Tag: Profitability

The Secret to ‘Monetizing Online Forums’
With all the social media hype around Facebook, Twitter, and Pinterest, online forums are not usually at the top of the list. Ironically though, they are at the very root of social media. They may not get as much attention as some other sites, but they play a very important role in both the social Web and the entire Internet.

Patrick O’Keefe, the owner of the iFroggy Network and also the author of Managing Online Forums, calls online forums the “backbone of the social Web.”

“They are where the most meaningful, deepest discussion on the social Web takes place,” he said. “These are communities where people engage around a specific topic or interest – something they are passionate about.”

He went on to say that people can find online forums on any topic, no matter how obscure or niche that it is. According to him, there are active discussions going on all across the Web over just about anything.

Another aspect about online forums that is often overlooked is that they take a lot of time and effort, just as a business would, since they require management and revenue streams. What’s more, just as we’ve seen Facebook, Twitter, and many other social startups struggle to become profitable, it’s a difficult process for online forums as well.

O’Keefe just released a new free ebook called Monetizing Online Forums in partnership with Skimlinks, in which he addresses these very issues. Interestingly, one of the first points he makes is that not all forums need to be monetized. As he explained, some forums are hobbies or part-time efforts. There are others though, that are full-time and take money to pay hosting bills, software, and other necessities.

“Managing a large community can become a full-time job,” explained O’Keefe,” and if it does, then you have to make a choice. Either you can make a living through the community, or the community will suffer.”

“You will have to give it away or do something else with it, perhaps even close it,” he added.

When the need to monetize the forum arises, O’Keefe told us that it is very important to find a balance between making money and maintaining a positive experience for the community. In other words, you don’t want to put tons of ads all over a forum.

“When you monetize a forum poorly, you can kill that forum,” he pointed out.

O’Keefe gives several effective approaches for monetizing forums including:
- Display advertising
- In-text monetization
- Classified and thread-based advertising
- Sponsored brand placement
- Affiliate networks
- CPA networks
- Product sales
- Premium memberships
- Mobile monetization
- Monetization of outposts
While there are a lot of options, it is important not to overmonetize because in the ebook, O’Keefe says, “overmonetization can kill a forum.” He told us that forum owners should look at their audience and then decide on the best approach for making money.

“Different audiences definitely have different levels of toleration for what they are willing to accept when they visit the community,” he said.

He went on to suggest experimentation for deciding on which methods work best for each audience. While he doesn’t give a specific percentage for content versus ads or other monetization approaches, he does say that forum owners again need to be careful in finding a balance.

Incidentally, O’Keefe told us that, with the influx of sites like Facebook and Twitter making the entire Web social, it is much easier to get advertisers on board with placing ads on forums. In the past, he said, they were somewhat hesitant, but now that everything is social, advertisers and ad networks know that they need to have a presence on these sites.

Overall, O’Keefe told us that, if forum owners are careful in their approach to monetization and test and track their results, they will find a way to be profitable.
July 3, 2012
Does Facebook Have What It Takes to Succeed in Advertising?

Can Facebook build a strong revenue model out of its advertising platform? This is the big question that a lot of people are asking of late, especially given the social giant’s IPO fiasco. With its more than 900 million users, it’s clear that consumers are fond of the service. However, the question of how Facebook can monetize all these users is the big concern now, especially since it must deal with Wall Street and investors.

Tom Rikert, the Director of Product Development at Wildfire, which is a company that works closely with Facebook and provides a social media marketing software suite, is familiar with the position that Facebook is up against. You see, Rikert used to work at YouTube and, of course, also faced the challenge of monetizing a massive amount of users through advertising.

According to him, Facebook is the centerpiece of the majority of brands’ social media efforts. Through Wildfire’s close relationship with the company, it understands that Facebok has a huge audience, a global reach, and that it allows for rich forms of engagement for brands through the use of images, video, and more.

