Social Machinery

2009 will be remembered as the year of social media growth. Recently, Facebook CEO Mark Zuckerberg announced that the social network had reached more than 350 Million users. Facebook is not alone, phenomenon like Twitter, Youtube, Linkedin among others have established as a key media component in our daily life.

Taking in consideration the value social networking add to business, entertainment, lifestyle and communication areas:  Are users willing to pay to stay connected with friends on sites like Facebook or MySpace? And if they don’t want to pay for any of it, what would they be willing to “give away” in order to keep these sites free?

Interestingly, according to a recent report from eMarketer which analyze consumer behavior behind paid and free business model for various social networks, more and more users are willing to pay for certain premium functionalities (e.g. Linkedin premium account)  or for some additional services ( e.g. Facebook´s virtual gifts).

The question is extremely important at this point of time, since social networks have reached certain level of maturity and advertising spending is not enough to monetize the fragmented social networking ecosystem. Actually, analysts predict that social network ad spending for 2010 will be in the range of $1.5-$2 Billion USD worldwide. From these figures, Myspace and Facebook will take roughly 50% of all spending. These numbers are peanuts compared to total ad spending forecasted for 2010, around $456 Billion USD, and less 4% of all digital ad spending for 2010.

Therefore, the quest for finding additional revenue streams including paid services already started. Astonishingly, an increasing number of users are paying for social networking services in the form of premium functionalities, gifting, virtual currencies or memberships.

For instance, in the US revenues paid social network websites like Classmates.com and LinkedIn.com shows a positive trend. During 2008, revenues coming from paid social networking sites were estimated in $502 million. For 2009, eMarketer estimates these revenues in $627 million. Next year forecast is $811 Million, showing a 29% growth from 2009. This means that already 25% to 40% of all revenues generated by social networks are coming from sources different than advertising, mainly paid by users.

Consumers are willing to embrace Freemium models

At the beginning of this year, Abrams Research polled over 200 social media founders, bloggers, journalists, entrepreneurs and high profile web 2.0 trendsetters from across the US and Canada asking a simple question, how should social networks be monetized? According to the survey, 32% said that they would most likely pay to used Facebook, and 31% was willing to pay for Linkedin services. Twitter willingness to pay rounded 22% of all preferences.

When researchers asked about best way to monetize social media, 45.5% of all respondents mentioned “Freemium” model as the best way to monetize social networks sites. Freemium business model is a monetization model that allows users to use a basic version of a service for free, and then functionalities via additional fees.

Other monetization strategies mentioned in the study where contextual/targeted ads with 20% of all preferences and monetization charging by research with 9%. Traditional monetization via banners ad received a low support from experts with less than 3% of all preferences.