It's fun but does it pay?

[katyusha]

Howdie!

I'm just wondering, how do online communities actually make money?

What is their major source of revenue apart from advertising?

How much can owners earn?

How many people are needed to run and manage a friendster type of website?

I know that's a lot of questions for this little space, but I am a curious person. :)

Cheers,
K

[dmorison]

I can see some very fundamental issues and catch 22's with any type of social networking website if your goal is to make money.

Unless built into the design of the system, a social networking site is somewhere that users go and stay; which means that they're not clicking on ads. This effectively rules out advertising as a revenue stream until you're into the millions of page views and can sell on a CPM basis to companies just looking for brand awareness rather than clicks.

It is unlikely (but of course not impossible) that you will make it to that level of traffic before costs and other problems exceed your will to live; which means that your only alternative is to charge for it...

But you can't charge for it up front because your site has no users; and you can only justify a price once you reach a critical mass that brings the value proposition of the network into line with what users are prepared to pay Vs your costs of running the website.

It is unlikely (but of course not impossible) that you will make it to that level of traffic before costs and other problems exceed your will to live; which means your only alternative is to...

Have a look at this thread for a similar discussion:
[webmasterworld.com...]

My thoughts at that time were...

The biggest challenge I can see with launching a "Web 2.0" community based service is getting the critical mass of users required to ignite the system and realise the benefit.

Unlike a forum, you can't take time to work up that critical mass if the whole concept requires a large number of users in order to work at all.

Therefore, and unless you have an existing user-base into which you can introduce your new social toy, you have to design a mechanism for growth into your idea.

One way, and the reason why I think del.icio.us has been successful, is to make sure that your service provides a solo user benefit in addition to the community realised benefit. This way, you can promote your service based on the solo benefit and introduce the community benefits that will come later.

Of course the moment you start charging for it, someone will clone up a free version and poach all your users...!

[rogerd]

Sponsorships, banner ads, and contextual ads do allow busy communities to make money. Getting to the point where that can happen, though, is difficult. Communities are a lot of work, and not all emerge as winners.

If you are looking for a money-making opportunity, there are much faster approaches than community building. If you are love doing it, and are willing to donate a few years of effort without much immediate payback, you might eventually find that pot of gold.

I don't think there's any rule of thumb about staffing or earning potential. It's all related to volume and your niche. If your site achieves high volume, you'll need more help to run it but the financial opportunity is bigger, too.

I just saw an article that said YPN was dropping MySpace sites, and that Google was in a similar dilemma with Adsense. Huge volume of ads to deliver, but horrible click rates. My comparison, movie & music ads seem to be doing OK there.