“We find brands are finding Facebook… to have a lot of staying power, and ultimately… they’ve built an audience [and] they’ve accumulated a lot of fans,” said Rikert.

“The question is now,” he continued, “what do I do with them to really engage them and to enlist them as advocates for word-of-mouth marketing and to also help them become customers, not just fans or conversation partners?”

While this is a challenge, Rikert is confident that Facebook can succeed in its advertising efforts. As he explained to us, Facebook has a “treasure trove” of data. This, combined with its user base, could potentially give the social giant a lot of leverage on the advertising front.

“I do believe, in the long run, that Facebook is sitting on a mound of amazing data on one of the largest audiences in mankind’s history,” said Rikert. “I think if they are smart about how they turn that into dollars through a strategic ad product – mobile [and] ads that could reach across the whole Internet beyond Facebook.com – I think they have incredible legs for long-term growth.”

Rikert believes that Facebook is being aggressive in its advertising approach but that it has an advantage given all the information it has on users. The social network knows that users can get “ad fatigue” really quickly, which could completely turn them away from the service. But, he thinks Facebook is being smart in its strategy by providing relevant ads based on user’s activities and interests.

“When done right, ads are actually value add,” Rikert said. “They are connecting people to information they care about and entertainment they care about.”

“It allows a lot more advertisers to reach the users and gives them the higher comfort level that their ads are gonna be worthwhile and well-received by the users,” he added.

He, along with Wildfire, feels so strongly about Facebook and its ability to be successful in advertising that he thinks its ad platform will become a critical factor in all online advertising going forward. Specifically, he envisions Facebook having a universal log-in system that could essentially be an open door for all things on the Internet and mobile devices.

And, to answer the questions about Facebook developing its own version of Google AdSense, Rikert said he could “definitely foresee that” since it already has a “huge footprint of their social plug-ins on hundreds of thousands, if not millions now, of publisher sites.”

Facebook has also been questioned for its mobile advertising efforts, especially since the company openly admitted in its S-1 filing that its monetization efforts for mobile were yet to be proven:

“Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results.”

Still, Rikert has no doubts about Facebook’s mobile strategy either. The company has, of course, started out slowly in mobile, but he expects it to pick up its efforts in the near future.

“What’s gonna be more interesting is when Facebook can take the mobile experience and really tailor ads based on where a user is and what they’re doing [and] who they’re with,” he said. “That’s when the ad becomes super relevant and much more interesting, and I think it will generate greater click-through rates and better results for advertisers, and more revenue for Facebook.”

Overall, Rikert is confident in Facebook’s advertising efforts and believes the company’s new real-time exchange ads will further its goals of being profitable.

June 22, 2012
Is Mark Zuckerberg To Blame For Facebook’s IPO Fiasco?

Despite all the hype leading up to Facebook’s IPO, the circumstances abruptly changed after the company’s public debut. The stock was priced at $38 per share, which valued the company at $104 billion. At this rate, Facebook became the third largest public offering in the history of the United States, behind General Motors and Visa.

When the trading began on May 18, however, the problems started to surface. The company’s stock rose to $45 per share for a short time and then dropped back down to close at $38. 27, just a few cents above its opening price. Investors were disappointed and confused by the day’s events, but they quickly became angry as new details began to emerge.

Based on numerous reports, Facebook’s underwriters lowered their earnings estimates during the company’s public road show. As the story goes, Facebook apparently tipped them off that its second quarter revenues were not going to be as high as it had originally expected. These underwriters, namely Morgan Stanley, JP Morgan, and Goldman Sachs, then only told a limited number of investors that they were cutting their estimates for Facebook’s Q2 and the full year.

Former Wall Street analyst Henry Blodget, who is now the Editor-in-Chief of Business Insider, calls this practice of verbally conveying estimates to selected investors “grossly unfair.” In a post on his site, he points out that the SEC rules should change to ensure that all investors have access to the underwriters’ estimates.

