetizing models Services, Mobile Value added Service, Online Advertising Approx 500million users, Size of network 300million active users. Teenagers & young adults, age group 16 - 25 years; also visit soso.com , renren.com. Business news, online trading and airlines. Mostly young adults both male and female. Target Audience Income groups : $0-30,000 and >$100,000. The network has very significant presence in China. College and grad school educated. 6% are addicts and 49% are passer-by How much revenue $1.05 billion Profits $225 million A very high profitability. Attracts teenagers and young adults. Positives about the current Also offers other activities on the portal which have a synergy model with the kind of target audience this OSN is focusing on. The user base has been quite stable for years. Ahead of the industry in adopting business models other than Is Revenue coming from TA the ad-based model. Sustainability Yes. Very sustainable model. 29

5.8.3 Key Observations • Predominantly based in china • Primary motive is entertainment • Higher tolerance for intrusion and is not considered spam • Privacy not considered important • 66% revenues come from sale of virtual goods and services • 21% comes from mobile services • Site is more a common solution/landing area for all online activities. Lot of clutter on website • Target audience: teens and young adults 31

6. GENERAL OBSERVATION ACROSS ALL OSN PROVIDERS It has been observed that there is a clear tradeoff between the total number of users or growth of users and the Average Revenue Per User. Companies like facebook and twitter have seen exponential growth over the last few years, but they are also among the largest social networks that are losing money. The observations from the positioning maps (as described in next section) for the networks in our consideration set indicates, there is a positive correlation between youth (teens) and ARPU. However qualitative studies have indicated that 35+ age group would fuel the next wave of growth. Now, whether it would also fuel revenue growth needs to be observed. Contrary to popular belief, virtual goods do not seem to have a very big impact on ARPU; but they may cause significant deviations for short period of time. However, that can also be because of the way the virtual goods are implemented across the social networks. Second life (the largest network using virtual goods) that enjoyed ARPUs of $125 initially; gives a clear indication that ARPU generation through such a model is targeted to a very niche set of consumers and might not be scalable. Probably , to reach the next million users, it would have to make do with a much lower ARPU. Premium subscriptions seem to have a major positive impact on the revenues. Premium subscriptions also seem to drive ARPUs. The reasons might be multi-fold especially in certain cases where the users are there for a specific purpose, like emailing people, launching an album , etc. Banner ads seem to be negatively affecting ARPUs and signal a model which is a thing of the past. While doing a regression over different types of social networks with different target audiences is questionable, a particular social network would be in a much better shape to analyse which type of users it should focus on. It is the typical question that might be asked i.e. what is the incremental revenue that a user brings to the social network , directly or indirectly. It has been repeatedly mentioned that user to user communication is inherently difficult to monetize. A bulk of the communication is pure idle chatter. The users are there to communicate. So while context is there and one can have very targeted advertisements, what is lacking is intent. 32

6.2 POSITION MAPS LinkedIn Second Life MySpace QQ ARPU Facebook Hi5 Twitter Extent of virtual goods usage With the exception of LinkedIn which serves the different set of consumers, virtual goods seem to have positive effects on ARPU. As evident from previous data, MySpace enjoys a higher level of engagement with its users. So even though the user base is falling, the ARPU levels are quite healthy. 33

ARPU and number of users doesn’t seem to have any clear relationship. Youth contributes to the major portion of ARPU for networks, but the absence of any apparent relationship is more due to different target segments and monetization models adopted. 34

Adults (age group,18-34) clearly seem to have taken up the usage of social networks. 7. FINDINGS FROM SECONDARY RESEARCHES Increasingly, we see paid social networking gaining ground, which will highlight the following questions prominently: • Are social network users willing to pay for content? • What is the revenue outlook for paid social networking sites? • What are the prospects for Facebook and Twitter charging their users? • What strategies work for paid-content providers when ad-supported competitors enter the fray. 35

7.1 SOCIAL MEDIA MARKETING Social media marketing has three important aspects: • Creating buzz or news worthy events, videos, tweets, or even blog entries that attract attention, and become viral in nature. Buzz is the piece that makes social media marketing work, it replicates a message not through purchase of an ad, but through user to user contact. • Building ways that fans of a brand or company can promote it themselves in multiple online social media venues. Fan pages in Twitter, MySpace of Facebook are exactly this. • It is conversational. Social media marketing is not fully controlled by the organization, it allows for user participation and dialogue. Potentially a badly designed social media marketing campaign can backfire on the organization that created it. That is the reason that SMM campaigns must fully engage and respect the users. 7.2 CONSUMER PACKAGED GOODS USING SOCIAL MEDIA Consumer packaged goods companies and social media are not an easy mix. CPGs have legacy marketing techniques that focus on reaching mass audiences, and the ways they measure marketing and sales success simply do not mesh with the types of measurements that social media can offer. However, this apparent disconnect may actually be an opportunity for CPG companies. By looking at social media as a way to listen to consumers, respond to their needs and create ongoing dialogue—instead of as another way to advertise to them – CPG companies can reinvigorate their marketing and create new bonds with consumers. 36

