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How Facebook, and Twitter should monetize

Bill Gurley recently had a great post about how TenCent has been able to monetize through the use of digital goods and games.

For those that don’t know, TenCent is the owner of the leading IM franchise in China – a product known affectionately as “QQ”.  TenCent was founded in 1998, has 355 million users,  US$1.2B in annual revenues, and a US$11.2B market capitalization.  The stock chart for the past 5 years is included in the adjacent graphic.  The two primary drivers of revenue for TenCent are digital items and casual game packages and upgrades.  Advertising, which doesn’t work well on U.S. products like IM, doesn’t work well in China either.  Advertising revenues for TenCent represent only 12% of total revenues.  Recently, I asked a leading Internet analyst which company in China is best positioned above all others?  He quickly replied “TenCent”.

Facebook already has very large succesful third-party games and could build some killer ones internally.  Additionally, virtual gifts are approximately 1/5 of Facebooks revenue.  Surprisingly, an estimated $50 to $60 million is made from Facebook virtual gifts.

Though I agree that the digital goods and games model will undoubly be extremely profitable if executed correctly, here is my easy and fast recommended revenue model for Twitter and Facebook.

1)  I’ve been saying for years that our all aspects of our offline lives are migrating online.  Our conversations, our interactions, and our thoughts are being held and recorded online.

2) We are already recommending books, restaurants, electronics, websites, and all sorts of consumer goods online.

However, these mentioned on Facebook and Twitter are not hyperlinked. What if Twitter and Facebook hyperlinked mentioned of goods or services relevant to the conversation?  For instance, if a friend recommends a book on Twitter, it would link to Amazon so I could purchase it or read a summary/reviews of it. Think Zemanta.com or Apture.com for online conversations.

Would I pay for a link to a neighborhood or apartment in a conversation on Twitter or Facebook?  I am cheap and I would pay boatloads for that.

So similar to the Google model that brings back relevant advertisements based on key terms, advertisers could pay for links in the text of conversations as long as it is extremely relevant.  If I mention Apple Macbooks in a conversation, the “Apple” text is linked to Apple’s homepage.  No doubt there is downside to the user experience if it is not executed correctly, but I think a few relevant links here and there would actually be helpful.

On that note, “I’m going to Barnes and Noble right now to attempt to buy an advanced CSS book.”

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  • conorlee3

    Further reading on this topic: Check out this Tech Crunch op-ed by Eric Clemons (Prof of Operations and Information Management at Wharton): http://www.techcrunch.com/2009.... He thinks advertising as a whole will eventually be destroyed by the internet (he includes broadcast and print adverting in this boat) and then breaks down the online monetization options beyond advertising in a few very interesting ways, which include describing Google's business model as, "misdirection" (which he defines as the act profiting off of other company's willingness to pay to have people searching for them or their competitors diverted or misdirected to their site).

  • Eric Wu

    @conor lee

    Good point. Do you think there is opportunity in handling it the way Zemanta does their recommended links...as an opt-in?

    For instance, twitter provides the option to hyperlink text within tweets if the user wants to provide additional depth.

  • Only is there is a way for the link introduction process to not interfere with the ease of use of either system -- and the popularity of both systems is enhancing communication abilities of its users. I'm not a huge fan of Zemanta because the suggested links aren't relevant enough for my needs to warrant the extra step it requires. I guess I'm back to square one -- it's all about the interface and ease of use.

  • Eric,

    I like your idea with including keyword links in discussions, but it does bring up major privacy issues, and could really piss some users off. The idea that a person conversation can literally be turned into an ad would certainly bother a lot of people. It's like taking Gmail's contextual advertising a step further. Another issue is the idea that you would be altering someone's original content -- which could result in a decreased use and/or trust of the service. It's one thing to include keyword links on your own blog, but entirely another to do that to other users. If the use of the keyword links were limited to specific types of discussions, and not used often in regular conversations, then it might work.

    Also, the visibility of those links would need to be pretty subtle (underlined blue text might even be too much). Find a nice balance of a slightly bolded or different font for the linked text with the normal text, and it might be able to work.

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About Me

I'm a twenty something entrepreneur living in San Francisco. I'm the founder of Movity.com, I've spoken at NMHC, AIM conference, Harvard Entrepreneurship Conference, and Multi-housing World, and was named one of BusinessWeek's Top 25 Entrepreneurs Under 25. I enjoy great design, all relevant and irrelevant technology, reading, and good people.