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A new type of communities is gaining momentum on the web and is reshaping online communication and collaboration patterns and the way how information is consumed and produced [Gros04, Kolb06]. Examples of such communities are MySpace, OpenBC, YouTube, numerous Weblogs and others. In literature different terms can be found to denote the emerging and growing new phenomenon: social software [Bäch06] or peer production [Scho05]. In the year 2005, Tim O’Reilly popularized the term Web 2.0 [O’Reil05]. While the first two terms can be applied also to earlier, already established forms of online communities (for an overview see [Stan02]), the term Web 2.0 is mostly applied to emphasize the differences of emerging communities compared to earlier forms of online communities, encompassing various perspectives – technology, attitude, philosophy.
Recently the mass media have picked up broadly the term Web 2.0 and the related phenomenon of emerging online communities (see [Schm06] [Rühl06] [Ohne06]). Social networking communities and web logs are most widely researched certain type of Web 2.0 communities.
Since 1927, the renowned Time magazine has published an annual issue that features a profile on the person that “for better or for worse, has done the most to influence the events of the year” (Time, 2002). In 2006, Time’s person of the year was “you” – a collectivity rather than an individual who communicates, contributes and collaborates in a completely new manner using a new generation of the Internet: the social networking communities.
By this means, the term social networking has eventually arrived in popular media and proved that it mattered. Today, with YouTube and MySpace, two of the five websites that attract the most user traffic on the Internet are labeled as social network sites. Both websites rely heavily on community building and user contribution. But in fact, social networking goes far beyond just a more socially interactive version of the web. It is a new way of thinking, a new perspective on the Internet and on software. Web 2.0 thrives on network effects. Databases get richer and applications get smarter the more people use them; websites start to interact with each other building the web as a platform.
As the definition of social networking is about a set of trends, it incorporates three important core patterns of new age online philosophy. These are user participation, openness, and network effects. Social networking not only exploits Web 2.0 techniques, but also its philosophical foundation. Social networking is about – Flickr, blogs, user participation, web services, wikis, tagging and syndication. All these new kind of web features apparently must have some common traits, which, in their entirety, determine the phrase social networking communities. This is where a lot of attempts to define social networking communities start. The definition of social networking communities is therefore only a starting point, because, in the end, it is the underlying patterns that are much more important than a definition.
Unlike the ambassadors of the so-called new economy in the late nineties, early genuine social network startups kept a rather low profile. However, the market situation for social network startups changed rapidly as big Internet companies and media conglomerates started to acquire social network companies for major sums. In the following I will present a list of some of the most prominent acquisitions of social network start-ups:
- In March 2005, Flickr was sold to Yahoo for an estimated $30 million (Bazeley, 2005; Flickr, 2005). This was the first major acquisition of a social network company.
- In July 2005, the media conglomerate News Corporation announced that it signed a definitive agreement to acquire Intermix Media, Inc., the owner of MySpace, for approximately $580 million in cash (News Corporation, 2005).
- In October 2006, the Internet’s leading search engine Google acquired the popular online video site YouTube for $1.65 billion in stock (La Monica, 2006b).
- In May 2007, CBS bought Last.fm, a social music website, for $280 million in an all-cash deal (Riley, 2007).
Since prospects for major acquisitions are quite good, social network start-ups have again become a target of venture capital funds. For example, in early 2006, a lot of social network companies were raising already $3 million a rounds. Now, after the YouTube acquisition, even $7 million a rounds are not uncommon (Arrington, 2007).
Social networking communities have thus gained an increasing impact on internet businesses and should therefore not be neglected from an academic perspective. New niches arise and existing models are highly affected by social networking communities. The objective of this paper is to describe the phenomenon of social networking communities and to provide a systematic overview of current and emerging niche models.
Whether there will be a second Internet bubble or not, in the long run, only companies with a solid business model and especially with working revenue model will survive and possibly prosper. To survive, social networking communities have to adopt Web 2.0 revenue models. In the following, I will present charts discussing of how social networking communities are using established Internet revenue models, eventually evolving into Web 2.0 patterns, techniques and philosophy.
