We look at Freemium revenue in social networks and online communities including asking that: if freemium is the business model of giving it all (or most) of the services away for free, how can you then charge for it? And what is free stuff anyway – marketing? advertising? A mugs game?  If you offer some services at a paid-for premium, which ones should you choose to monetize? Maybe technical support or more of the standard fare or perhaps specialised content and services that the free service don’t get to see? And note: annoying members into paying for premium access doesn’t work.   In this episode of Social Media Business podcast, the concept of freemium is introduced – what it is, how Flickr, LinkedIn, SecondLife are making millions of dollars from giving stuff away for free. I’ve included links and charts below for your perusal.

This podcast comes from an overview of social media monetization revenues presentations and courses that I’ve been running for the last few years.

Note: other episodes are here or you can subscribe to video on iTunes and also the AUDIO iTunes! or subscribe via RSS (video) or RSS (audio).

Freemium Revenues: Social Media Business Ep.004 from Laurel Papworth on Vimeo.

My podcast is an introduction to the concept of freemium. Mostly because a lot of companies I speak with still can’t get their head around if it’s free, why would people pay?  For instance, the idea that TED TALKS charges $6,000 a ticket for a conference, and have a waiting list of wannabe attendees, yet put each conference presentation video, with high production values, up online, is an anathema to them. Too weird. So if you do get it, and want to dive straight in, Andrew Chen’s blog post on How To Create A Profitable Freemium Start Up might be for you. If you are still a newbie, wanting back ground, then please, read on. You can always come and click back on Andrew Chen’s link later – plus he has a downloadable spreadsheet model for you. 😛

Monetizing social networks

I think one way to increase social network revenue is to monetize the unreasonable. On Flickr, maybe a 100 meg of uploads is fair, more is not. Pay for the unfair. You want 5 photo albums, you got them. Want more? Well that’s unreasonable – but pay a few bucks, and we’ll see what we can do. It helps to have been running a network for a while and see what is reasonable vs extreme use.

What do I get with a Pro account?

When you upgrade to a Pro account for just US$24.95 a year (or R$45.90 if you’re in Brazil ) you get all this:

• Unlimited photo uploads (20MB per photo)
• Unlimited video uploads (90 seconds max, 500MB per video)
• The ability to show HD Video
• Unlimited storage
• Unlimited bandwidth
• Archiving of high-resolution original images
• The ability to replace a photo
• Post any of your photos or videos in up to 60 group pools
• Ad-free browsing and sharing
• View count and referrer statistics

Compare that to what you get with a Free Account:

• 100 MB monthly photo upload limit (10MB per photo)
• 2 video uploads each month (90 seconds max, 150MB per video)
• Photostream views limited to the 200 most recent images
• Post any of your photos in up to 10 group pools
• Only smaller (resized) images accessible (though the originals are saved in case you upgrade later)

For more information, visit our upgrade page.

Advertising versus Free/Premium subscriptions

LinkedIn, in October 2009 had over 50 million members (plus 385 staff)   $75-100m – 1/4 from advertising. Premium servies offeres additional inbox messages and additional folders.

Along the way, Hoffman also used some of his PayPal proceeds to help start LinkedIn, an online business-networking service that helps professionals like him realize the value of their contacts from the past and present.

With more than 1 million people joining each month and projected 2008 revenue of $75 million to $100 million, LinkedIn Corp. seems likely to deliver another big payoff for Hoffman. (USA Today 20th January 2008)

The New York Times broke that revenue down further:

LinkedIn will get only a quarter of its projected $100 million in revenue this year from ads. (It places ads from companies like Microsoft and Southwest Airlines on profile pages.) Other moneymakers include premium subscriptions, which let users directly contact any user on the site instead of requiring an introduction from another member.

A third source of revenue is recruitment tools that companies can use to find people who may not even be actively looking for new jobs. Companies pay to search for candidates with specific skills, and each day, they get new prospects as people who fit their criteria join LinkedIn.

There’s also a great post on Andrew Chen’s blog with YouSendIt founder Ranjith Kumaran about the switch from advertising to freemium model called Free to Freemium – 5 lessons learned:

A tech reporter recently asked me if YouSendIt.com had made the switch from a free ad-based business model to a subscription-based freemium model “just in the nick of time”. After all, with death chasing every ad-revenue-fueled startup these days, surely we must have been scrambling over the last few months!

I personally think that any social network that relies on traditional advertising for revenue is nuts. Peer to peer ads, contextually relevant ones, maybe. Normal banner ads etc? Nah.  $2.18 per member per year over at MySpace is NOT high. Oh and have a look at “Free classifieds” Craigslist – making $100m from free services!

This blog post over at Wired Long Tail has broken down the different services that could be offered as free/premium – survey of free business models online.

The other freemium services I spoke about on the podcast are Skype: free calls on mobile and on computer – but pay for voicemail and SMS.

Freemium and Growth

Virtual worlds that use Freemium models continue to grow – for example, Second Life every month increases it’s number of concurrent users, number of transactions, number of Lindex (Linden Dollars to US dollars) exchanges. You can see the Second Life growth charts here. And while the example of SecondLife freemium model is relevant (pay for technical support. 4.8m from subs, 17m from land sale, 27m from ongoing rental in second life) it’s important to recognise that once someone has paid for virtual access or goods or services ONCE, they will again. Expect for example your virtual goods revenue stream to grow as your freemium model grows. Without a freemium model it might be harder to prise the wallets open – heh – Facebook surely sells less virtual goods as they don’t have an obvious member revenue stream than Second Life that does. I think the killer example is that people pay on their mobile phone what they expect for free on the web – we are conditioned to paying through our mobile phone bill and iTunes account, whereas we are not conditioned in straight information access via a computer.

Freemium and TV Film Newspapers

Wired offers the magazine for free online yet 800,000 pay $1 a month for subscriptions. And 9,000 buy the magazine at newsagencies. No paywall, Mr Murdoch, but no great numbers either.  I would pay for an ad-free version of newspapers online. Ad-Free is always an incentive or at least a nice-to-have when sorting out what you will and won’t charge for.

In conclusion, build network quickly with free, but be aware that your database, any time there is a free version, will not be as clean as a pay-for version, which seems to keep the hackers and bots and scammers out. Offer additional services at a  premium but don’t annoy the member – make it a nice-to-have, or a way of showing value, or a Badge of Honour (for ProAms professional amateurs).