Organisations have pooled in billions of dollars in developing either social networking sites, digital media content, streaming entertainment/news portals, collaborative forums etc. However, these organisations are realising the difficulties in getting return on their investments. The predominant model for monetising online assets is based on advertising. We are seeing selected sites becoming top publishers and a few advertising servers cornering the major chunk of advertising inventory. Therefore we would see many online models and portals fail just because the supreme advertising engine did not “approved” of their portal.
This puts online portals under severe risk and complying with the mighty advertising engine is the only option. Google in its last earnings call accepted that the traffic acquisition cost has gone up and the social network monetisation is not shaping up the way they had expected. These are clear indications that the cost per click/cost per impressions/keyword acquisition prices would be revised upwards to counter the increasing cost. With the ongoing recessionary global economy the advertising budgets would definitely be hit. As fewer and fewer advertising engines capture more market share, the bargaining power of advertisers goes down which may eventually reduce their online exposure due to escalating costs. There is a growing discontent about social network advertising and too much contextual advertising which is equated as invasion of privacy in western world.
Moreover, it’s always good to have diverse revenue streams which can counter the business and spending cycles in the economy. The first and surprisingly “never felt” challenge for any online portal is the ability for it to identify its monetisable assets. Portals are fixated on user traffic to generate revenues. Though the user traffic indeed is a critical asset, portals must ask themselves about other online assets. Is their content a monetisable asset, is the group list a monetisable asset, is the value it’s offering a monetisable asset, is the segment its catering to a monetisable asset etc. A significant challenge hence is to find out a viable augmenting revenue model which can exploit all of these assets. Various portals are delivering proprietary content like video, news (content monetisation) developed by some companies which also provide them with a revenue stream. Financial aggregation portals also give online consulting and advise people on their portfolio, which can be made paid depending on the quality of the advice (value monetisation). Professional networking sites like LinkedIn and Xing are monetising their user segment by partnering with various job hunters.
The move of social networking sites and other portals to enter the mobile space appears to be a good decision. Unlike web access through computers, the access to content of online portals is charged as data transfer and comes with a fee. Moreover, most Indian portals have SMS based access by design rather than by limitation in developing a WAP enabled portal as the SMS revenue could be shared between the various stakeholders like the operator, the aggregators and the content providers. However, commercial mobile web access is a distant dream even in developed world and countries like India have a long way to go in that regard.
MySpace has recently launched its music service and these kinds of innovations are needed to give the online world a new thrust. If the users are coming to a portal and listening to music, there does not seem to be much value add which would force users to come back to the portal again for that service. At the same time social networking advertising or revenue stream must be unobtrusive. A user can listen to songs as well as communicate with her peers. Online portals should not be segregated as a portfolio of standalone services, but should be looked as one cohesive platform for “engagement experience”. The lower user loyalty is a critical issue in retaining users. These services are finally launched to augment the user count on the websites or to earn revenue sharing from other service providers. As the user listens to a particular music more demographic data collection can be performed and more informed advertising can be rendered.
Till now we are speaking predominantly of one revenue stream of advertising which may perhaps come in different formats. Therefore we have verticalisation of social networks and socialisation of vertical networks and essentially more “contextualisation” and targeting of advertisements. However, is there any different stream? Numerous studies have showed that users do not login to social networks with an intention of shopping and hence most of the advertisements are considered to be intrusive, unnecessary and something which kills user’s online experience. This has given rise to ridiculously low level of CPI/CPM for social networking sites.
However portals like LinkedIn have become de facto for professional networking and job portals seriously search them for prospective candidates. It is believed that its $100mn of revenue consists predominantly of fees from job sites and partners. However niche segment scalability remains a challenge. The recent “Web 2.0 Retail Technologies” research report by Jupiter shows that 25% of online shoppers consult their online social networks which can be leveraged in terms of alliance with business partners who can share revenues based on the conversion of a consumer to sales from that particular portal.
Portals are unsuccessfully trying to develop paid content even though earlier paid sites like the Wall Street Journal, Economist.com have become more or less free to access. Therefore it appears that “user pay” revenue model may not be appropriate for the online world unless the content is highly relevant and attractive. However a small payment popularly known as “micro payment” could be experimented with. The users do get addicted to a particular website however the conversion is loyal till the point its not charge for. Portals like Facebook.com which have popularised application concepts seem to be better poised to diversify their revenue stream. Online retailers like Amazon have already developed applications like “Bookshelf” which allows users to share their reviews about a book as well as allow the user to purchase that book from the portal itself.
The augmenting revenue model for a portal apart from the usual online advertisement would depend on the purpose of the portal, the audience it caters to and the organisation backing it up. The monetisation for a news channel website may perhaps be not that critical compared to a pure play portal. A social network trying to develop augmenting revenue stream can device sharable royalty based entertainment services like videos, audios or demographic data access to marketers, allowing groups to host their communities on its websites etc. It could provide other services like partnering with an online education company to target communities based on colleges/schools etc. There is no end to these kinds of partnerships and the company would get a ready base of users who would be more inclined to avail of its services than it advertising into generic communities.
Therefore each portal has to device its own mechanism for a diverse revenue stream. Copying the revenue model out of context into different portals is a recipe for disaster. A platform based approach could be used where the portal transforms itself from a mere interactive website to a framework on which third parties can develop their own applications to interact with either commercial websites or other communities.
The fundamental criteria for consistent sales volume is “know your consumer well”. However with the ever-changing and fickle website loyalties, it is nearly impossible to use this concept in the online world. Maybe there is a need for advertisers to introspect about their requirements from their online campaigns. It would be unfair to have similar criteria to judge two very different medium and hence social networking advertisements for example could be more suitable for subtle brand building than impacting actual sales. They could be an excellent mechanism to launch consumer consumption goods where community feedback is much more important than to publicise an enterprise application.
To summarise it’s not possible or even advisable to provide a “one solution fits all” diversify revenue stream for a portal. It would depend on its purpose, its content, target user segment and organisation backing the portal. However, an augmenting revenue stream must be devised as online advertisement though the main source of revenues, should not be relied upon excessively.
The writer has worked in the IT industry and is an MBA from IIM Ahmedabad. He can be contacted at yugaljoshi@gmail.com