Data Tables (Data Collected 2007).
As the chart shows, among these above-mentioned websites there are both high and low ranking websites. The registered user column shows what makes their ranking different from each other. However, from a business model perspective, not the resulting community but the service is of importance that has the potential to result into a community. In order to enable community-building, the services provided for social networking communities consist in general of three components:
- The main focus lies on content and services for collaborative creating, management, updating and sharing of content. The specific form of the services can vary depending on the type of content: text, links, videos or pictures.
- Services and automatically update procedures that evaluate each user input and create always a new common state of knowledge and content or as some authors explain it, mechanisms for creating after each input the newest stage of collective intelligence. Either as a side effect of their actions or through active participation, people add value to every web application they use. This could be by directly creating content, such as contributing to a survey or by linking websites, tagging content, recommending products or by commenting on a blog post. By the end of 2006, more than 500,000 users visited Digg every day, yet the company never spent any money on advertising. Setting network effects by default enables viral marketing, a best practice of harnessing collective intelligence. With an average of 65,000 videos uploaded per day, YouTube, a popular video sharing website, has successfully leveraged network effects for building up a hard-to-recreate, user generated database
- Trust building services as ratings, voting and similar, which are also the foundations for the collective intelligence services.
The services are offered furthermore in three different forms:
- Firstly, in form of a platforms or tools that can be used by users to initiate communities. They offer the means for users to express themselves by using the platform, to create new content or tools, and to find persons interested in the same content or (in principal) get noticed. This means that platforms provide tools that enable users to create, store, manage and share content. Examples of platforms or tools are the various blog or mobile blog platforms. Depending on the specific type of content that is supported by the platform we can distinguish two major groups: Services which facilitate navigation tasks are labeled as directory services, while services that empower users to create their own content are named “technology centric” services.
- Secondly, in form of online collaboration tools that are offered as online applications (in contrast to local application) or in form of workflows that map a process to an online environment. The objective of these services is to improve the process efficiency by making necessary information as agendas, to do lists and similar accessible from everywhere and through any device. These services offer functions for online collaboration (e.g. time schedule), management of online process flows (e.g. online brainstorming), or provide online applications (e.g. online text processing).
- Last but not least, community services. Communities unify users through a common objective. The common goal can be something like “finding new friends”, “finding relevant information” or simply “killing time”. Community platforms offer complex services for social creation of content of various kind.
The various kind of services offer different participation possibilities for users. While the group of services belonging to platform / tools and online collaboration have a clear and obvious communication flow, the community focused services utilize different combinations of communication methods and offer different ways of possible participation within the new community. The quality and the size of the community knowledge pool are depending on the number of active users and their participation intensity. In addition, the form of participation not only drives the culture of the community, but also the user acceptance and loyalty. The general principle for participation could be, that the easier the participation, the higher the probability of participation. On the other hand, the lower the entry barrier, the more likely is the occurrence of low quality content. From a user perspective, the decision is based on the perceived effort of participation and the expected benefit from participation.
Below are three case studies which show the potentiality of social networking and what features have enabled them to create their unique business value.
Flickr
Michael Arrington from Techcrunch (2005) named Flickr as one of the defining Web 2.0 applications. This photo sharing service was launched in early 2004 by Stewart Butterfield and his wife Caterina Fake. In March 2005, Flickr was acquired by Yahoo (Flickr, 2005). The mission of Flickr (2007a) is “to help people make their photos available to the people who matter to them” and “to enable new ways of organizing photos.” In September 2007, Flickr had 4.5 million registered users and around 230 million photos uploaded. About 900,000 new photos are uploaded by Flickr users every day (Arrington, 2006a).