7.3 Social Media marketing on mobiles Social networking is one of the fastest-growing activities among mobile users around the world. And as one of the primary ways mobile users communicate with one another, it is proving a significant driver of Internet usage on mobile devices. eMarketer predicts the number of mobile users accessing social networks from their mobile devices will reach 607.5 million worldwide by 2013, representing 43% of global mobile Internet users. In the US, mobile social networkers will total 56.2 million by 2013, accounting for 45% of the mobile Internet user population. Mobile and social- both are evolving spaces which can be a confusing and exciting place for a marketer to be in. However, in the absence of measurement metrics, a marketer can tend to rely on the legacy modes of advertising as they present a lesser risk and require less justification in their respective organizations. The big three destinations of Facebook, 37

MySpace and Twitter dominate the US mobile social networking space as they do the desktop world. Location-based networks such as Loopt and foursquare have not yet reached critical mass, but are worth keeping an eye on as they work to link people, places and interests. In addition, location-based services can also be used in other contexts to help marketers target social network users with relevant information and offers. Location-aware branded applications and utilities that include a social component provide an avenue for marketers to engage their audience directly. But the combination of two emerging channels means that estimating the market for mobile social advertising and marketing is premature, despite the promising user base. We explored this further when we prepare a proposal using this aspect of social media marketing. 7.4 LOCAL AD SPEND If we see the below estimates from eMarketing, it suggests that local advertising is going to outpace National Online advertising. 38

This clearly builds up a case for mobile advertising as it provides the important thing: local context. Local lead generation companies are expected to play a major part in this ecosystem. Small businesses need to understand that mobile can be as valuable a channel as online and lead gen players be the educators. 8. VIRTUAL GOODS 8.1 VIRTUAL GOODS CONCEPT Why should we care? • Because Business Insider says it’s a $2 billion economy inside China. • Zynga, creators of the Mafia Wars Facebook game, is due to rake in somewhere north of $100 million this year on its virtual offerings. • Competitor Playfish has seen 100 million installs of its games in little more than 18 months. 39

• Both companies handle payments on their own or through third parties right now, but Facebook sees a revenue opportunity in managing payments and virtual currency in third party applications by itself, having recently rolled out “Pay with Facebook” in a limited trial. Virtual goods funding tops $69 million in first quarter,2009 • IMVU – $10,000,000 • ngmoco – $10,000,000 • Nurien – $10,000,000 • Offerpal Media – $15,000,000 • Ohai – $6,000,000 • OMGPOP – $5,000,000 • OneSeason.com – $3,500,000 • Scrapblog – $4,000,000 • Viximo – $5,000,000 • Three Melons – $600,000 8.2 WHY DO VIRTUAL GOODS WORK? • People are impatient • People want better stuff • People want to feel important • People want to express themselves • People want to build relationships • People want to show people they care • People want to feel good about themselves Following are some of the examples through which above questions are addressed by various social network providers: 40

Decorative goods Functional goods Socializing – Express your identity with a customized avatar Decorating: design your own garden, farm, etc 41

Shopping: experience the pleasure of browsing, choosing and using new stuff Gifting Enhanced game play : Pay more, get ahead faster 42

Virtual goods work because Social context provides meaning and emotion Virtual goods let you monetize your most engaged players 8.3 VIRTUAL GOODS SURVEY RESULTS Now the question was whether virtual goods would work in India: if it were to work what would be the potential target audience. 43

Respondent Age Profile 4% 4% 14% 25% <20 20-25 25-30 30-35 35+ 53% Almost all (except one) use a social network and almost all use Orkut (91%) Gender Profile Female 20% Male 80% 44

Occupation Profile Others Students 4% 4% Self Employed 3% Employed 89% Virtual goods awareness 70% 67% Percentage awareness of virtual 60% 50% 50% 50% 40% 36% goods 33% Series1 30% 20% 10% 0% <20 20-25 25-30 30-35 35+ Age 45

Have you played Farmville Yes, I play it very often 14% Yes, play it but not very often 5% Have not heard about it 43% Heard but not played it 38% As is evident, most of the people at the cutting edge of technologies i.e. IT crowd, have not heard or played Farmville one of the most popular social games in Facebook. Are you interested in buying a virtual gift? Females: Interested in buying virtual gift? No Yes 50% 50% 46

Males: Interested in buying a virtual gift? Yes 40% No 60% Females are evidently more interested in buying virtual gifts. However, the culture of gifting would probably mean that the concept of virtual gifts would take off. Females: Interested in paying to buy weapons in social network? Yes 19% No 81% 47

