Building and Monetizing online communities

You know you are a serious entrepreneur when at 8am on a Saturday morning, you are at the TieCon 2007 to mingle with other entrepreneurs and industry luminaries. The theme for the conference was The New Face of Entrepreneurship and the huge crowd at this event was very enthusiastic and highly engaged. Here are some insights from the TieCon panel on Building and Monetizing Online Communities from Ground Zero:

Moderator:

Patricia Nakache, General Partner , Trinity Ventures

Panelist(s):
Vinay Bhagat, Founder, Chairman & CSO, Convio
Christopher P. Michel, Founder & CEO, Affinity Labs
Neal Mohan, SVP of Strategy and Product Development, DoubleClick
Steve Polsky, President & COO, Flixster, Inc.
Laurence Toney, Chairman, ProfileLinker

Patricia Nakache started off the panel discussion with a very interesting quote,

"Vision without execution is hallucination"

The five-person panel had great insights on how to move from vision to execution and skipping the hallucination stage. The first question to the panel was if ‘Middle-America’ was ready for web 2.0. The panel was equivocal that ‘viral’ is a mostly young phenomenon and it will take some time and lot of patience to reach the older audience. Laurence Toney, Chairman of an ex-eBayer mentioned eBay, the original social community site, as a great example of successfully building a community that is highly ‘middle-america’ in composition and global. I think the key here is to build a community that delivers value to your user base and they will come.

Steve Polsky of Flixster, highlighted the importance of reiteration – "deconstructing failure and reconstructing success" as the key to sustainable success. In other words, learn from the successes and mistakes of other companies. Get experts on board either as employees or advisors and leverage their expertise. I agree, convincing industry experts to become advisors for your company is definitely the way to go if you want great advice on the cheap.

A great question was about strategies for building that all important critical mass for your online community and there were several gems that came up:

1) Viral marketing is (of course) at the top of this list
2) Piggybacking on other successful sites was another way to get noticed
3) Incentivize and motivate your users to contribute content, this increases the engagement and loyalty to the site and makes it more interesting
4) Search engine marketing was also mentioned as one option of driving traffic to your site (Many thought this was a blatant plug by DoubleClick)
5) Understand Customer Lifetime Value, have a good balance between your acquisition costs and monetization
6) Last but not the least, build a good product, if your product sucks, no matter of virality or WOM is going to save your site

Having a great product is key but getting a critical mass to use it is challenging, especially if you don’t have the first mover-advantage. Christopher Michel of Affinity Labs, had a great point that virality can not be replicated and it’s just a matter of trial and error. Toney had a good point the need for distribution of content to end of the network. He gave the example of Art.com, which leverages widgets to distribute information from emerging artist’s pages. He went on to say how easy-to-use widgets are some of the fundamental building blocks for supporting virality.

The panel discussed strategies for repeat usage is to increase stickiness of the site by improving user experience. Simplicity of the site and ease of usage along with motivational elements lead to increased user engagement. Polsky highlighted the passion for a particular issue or topic such as movies drives engagement and retention. However, the current models for measuring online marketing effectiveness are counter-intuitive because high CTRs indicate low stickiness and less engagement with users, which is a death knell for any socialization site. In case, you missed this news – In March, Comscore announced ‘visits’ as a new user engagement metric and I think it’s about time.

I am very leery of advertising-only revenue model, I don’t think it’s sustainable especially if you are not #1 or #2 site/blog in your chosen market, so I especially loved this part of the panel discussion. In response to the all-important question of monetization, at a time where everyone is looking at advertising as a revenue source, Toney pointed to successful models like Art.com and eBay, that have combined commerce with socialization. This is a very powerful combination and effective model for driving monetization. Neal Mohan of DoubleClick highlighted a little-known fact that 72% of the advertising revenues goes to larger social media sites like MySpace and FaceBook. However, a vast majority of ad inventory on these site remains unsold, indicating there is an oversupply and smaller social media sites need to look at alternate sources of revenue.

I am big believer of niche marketing and highly focused messaging to a target audience. I think trying to appeal to a mass audience (one-size-fits-all) dilutes the value of any marketing program. Michel remains skeptical about brand marketing via social media sites because of several reasons, the main one being the current metrics are inadequate in measuring marketing efficacy. His view was echoed by Mohan who said the biggest challenge, brand marketers face is that while large socialization sites like MySpace can drive huge traffic, they don’t have a clear handle on their demographic. Moreover, brand marketers are unable to control unfavorable brand exposure because of the open (uncontrolled) nature of the online media. Hence there is an opportunity for niche sites like Flixster that have a small but highly target audience, so the quality of the user base is much better.

Mohan went on to say that online communities were a great avenue for lead-generation and this was grossly overlooked by marketers. And niche networks (other than Yahoo! and Google) could also provide better value in search-related advertising. Vinay Bhagat of Convio highlighted the need to track offline behavior not just online metrics. Online communities are influential in driving offline behavior and this should be measured and taken into account when determining the return on any online marketing investment. Michel brought up a great point that we have to stop looking at advertising as disruptive and position it as a benefit to the consumer to ensure effectiveness of any advertising effort.

Mohan pointed out the total current US ad spend was $600billion and there is a gradual shift of offline dollars to online advertising. Toney concluded the discussion on a very optimistic note. Currently there is a disproportionate allocation of media spend in favor of traditional media, given the substantial amount of time that consumers spend on the Internet. He sees this changing and more media spending dollars flowing to online media. He also provided one interesting prediction and that was how we might see social networking not just as stand-alone communities but as a feature for enhancing user experience.

It was a brilliant discussion and providing tremendous learning for those who already have their social sites up and running as well as those starting new online communities. There is much more that I haven’t been able to cover here, but you get the gist of the discussion and trends in the social media space.

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