Business Model
Flickr is one of the first companies which deliberately applied the ‘Free + premium’ subscription model. Users with a free account are allowed to upload 100MB worth of photos each calendar month. If free users find themselves hitting their monthly limit they can subscribe to a Flickr Pro account, which costs around $25 per year and allows unlimited photo uploads (Flickr, 2007b). In an interview with Richard Koman (2005), Stewart Butterfield of Flickr states that “we are doing fantastically with that [the premium subscriptions] so far; we are really happy with the results.”
As a pioneer in the field, Flickr is widely recognized for adopting many patterns and best practices of Web 2.0 to improve its business model. The most prominent are collective intelligence, the web as a platform, multi device strategies and rich user experiences.
Services
When Flickr started its service back in 2004, it was not the only website allowing users to upload their digital photos. But Flickr was the only service to allow tagging and sharing of photos with friends or the public. They abolished the traditional metaphor of photo albums and let users organize them ad hoc through collaborative filtering.
Since 82% off all photos on Flickr are public, the service has the critical mass to have a massive network effect (Koman, 2005). Hence, users are interacting in many different ways with each other through photography. This may be what makes the website sticky and has prompted many users to pay for a premium service.
Flickr offered an open API of its service right from the start. Stewart Butterfield states that “it’s really valuable for any new product or service to reach the hyper-geek audience, who are particularly influential. And for them, the open API is a sign of good faith, a sign that your photos and your data are not going to be locked up in Flickr.” (Koman, 2005). Today, more than 30 popular web applications use the API to create value-added services leveraging the large Flickr photo database (Flickr, 2007c). For example, the small application Retrievr allows users to draw a small sketch and then searches the Flickr database for matching photos.
The many mashups and services that base on the Flickr API spread the word of Flickr and represent good viral marketing for free.
Flickr is inherently designed for the use on mobile devices. Using the URL m.flickr.com, Flickr members can surf to the site using their mobile phone browser. Mobile uploads of photos can be performed by attaching images to a mobile e-mail (Flickr, 2007d).
Moreover, Flickr has recently announced a partnership with Nokia, a leading mobile phone manufacturer.
Currently, a mobile Flickr application comes preinstalled on every Nokia Nseries mobile phone, allowing people to upload, share and view photos (Flickr, 2007e). It can be assumed that – with the introduction of GPS enabled mobile phones – this software will be able to geotag uploaded photos automatically.
Rich User Experiences
As a genuine Web 2.0 application Flickr is well-known for creating a sophisticated user experience, which is designed to combine the best aspects of the desktop and the web. Making heavy use of Ajax for in-context editing of photos, tags, titles and comments, the service provides almost desktop-like interactivity. Flickr can be used very easy and intuitively, thus increasing the stickiness of the website and raising customer experience significantly.
Revver
Revver was founded by Steven Starr in 2004 and started its current service – Revver 1.0 – in September 2006. It is a viral video network where users can upload their videos and share them among the Internet. Revver’s mission is to “support the free and unlimited sharing of content online in an environment where the creator is rewarded for his/her work” (Revver, 2007).
Business Model
Revver is rather unusual for a Web 2.0 service: It was created with a revenue-generating business model, and developed with an advertiser’s point-of-view in mind (Bogatin, 2006). When users upload a video to the site, Revver attaches a brief, unobtrusive ad and a tracking technology to “Revverize” the video. The ad appears at the end of the video. Every time the ad gets clicked, Revver shares the resulting revenue with the user on a 50/50 basis. To increase the value of the network, Revver also rewards people for sharing videos – for example by embedding them into their blog – with 20% of the ad revenue (Revver, 2007). According to Oliver Luckett of Revver, the company monetizes videos at 75 cents to $1 per view. At least for some of Revver’s users, the business model seems to pay off: Fritz Grobe and Stephen Voltz, the producers of a Revver video called the “Diet Coke and Mentos Experiments” have earned more than $28,000 in shared advertising revenue (La Monica, 2006a).
Services
Revver pioneered the idea that users get paid for creating and contributing content to a website. Therefore users have a strong incentive to be active and to contribute on Revver, fostering collective intelligence. Network effects which magnify the value of user contributions are set by default: Users can also earn money by simply sharing videos. Above that, Revver provides a forum where users can discuss best practices of earning shared advertising revenue by uploading their videos.
