Social networking platforms are apparently running through monetizaton problems. Most of the industry stalwarts agree to that point. A near guesstimate tells us that some of the world’s largest social networking sites like Facebook & MySpace have annual revenue of approximately $450mm and $650mm respectively.

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Not bad and I believe it quite respectable sum. But the problem is more inward i.e. average revenue per user or page-view is very less considering the amount of traffic it gets which is no less than companies like Yahoo etc who is doing business in the order of $7.2 Bn in annual revenues. So surely there is some problem.

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The problem pertains to the way social networking has evolved over the years, primarily led by US based SNS dynamics. On the hindsight, Asian counterparts are doing exceedingly well in this space, Take for example, a publicly-traded Chinese web conglomerate comprised of an instant message client, a social network, and various other services called TenCent (with 355 million users, US$1.2B in annual revenues, and a US$11.2B market capitalization) which has already paved the way by identifying the optimal way to monetize this type of product i.e. by selling virtual goods as one of their ways to monetize.

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On the contrary, US based social networks have primarily relied on online advertising for monetization and have faltered. Lets take this example,

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The amount of advertising revenue on an adjusted basis at TenCent ($2.08) is quite similar to Facebook ($2.44) and MySpace ($5.85). The key difference in this comparison is obviously the revenue TenCent generates with business models that are largely absent on both Facebook and MySpace — digital items and casual game revenue. For every $2 of adjusted advertising revenue TenCent has per user per year, they generate $17 in other revenue streams. Benchmark Capital has invested in two private companies in the social/virtual world space – SecondLife and Gaia Online. In both cases, the company revenues are significant, and in both cases advertising is not the leading business model.

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After this, I dug deeper to understand what all ways are present in Web 2.0 era for social networks to monetize, which in many cases are not being done. Below I’ve listed 6 ways to social networks to monetize which can be easily tapped for monetization.

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1. Branded Content: Facebook has a huge opportunity with this since they have the user base to substantiate the time, money and efforts that companies will put in and have eye-balls and generate interest, relevance and pave the way to evangelism.

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2. Virtual Goods: Another way to tap the virtue of social networks since its a very low marginal cost game with high gross margin topline.

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3. Advertising (aka Social Ads): Yes, its sure one of the ways to monetize but not the only. Looking at the numbers alone, newer ways other than just charting benefits on CPC or CPM or even CPL won’t suffice since ads in social networks are always intrusive. But newer ways to engage have to metricized.

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4. Allied Services like Voice Telephony: SL.com paved the way for this one. Read more on this

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5. Conjoining virtual reality with real world fun: SNS have to understand that the platform is more like a fun-filled bar where users hang out to have fun. Now the point is how to make money out of it. Surely conjoining virtual reality with real world fun would work wonders like MySpace’s Secret shows in India. Point is adding more value to users life other than his/her daily web-existence.

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6. Mashing local search in Social network platform: In my last post, I mentioned that how social networks can leverage on its user base by providing local info. This is another way to monetize since it again provides much value to end users.

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