Web Communities and the Art of Making Money

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2. Business Models for Web Communities

By Robert Nagle
Summary: Part 2 of this essay looks at the different business models or strategies for making a web community site financially viable.

Model One: Charging for Content/Membership

Charging for access to content is what people used to do. Editors used to publish journals, and people used to buy them, didn't they? But now people are so used to finding anything they want for free that they will quickly switch loyalties. There is also the problem of piracy and duplication through legitimate means. If users can use the wayback machine or google to dig up archived versions of old articles, then protecting nonmembers from viewing content starts to seem futile (as a recent Slashdot discussion suggests).

That leads to charging for membership (like Salon or Nerve). With membership you not only receive exclusive content, you also get the opportunity to participate in a community of people with a special interest (Indians, foot fetishists and beanie baby collectors). Salon, cockybastard and nerve have tried this business model with some success. A consumer might not value community membership, but he might value the matchmaking capabilities provided by membership. There is nothing so special about nerve that it can't be duplicated on another site. But users know that others with similar interests (in this case erotica) will congregate here, so it's better to stay only for that reason. First entrants to a particular field have a special advantage, but supply and demand will eventually drive costs (and profits) down. As it becomes easier to host community software, it will be easier to find like-minded people at little or no cost.

I'm guessing that Sulekha barters advertising space in exchange for local businesses that provide discounts for Sulekha members. Perhaps Sulekha derives some financial gain from each referral. If Sulekha could persuade people to pay an annual fee, it could instead make deals with advertisers to offer discounts to members in exchange for lower advertising rates.

Suppose Sulekha could persuade people to pay for $10 annual memberships. For that they could offer 1) the " no advertising experience" 2)the ability to post classified ads (regular postings would be free) and respond to personals 3)the ability to be listed in a directory and to be notified of events 4)discounts on events, services 5)perhaps other services: online bookmarks, photo galleries, weblogs.

Determining a price point for services is pretty hard and depends a lot on perception of value. It has to be small enough to cause people not to think twice about spending but substantial enough to produce a genuine revenue stream. Here is a sample of what web communities are selling for their online services:

Community and Membership Fees
Site Type Membership Fee What it Gets You
Slashdot technical discussions $5 for 1000 ad-free views ad-free viewing
Nerve literary erotica 25 credits for $20 25 credits for responding to personal ads
Citizenx blogging webcam community $5/month taxes "citizenship," which allows you to have webcam broadcasts, personal lounge and the right to post on the front page
Salon political commentary $30 for one year exclusive content, ad-free pages, 6 months subscription to print magazine "Mother Jones"
Typical Adult Site adult porn $20 per month exclusive content, webcams, streaming videos

Model Two: Bundling Services

Another option is to try to bundle online conveniences with the content part of the site. (Like yahoo or Lycos) Then you can use the content to convince people to use the online services. Or the reverse. The online services can be a draw for people to become members. There are two problems with this strategy. First, people who start content or community websites don't usually have experience integrating software systems. Suddenly they find that a great deal of their time is spent not on planning content and community activities, but supporting online services they agreed to bundle with their content. Also, this business model works only when consumers see value in the synergetic effects. I remember an awful business idea in the 1980's involving a video store membership that gave toy discounts and free Pepsi while walking around the store. Okay, the business idea sucked, but it illustrated the dangers of trying to do too much bundling. Yahoo envisioned that its directory services would attract people to sign up for email, online banking and web hosting. I won't fault Yahoo for trying, and indeed some of those geniuses have done a pretty good job rolling out new easy-to-use services for consumers. The problem is that the investment in infrastructure to expand and integrate its services also brought higher rates than companies that did just offered one product or service. Yahoo offers pop mail forwarding for $20 and 25MB of mail storage for $30. But another excellent service Fastmail offers $20 for pop forwarding, 50mb, absolutely no advertising and three aliases. With Geocities, you can get 100mb, php support and 25 gigs of throughput for $20month. But my own web-host, tera-byte.com offers the same things for $10 a month, in addition to a mysql database.

Yahoo's programmers make terrific front ends (and oh, yes, lots of pop up ads). The certainty that Yahoo will stay in business is certainly worth something to customers. But it's not yet clear whether consumers need or want a single site handling all their online tasks. And keeping services together poses a certain risk. The best email companies in the world, yahoo and hotmail, still haven't found a way to install decent email filters, and that problem will only grow worse with the arrival of hundreds of millions of Asians on the web. Unless yahoo or hotmail can maintain stricter marketing and privacy policies than they currently have, consumers will be reluctant to use any service that results in more spam. Also, I have written before that there are security risks associated with free web-based email accounts, and a compromise on an email account would give to crackers free reign over related services. For many, there just isn't any value in hiding all one's valuables in the same place.

NEXT: 3. The Advertising Model

Robert Nagle is an available Texas writer who has written essays about Kafka and Eastern Europe. He maintains a technology weblog and an Asian Culture Weblog.


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