Unlike many other video sharing websites such as YouTube, Revver attaches advertising directly to the main content. Consequently, the video data becomes the key asset and revenue source for Revver. The revenue sharing model must be seen in this context: By paying the user for contributing videos, Revver can directly scale its business. However, the user retains ownership of his videos.
The Revver API provides web developers a way to access the Revver system and database. All users have the ability to distribute and syndicate Revver videos and to earn some shared ad revenue for each ad click. An example of a mashup that uses the Revver API is Vidmeter.
Rich User Experiences
Revver videos are hosted in the flash video format (.flv), a rich media format which provides superior user experience and increases site stickiness.
Plazes
There are not many Web 2.0 start-ups based in Germany that go beyond just copy/paste innovation and create unique services targeted to a worldwide audience (cf. Hochmuth, 2007). Along with Mindmeister or SellaBand, Plazes is one of these rare examples. Plazes was founded in 2004 by Felix Petersen and Stefan Kellner and went online in early 2005. The author of this thesis was among the first employees of the start-up company. Plazes is a local based social community that connects people and their friends to places (called “plazes”) where they spend their time. In January 2007, Plazes raised 2.7 million Euro in an A venture round and had around 40,000 active users (Plazes, 2007).
Business Model
The business model of Plazes, which is not entirely defined yet, will be based upon three revenue pillars:
- Transaction based mobile services (Plazes SMS)
- Contextual Advertising
- Affiliate Marketing
In the following I will concentrate on the affiliate marketing revenue model. Real life places with Wi-Fi access are called “plazes” and are defined by Plazes users. Every plaze has its own homepage where users can check-in as current or future visitors. Plaze pages also come in different categories such as hotels, airports, restaurants, bars, homes, etc. For each category, Plazes will associate with a certain targeted affiliate program. For example, hotel plazes will incorporate an affiliate hotel reservation tool. By generating reservation leads, Plazes can earn up to 50% of the whole transaction revenue performed by its users (IAN, 2007).
Services
Although implementing many communication and collaboration features from the very beginning, the friction from requiring users to download some desktop software (the “plazer”) clearly slowed user growth, a prerequisite for a successful affiliate and advertising strategy. Hence in late May 2007, Plazes changed the way it handles location and now the client software is no longer required to set location. Instead, users can simply set their plaze via a suggestion mechanism (based upon the grown database of locations). Above that, users can also say what they are up to. This is a strategy which should improve communication between users and which reminds of the Web 2.0 site Twitter.
Without any doubt, data is the key asset of Plazes. Every time a user accesses a Wi-Fi, the plazer, a small desktop client, queries the hardware address of the router and verifies the Plazes database for a match. If the hardware address is new to Plazes, the user is kindly asked to name and pinpoint the new plaze. Thanks to this process, Plazes now owns earth’s biggest directory of locally verified Wi-Fi access points. This user-generated database is hard to imitate and gives Plazes a competitive advantage when it comes to local targeted advertising and affiliate programs.
Plazes is an exemplar for multi device strategies: The service counts explicitly on the assumption that users are increasingly mobile and using laptop computers and mobile phones to access the Internet. Plazes can be used through text messages (Plazes SMS), through a GPRS Client (Plazes Mobile) or whenever accessing a Wi-Fi network with a mobile client.
Therefore, Plazes services are ubiquitous and so are their affiliate partnerships. For example, Plazes will offer its users car rental possibilities right when they check-in at an airport plaze.
Rich User Experiences
Plazes is making heavy use of Ajax and rich media templates all over its website. For example, the new plaze suggestion mechanism is very intuitive and reduces many hurdles of user adoption.
Web-based application therefore no longer means sacrificing some quality of user experience. In a world of social networking communities we can finally see the power of data-rich, collaborative, networked online applications. However, finally, websites providing greater services and improved user experience will rank top.
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