Wallen's

A map on freemium business model

There is a continuous discussion about business models in the web. I’ve put together overtime a few maps on each major business model. Here is the map on freemium that gives a comprehensive view on this business model. There are 3 sections in this map.

1. The first branch gives a general perspective on the freemium business model. For those really motivated they are 2 academic papers on the value of a free customers at the end of this branch.

2. The second branch goes into the key success factors such as scale, pricing, metrics, etc.
3. The third branch focuses on benchmarking real life numbers on conversion, price points, average rates, etc. Non-EU people, may find interesting to have a look at the annual reports of Xing, a local competitor of LinkedIn that is publicly traded.

Just click on the pearl below then on the play button and the arrows to be guided through this map.

NB: if you have some relevant posts to complement the map, don't hesitate to post them in the comments, especially posts on real life numbers or experience (vs. "conceptual" posts).

 

"Share of voice" revenue model: the solution for social networks?

This tweet from Patrice Lamothe, this post from Scobleizer and the discussion around Exec Tweet got me thinking. What if, instead of pushing commercial companies’ ads, social networks helped commercial users to increase their share of voice on their platform? Could this “share of voice” revenue model be the way forward to monetize social networks’ audiences?

What do I mean by “share of voice”? Social networks in the broad sense of the term are, in a way or another, tools to promote oneself. Users write on Facebook or Twitter so that other people hear about them. They want these people to hear about them because, directly or indirectly, they want to promote themselves. In other words, it is personal PR in a given media. This is the very basic social rule of these social products. On the other hand, commercial companies also enter into traditional PR activities to increase their share of voice to get a message across.

With this context in mind, the “share of voice” revenue model is about providing functionalities and services that help your users increase their share of voice on your social network.

Let’s take Twitter as an example. Commercial companies can have an account for free on Twitter. They are users like any others. They have followers, they sometimes follow people and they send tweets.  Twitter could sell services or functionalities to help these companies get more followers and hence increase the share of voice of their tweets. These services or functionalities can take numerous forms, e.g., “sponsored suggested users to follow” (as is already the case now when opening an account but I think it’s free). The pricing could be either a flat fee for the service (as in freemium models) or a cost per follower type (as in advertising).  

On the other hand of the service, a Twitter user has the choice to follow or not the commercial user tweets: he decides whether he sees these tweets or no. In this sense, it is very different from advertising since the latter is “forced” onto the user. The format of the company’s “voice” is still the tweet hence it is naturally integrated in the platform. Of course, as always, the social property needs to strike the right balance to make sure that these "promoted voices" do not overwhelm the product. It should also notify what is promoted or not.

This approach of “share of voice” can be applied to all sorts of social products since the basic premise of most social products is personal PR in a way or another.

In an old post, I said “media channels successful with advertising have a common characteristic: an excellent fit between content format, advertising format and user’s purpose/values”. Just replace, in the previous sentence, the word “advertising” by “monetization tool” and you’ll see that the “share of voice” revenue model fulfills all these conditions. This means that it should be more productive than ads on social networks and hence command higher revenue per user. This also means that the traditional strategic trade-off between user growth and revenue generation is less stringent because the revenue model fits with the user experience. However, it probably still means that you need a big audience for this model to generate significant revenues.

Some will argue that at the end of the day, it is just another form of advertising model. Not really: instead of asking “how can I put advertising on my product?”, the question for the entrepreneur becomes “how can I help some of my users gain share of voice?”. It’s a very different framing… And, as we all know, the framing of a problem changes radically the specific solutions that come out.

The “share of voice” revenue model has a lot of potential for social networks.Time will tell.

What are your thoughts ?

Google-Twitter deal: good or bad ?

Techcrunch annouced that Google is in talks to acquire Twitter. While usually these "early stage talks" don't end up into a deal, would this be good or bad news. Obviously it depends from which perspective:

Twitter as a company: very bad
There is really a strong case for Twitter being able to make it very very very big: not only is Twitter the market leader in a new kind of fast growing web usage but also Twitter has the potential to perform a paradigm shift in terms of business model (more on this in another post later). Wouldn't it be a pity not to pursue this adventure. Under Google, Twitter will be just another service among others and will not have all management attention. This will hinder it's development vs. a standalone option (provided they have enough funding until it becomes profitable).

Twitter's founders: ???
It depends on what they want to achieve, on what is their objective: make big money now for sure or building maybe a major company in the web sector ?

Twitter's VC investors: very good
They'll make a hell of a lot of money with this sale... and in those days where VCs are craving for big exits (see Q1 09 numbers here) to show nice numbers to their LP's, it must be one of their only major exit opportunity.
I don't know if Twitter's VC can get a deal through without management approval but this could be (and I say "could be") a good example on how VCs may destroy a company's future due to misalignment of interests and timeframes.  

Google: good
Even if the price tag is very high or even way above Twitter "fair" valuation, they are basically killing a serious prospective competitor in search and thus keeping their quasi monopoly... this has unlimited value for them.

MSFT/Yahoo: bad
Twitter could be a shot for those 2 to come back into the search fight they lost. I wouldn't be surprised if they started an acquisition battle.

Facebook: neutral to good
With it's new design becoming more Twitter-like, Facebook is clearly trying to get onto Twitter. If they can't buy it and that Google hinders Twitter development, they should be happy with this deal

The web sector: very bad
Google again maintaining its predominance in the sector... and the less competition in a sector, the less performance/service/quality/innovation/etc. for all users...

Personnaly, I vote against that deal...for the web sector and for Twitter itself.

Those were my first thoughts. What are yours?

UPDATE: here is an answer by Twitter that doesn't say much except for one sentence "Our goal is to build a profitable, independent company and we're just getting started".