An empirical study on
Monetization models for
Online Social Networks
PGSEM Project – FINAL REPORT
Prof. Srinivas Prakhya
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
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
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.
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:
• Second Life
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.
4. PARAMETER MATRIX
Social MySpac Second
Networks Facebook Orkut LinkedIn QQ e
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
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
Accounts Zero Zero High High Zero High Low Zero
Virtual Currency Low Zero Low V. High Low V. High Low Low
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
Mobile V. High High Med High Med Zero V. High Med
Top demographic USA Brazil India China USA Italy Brazil Peru
Declin Stable Declin
Evolution Stage Growth e Growth Decline Decline Growth e
Profiles Low Low High Low Med Low V. High Zero
Links, Events, ncing,
Photos, IM, IM, chats,
Videos, Videos, News concert, tag
Other Services Notes Promote Low feeds shops cloud
5. DETAILED ANALYSIS OF STUDIED PLAYERS
5.1.1 Comprehensive 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
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
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
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.
5.1.3 Key Observations
• Performance advertising has been used, but it provides the strongest potential for
• 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.
• 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.
5.2.1 Comprehensive Details
Types of monetizing
Is it even earning any money? Not really.
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
Twitterpro, merchandise, twitter for business (customized secure
Positives about the
software), twitter forums ad supported, ad sense, marketing PR
campaigns (charging for that), and analytics industry.
Is Revenue coming
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
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
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.
5.3.1 Comprehensive 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
them have no college education. The income level hovers
Interested in communities, apparels and photos/video sharing.
$750mn in 2008
How much revenue
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.
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
• 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
• 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.
5.4.1 Comprehensive 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
Sustainability User to user communication is inherent & very hard to monetize.
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
• No college education group with income less than $30,000 is dominating the
5.5.1 Comprehensive Details
Types of monetizing models Advertising like WSJ Demographics
Opening up its network of affluent professionals to B2B
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
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
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.
• 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
• ‘Intent’- specific purpose and the intensive features for the same are the key to this
• 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
5.6.1 Comprehensive 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
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
further analyze consumer behaviour. But require a larger reach
than it currently has. Primarily restricted to Brazil and India.
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
5.7 SECOND LIFE
5.7.1 Comprehensive 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)
$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
peaked in 2007 after which it has just gone down-hill. So was it
just a fad?
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
5.8.1 Comprehensive 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.
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
• Target audience: teens and young adults
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
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.
6.2 POSITION MAPS
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.
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.
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
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
• 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.
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,
MySpace and Twitter dominate the US mobile social networking space as they do the desktop
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
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.
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
• 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
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:
Socializing – Express your identity with a customized avatar
Decorating: design your own garden, farm, etc
Shopping: experience the pleasure of browsing, choosing and using new stuff
Enhanced game play : Pay more, get ahead faster
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.
Respondent Age Profile
Almost all (except one) use a social network and almost all use Orkut (91%)
Have you played Farmville
Yes, I play it very often
Yes, play it but not
Have not heard about it
Heard but not played it
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?
Males: Interested in buying a virtual gift?
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?
Males: Interested in paying to buy weapons in social network?
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%
<20 20-25 25-30 30-35 35+
Interest in paying through virtual currency
Females: Interest in paying through virtual currency
No c Yes
Males: Intention to buy virtual currency
Females: Interested in buying virtual currency
Interested in buying virtual currency
<20 20-25 25-30 30-35 35+
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
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.
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
• Reason à Lack of ‘deep integration’ of SN sites/interface with the phones.
• 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
• 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
• 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
• Tradable for virtual goods, ringtones, game incentives, etc
• 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
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
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
We have come across a lot of different models
• Advertising : national, local , banner ads, text ads, ads in communities
• Marketing campaigns
• Virtual goods
• Hyper targeting
• 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.
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.