Males: Interested in paying to buy weapons in social network? Yes 13% No 87% One should probably have asked a question whether people play these social games and what is its prevalence. Without that question, this result might have little significance. The platform popularity itself might be a problem. Interest in paying to buy weapons in a social network/game 35% 33% 33% 30% 27% 25% 20% 15% 12% 10% 10% 5% 0% <20 20-25 25-30 30-35 35+ 48

Interest in paying through virtual currency No 48% Yes 52% Females: Interest in paying through virtual currency No c Yes 50% 50% 49

Males: Intention to buy virtual currency Yes 19% No 81% Females: Interested in buying virtual currency Yes 19% No 81% 50

Interested in buying virtual currency 35% 33% 30% 27% 25% 25% Percent interested 20% 14% 15% 10% 5% 0% 0% <20 20-25 25-30 30-35 35+ Age Intention to buy virtual currency does not bode too well for the industry in India. Of course it is still early days and even more so for India. So it might take some time for it takeoff. In fact the usual things that have been successful in other places might not work. One might require India specific values and beliefs to be woven into these virtual goods and services. 8.4 OBSERVATIONS FROM SURVEY FINDINGS: The level of awareness about virtual goods is about half way there. However its prevalence in mainstream is still not there.Probably people are not that into social gaming because of which the tendency or incentive to buy virtual weapons is not there which is very common in other markets. The culture of gifting shows in above average tendencies to buy virtual gifts. However just about 24% are ready to actually pay for the virtual currency. Of course the actual amount will also depend on the use case or the actual virtual good.In addition to that, a rule of thumb is that such affirmatives should always be taken at a discounted value because of the level of uncertainty and the environmental factors. Hence asking people to pay would be tricky. One should also note that most of the respondents are from IT sector and are expected to be technology leaders compared to the average social network user.Almost everybody uses a social network, orkut being the dominant one with facebook and linkedin catching up. More conservative numbers should be taken for all the aspects where the respondent answers in the affirmative for the interest shown. 51

9. MONETIZATION MODEL PROPOSALS The model we propose shall be from the point of view of Google which is not only a social network provider (Orkut) but also a mobile OS provider with an ever increasing market share in the smartphone segment.It also provides mobile utilities for other popular mobile OSes which might also like to have a stake in this play. In that scenario, it might be better if Google has a tie-up with these platforms(e.g. Symbian, iPhone, Blackberry). It also enjoys a great advantage as the platform of choice for online advertising. Proposal – 1: Social Media marketing via mobile phones Problem: Crowded space with a lot of fragmentation. An evolving area where no player has a clear lead so a huge potential remains to be tapped Social Networks (SN) • On average, existing SN users spends 2hr online, for networking on the sites. • Almost all of them are mobile phone users, with a very few accessing SN sites through phone. • Reason à Lack of ‘deep integration’ of SN sites/interface with the phones. Mobile • High growth of mobile phones users • Existing mobile phone users upgrading to smart-phones, new users adopting low cost high featured phones • On average, mobile phone users spend 6hr on his/her phone. • Feature phone to smart-phone penetration [22% CAGR] • Market share of smart-phone expected to reach 30% by 2013 Benefits to advertising and marketing companies • Effective analysis of communication sent by mobile phone to server • Customizable marketing campaigns, on the interface provided by SN • Effective reach (ideal survey candidates) for advertising companies based on the profile information. • Integration of social phonebook into the mobile contacts Benefits to Social Network Providers • Wider user base, with the gradual increase in SN usage on mobile phone. • Effective revenue model for SN providers – by allowing most effective communication media to local area advertisers. • The only screen that a person carries with him throughout the day • Collaborate with popular mobile phone platforms 52

• Better targeted customers Incentives to users • Staying connected on the fly with minimal hassle & intrusion. • Opportunity to earn ‘virtual currency’, for each exposure to advertisement, marketing campaign, response to survey. • Currency can be used to upgrade to premium services, availing selective value-added services. • Tradable for virtual goods, ringtones, game incentives, etc Key Concepts • More use of network and the airtime. • Demographic information • Psychographic information through communities, interests • Location information from mobile phone • Contextual advertising, marketing • Unused screen real estate • High attention for short periods of time. • Targeted advertising. Proposal – 2: Social Media Analytics This is probably being provided by some companies using the social networking platforms. The concept is that suppose a brand has launched a product and wants to get real time feedback i.e. what are people talking about the product. When and where are they talking about this. Let’s say Nokia Care in Kormangala is not doing well and this information is not reaching the top management, people typically would not come to complain about the product. They would simply spread the word in their social network of choice (e.g. twitter). People would simply stop buying the particular brand’s products. Plus a particular review just stays on the web. So a real time feedback enables companies to take immediate action. This is worth millions of dollars and the companies would surely be willing to pay for this data. Currently a few small players provide this in a restricted manner over the twitter platform. However, from a social network provider point of view, they should not just create and provide value but also capture value. 53

