The financial efficiency of web based companies has actually been heavily gone over following the current announcement of Facebook’s, Zynga’s and Groupon’s frustrating second-quarter results. The primary concern developing from these results is what the particular companies are going to do to enhance their future monetisation methods. In my view there are 2 proven, if contrasting, services to this issue – one concentrates on the user while the other concentrates on advertising.
The strategy of concentrating on the user has actually been successfully implemented by LinkedIn, who have actually just announced their earnings for Q2 was $228.2 m, an 89% year-over-year increase, which went beyond Wall Street’s predictions. LinkedIn produce most of their earnings from supplying business customers with access to its user base in order to either work with the ideal talent with services like Working with Solutions (which accounts for 53% of all revenue) or sell to the right people with services like Marketing Solutions. Only a 3rd of their profits comes from advertising and the rest originates from offering users subscriptions to its premium services.
To support the services it provides, LinkedIn has continued to invest greatly to ensure there are an adequate varieties of users for its services. In Q2 this investment included spending $118m to get SlideShare, a professional presentation site, including extra functions to its news service LinkedIn Today and releasing new apps for mobile gain access to through gadgets like the iPad. The cost of these new modifications cut gross margin to simply 6% however helped increase the variety of members from 161m to 174m in just 3 months; a 50% increase in the space of a year which is an incredible for a ten year old business.
Twitter has actually followed an alternate method that focuses primarily on marketing and according to marketing research business EMarketer Inc; in 2011 they generated $139.5 m in revenue which is forecasted to grow to $540m by 2014. This revenue was produced from offering advertisers with Promoted Tweets, Promoted Trends, Promoted Accounts and a self-serving marketing platform. They also created millions of dollars by providing live feeds to Yahoo, Bing and Yandex, a Russian search engine.
Twitter is currently wanting to expand the amount of advertising it uses and in preparation has actually severed its cross posting collaboration with LinkedIn and is seeking to block or limit third party developers. The problem with focusing completely on marketing is that the more messages you push towards users, the more they become inflamed till eventually they switch somewhere else. Twitter already has an issue with haemorrhaging users as according to a blog on their website currently just 140m of their 517m accounts are active. Additional marketing will just exacerbate this issue.
In my view the very best monetisation method for sites like Facebook, Zynga and Groupon to follow would incorporate the very best elements of LinkedIn’s and Twitter’s and concentrate on both the user and marketer. A mix of providing brand names with the ability to directly target the proper group together with some marketing should make sure the long term financial stability of the internet based companies.