There is a great deal of talk these days about social media companies and their need to find a business model. Even my recent PC Magazine talked about how Twitter and others will need to find a business model in 2009. This whole discussion seems to be looking for some elusive business model, like there is model that nobody has identified or figured out.
It seems to me, and of course I could be wrong, that there are only so many business models you can choose from. Most of these have been around for centuries and will likely be the set that these companies must choose from (since there aren't likely to be any new business models that come out of thin air).
If you look around the web, you can easily find a list of business models, which looks something like this:
Merchant .... selling somebody else's products or services
Manufacturer .... selling your own stuff
Affiliate .... making money referring people to somebody else (pay-for-performance)
Infomediary .... money is made by selling customer data
Community .... everybody pitches in (not sure how money is made)
Brokerage .... brings parties together and takes a cut of the action
Advertising .... you know
Subscription .... paid, metered, pay as you go, etc.
This pretty much sums up the world of possibilities. Sure, you can find variations on this list of models, but those are typically a small tweak of the more general concept.
Since social media sites (let's use Twitter, as the example) aren't selling products they manufacture (or reselling them), that eliminates the first two models.
I've heard some talk about the Affiliate model, where Twitter would get some money by getting a commission on traffic sent to a merchants site, but this seems very tricky since so many people use clients (like TweetDeck) and likely the benefits would come to the people who post tweets, rather than Twitter.
Community models tend to be open source and they don't typically have a business model that pays a lot anyway. The brokerage model doesn't really seem relevant in a world where the people involved are supposed to be friends, openly sharing information (imagine if Twitter were going to start brokering that relationship and taking a piece of the action!)
The next possibility I've heard about is the Infomediary model. The argument goes that since Twitter has so much data, maybe they sell this (say, as insights on consumer behavior). This seems reasonable, except that the competition for Infomediary products is pretty intense (think every marketing research company in the world and every company that has access to the same data through Twitter's APIs) and anyway, the data will be fairly biased (only generalizable to that subset of the world who uses Twitter). In any event, it seems to me that selling their data isn't exactly what this whole social media platform was supposed to be about.
So, we're left with basically advertising and paying money for a subscription. It seems to me the payment model would be very tricky. Imagine if Twitter started charging, say, $5 month to use it. Hmm, some people would pay, but I could easily imagine a competing free service (let's call it Fritter) would show up immediately and even provide a way to port most of your data (followers, etc.) for free. Sure you could try a metered model (pay as you tweet, etc.) but all of these could be easily taken over by a free service.
So, we're back to the old standby of advertising. If people are searching for a new business model, then this is the oldest model you can find. I haven't seen any ads these days on Twitter (on some Twitter clients, yes, but not on the service itself). Nobody really knows how successful an advertising model is in the context of social media. I'm betting on the fact that most big brands would try it, and then see that it doesn't really pay .... the reason is simply because people aren't using Twitter expecting to see ads interfere in their personal relationships and communications.
So, what do you think? Is there a business model that I'm missing here? Am I being too pessimistic (will advertising save social media)?
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