Monetizing Customer Information

As I have addressed previously in my posting about menéame, the biggest challenge of managing Web 2.0 applications, is for companies to know how to best monetize them, whether so as to just cover the costs of maintenance or to make it a profitable endeavour. Currently, there are a few business models out there, subscriptions, premium subscriptions, CPC advertising, CPM advertising, etc. With the growth of Google, came with it the huge growth in reliance on advertising as being the main revenue stream of many Web 2.0 business models.

Is the advertising model effective?

Well, it depends since it has been very effective for Google, however it has been far from that for the some such as menéame or facebook. It does a lot to do with understanding the kind of users that are frequenting such websites and networks. Therefore, although such websites have created a wide user base, which is the first essential step for triggering the network effects and the potential for profitable monetization, they have still not come close to fulfilling their profit potential.

However, have they all been unsuccessful in terms of monetization through their user base (rather than the developers of 3rd party applications in the case of facebook)?

No! An example of success when it comes to monetizing the user base is tuenti. Tuenti is the leading online social network in Spain, only open to users joining through invitations. Tuenti managed to do this through see their user base as much more than just a user base but rather a wealth of information on specific individuals with specific preferences and interests. They used that to bring online social networking advertising to a different level with what they had called "events". These "events" are basically a form of highly targeted advertising. They usually show in the form of an icon on a user's profile and when clicked, it directs the user to information about a certain product, usually with some kind of offer or so. I have not been able to experience the "events" myself first hand, however being taken through the way it works and the kind of results the "events" have generated is impressive. How are they successful? Basically, through highly specific targeting that brings advertising in a well scheduled way to any specific user, where any user would not receive more than two or three events in any given week. This leads to reducing clutter and a high click-through rate.

The wealth of information that can be capitalized on is expanding in size as well...The fastest growing part of the user base, can be called "the transparent generation" with the advent of microblogging and location based services, the information and the monetizing opportunities are numerous.

So what does this mean to everyone else who is not making enough money through their user base?

1. Ensure that you are collecting as much information as possible about the user base
2. Look at creative ways of using this information to achieve highly specific targeting bringing relevant messages to the relevant user in a clutter-less environment
3. Re-invent your pricing so as that it reflects the higher value you are providing advertisers and partners
4. Ensure that you are fair in the way you are using customer data so as to build trust in them sharing more information which in turn will lead to better services and messages tailored to them.

Word of Caution:

The collection of user data means that there needs to be legal covering to support such activities through giving users the choice to opt-out after they are educated in a transparent way about the benefits they would receive out of opting-in. As mentioned before, there needs to be trust so that the user base can be truly monetized in this way.

Going through a recession, there is a need for creativity and a bigger need for better understanding the value that comes with a wide user base...and once that is in place, it would be time to make smarter and more sustainable money!