How to Create a Profitable Social Network Site

Every social networking website is trying to figure out how to make money.  However, the best model that has any type of traction is online advertisement.  This is a tired model and is hard to make any profit.  There are many reasons why advertisement should not be the only major revenue stream.  For one, it relies on a critical mass of eyeballs which can be finicky.  For another, the advertisers have significantly more bargaining power than the website.  For a third, target advertisement which is most lucrative for websites is hard to do.  Lots of analytics, forecasting and predictions needs to built in the backend for these websites to do this correctly. 

Another model is through subscription.  However, it is hard to beat free.  Payment is always a big barrier to reach critical mass of eyeballs quickly.  Strong value propositions in a social networking service must be realized easily, hard to duplicate and hard to quit.  Not many social networking websites can sustain with this model alone. 

I believe that once a website reaches a critical mass of eyeballs, they need to diversify their revenue stream and focus on their brand.  An interesting company called Mind Candy has probably one of the best business model for a social network website.  Once they reach a critical mass of eyeballs, they are now doing a lot of licensing deals: magazines, books, trading cards, film, life talk, etc. 

Through the growth of their brand, it will create a snowball effect on their website.  Also, it allows its customers to interact with the brand in many different ways.  They will also be known for their flexible business model and they can always find new way to extend itself and its customer will be accepting of this.  You can look at how Redbull has done this type of brand building as a great example.

Obviously, Facebook is the 800-lb guerilla in social network, taking the limelight away from MySpace a few years back.  MySpace is trying to create itself by targeting a certain interest group for social networking.  They should follow in the footsteps of Mind Candy in doing licensing deals and executing their brand building strategy using Redbull tactics.  By doing it this way, MySpace might become profitable and sustain a business viability.

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About Andre

Experience Business Developer & Alliance Partner Manager with Strong Technical Background Dealing with Complex Solutions
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