10. CONCLUSION Our focus in this project has been to identify and evaluate different monetization models in use by the prominent online social networks in the world. Every social network has its own target audience and its own portfolio of business models. Our attempt has been to evaluate and unravel the core models and also to look at the new upcoming trends and the trends that are now fading away. What makes the analysis of these models difficult is that there is no successful business model yet in this industry. Data is a very big issue and most of our time was spent in collecting that and making sense of it with the help of various analytical reports. There have been a lot of contradictory findings too which makes it tougher to make sense of the data. Eg virtual goods was supposed to get higher valuations, in fact OfferPal media , the virtual goods platform provider, claims an average CPM of more than $150 compared to just around $1 for google adsense. However, a quick regression over the ARPU and the different parameters points out that the virtual goods are not significant in driving the ARPUs. Of course it could have been driven by the fact that not many players use virtual goods in a big way. The other big hurdle that happens is the trade-off between number of users and ARPU. The deeper you penetrate in the market the lower the ARPU. It might make sense to do a targeting exercise and find out the segment of users that are worth going after to maximize revenue/profit. We have come across a lot of different models • Advertising : national, local , banner ads, text ads, ads in communities • Marketing campaigns • Analytics • Virtual goods • Hyper targeting • Overlays • IM user accounts • QQ Game Portal • Internet Value added Services • Mobile Value added Services • Trading of UGC • Live concerts • Business, Education (e.g. second life) • Premium accounts API selling (eg twitter licensing out API to 3rd party developers for application development and extracting data from twitter network). Most social network use a combination of these. 54

And since they are mostly privately owned companies, they d.o not reveal their revenues leave alone the break-up of their revenues. So for most part of our studies we have relied on analyst reports. Add to that the fact that all of them have a different target audience. Hence a successful business model in one context may not be so successful in a different context. The way forward would be to evaluate each business model on a standalone basis were it to be used exclusively by an OSN. It should be done in the context of a social network and not on an isolated manner. For example, one can evaluate virtual goods business model in India for Orkut and say that while the potential for virtual goods is there, the current awareness level is not very high. Indians too do not seem to be very willing to pay money to buy virtual goods. Of course, such a statement is relative and can be seen in the context of the proportion of people willing to buy virtual goods across the world in different countries. 55

11. REFERENCES i. http://www.bbspot.com/News/2009/03/twitter-unveils-premium-accounts.html ii. http://moconews.net/article/419-myspace-mobile-grows-450-percent/ iii. http://www.quantcast.com/secondlife.com iv. http://www.google.com/insights/search/ v. http://backstage.in.nokia.com/apps/NokiaMessagingSocialMessaging vi. http://backstage.in.nokia.com/apps/Ovilifecasting vii. http://betalabs.nokia.com/ovi-maps viii. http://factoryjoe.com/blog/2009/09/14/the-web-at-a-new-crossroads/ ix. http://www.pcworld.com/article/171928/nokia_deal_with_plum_heats_up_mobile_ social_networking.html x. http://betalabs.nokia.com/betas/view/contacts-ovi xi. http://blogs.forrester.com/marketing/2009/07/interactive-marketing-nears-55- billion-advertising-overall-declines.html xii. http://www.marketingcharts.com/television/emarketer-revises-online-video-ad- spend-projections-downward-5679/emarketer-online-video-ad-spend-us-2007-2013 xiii. http://www.techcrunch.com/2008/12/31/top-social-media-sites-of-2008-facebook- still-rising/ xiv. http://news.cnet.com/8301-17939_109-10160850-2.html xv. http://blog.nielsen.com/nielsenwire/global/social-networking-new-global-footprint/ xvi. http://www.techcrunch.com/2009/06/07/a-map-of-social-network-dominance/ xvii. http://www.emarketer.com/Article.aspx?R=1007202 xviii. http://blog.compete.com/2009/02/26/facebook-myspace/ xix. http://www.insidefacebook.com/2009/03/25/number-of-us-facebook-users-over-35- nearly-doubles-in-last-60-days/ xx. http://blog.compete.com/2009/04/30/online-flash-interactive-ad-performance/ xxi. http://www.businessweek.com/magazine/content/07_46/b4058053.htm xxii. http://www.businessweek.com/magazine/content/08_22/b4086025019774.htm xxiii. http://trendwatching.com/trends/CUSTOMER-MADE.htm xxiv. http://adage.com/bigtent/post?article_id=138864 xxv. http://virtualworldbusiness.com/2009/04/30/know-your-customers-second-life- demographics/ 56

Osn Monetization Models Pgsem Project Report

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