“This is an absurd and unfair practice. The estimates themselves are material information–the consensus of smart, well-trained analysts who have worked with the company’s management to develop realistic forecasts. Most investors don’t even know that these estimates exist, let alone that they’re whispered verbally to only a handful of big investors. All potential investors should have easy access to these estimates, as well as to any logic underlying them. The SEC needs to change the rules here.”

Facebook’s stock price dropped after this information was brought to light, and it continues to fall as more details come out. The blame has been pointed in several different directions including toward Morgan Stanley, Nasdaq, Facebook, and even toward David Ebersman, Facebook’s CFO.

Francis Gaskins, the President of IPODesktop, however, pins the blame on someone else. In a recent interview with us, he told us that Mark Zuckerberg is responsible for the company’s IPO disaster, calling the young CEO an “egomaniac.”

“If you want to play the blame game… Mark Zuckerberg himself bears the brunt of it,” he said.

Gaskins has been skeptical of Facebook’s IPO from the beginning. When Facebook filed its S-1 with the SEC earlier this year, he spoke with us and said that the company’s valuation was way too high based on the fact that its past earnings were flat.

“He [Mark Zuckerberg] was talking a year ago about a $100 billion market valuation, and his financial numbers were a lot lower than he thought,” said Gaskins. “[But] he was gonna have that evaluation come hell or high water.”

According to Gaskins, Zuckerberg allowed the company to put out projections that were too high in order to justify the $100 billion valuation. He believes this not only puts him at blame, but that it also raises questions about his leadership.

“Zuckerberg to me, instead of being a hero, he’s a control freak that doesn’t have any self-confidence,” said Gaskins. “If he had self-confidence, he wouldn’t have really made an effort to have 55 percent voting control… that means he’s never ever accountable.”

“After the disaster of an IPO, he left on a honeymoon – catch me if you can.”

“[If] they didn’t know what was happening in the second quarter,” he continued,” how can they possibly know what’s happening in the third quarter, or even the fourth quarter?”

While it is possible that Zuckerberg bears responsibility, there are other issues that could hold some of the fault as well. Analysts have credited various events, including Facebook issuing more shares of stock shortly before it went public and GM pulling its paid advertising from the platform, to the chaos that is continuing to surround the IPO. Another factor that’s been labeled as a red flag for Facebook is its mobile initiative.

Although trends show mobile usage is only going to increase, the company has not clearly defined how it will succeed in the area. The company openly admitted in its S-1 filing that its monetization efforts for mobile were yet to be proven:

“Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results.”

While these issues and others were seemingly overlooked before May 18, it appears that they are now becoming realized. Now, Facebook is finding itself facing an angry Wall Street, a string of legal trouble, and a damaged reputation, some of which is illustrated in this video:

Unlike Blodget, Gaskins doesn’t believe that any rules need to change going forward. He calls what the underwriters did “normal business“ pointing out that they’re allowed to talk about the estimates. To the fact that the new research wasn’t published, he said, “There may be some harm but no foul.”

Incidentally, Congress has said that it plans to investigate the proceedings, but there has been no official word on what specific measures it may take.

Gaskins did say that he thinks underwriters will look more carefully at estimates in regards to future IPOs. He believes underwriters will be much more analytical to avoid a repeat of the Facebook fiasco.

There are reports predicting that Facebook will switch from Nasdaq to the NYSE, given its rocky start at its public debut. While it is understandable that Facebook would want a clean slate, Gaskins told us that the company “can’t wipe out history.”

These rumors and even those of Facebook building its own smartphone and planning to acquire Opera do not seem to be having a positive impact on the company’s stock price. At the close of business Tuesday, the stock price was $28.84, after dropping steadily all day.

“You can’t trust them anymore based on them missing estimates this close,” said Gaskins. “I think they’ll have a second quarter that won’t please investors, I think they’ll have a third quarter that won’t please investors, [and] I think the price will go down quite a bit.”

May 31, 2012
Are You High on Yelp?

On Friday, popular online review site Yelp began trading on the New York Stock Exchange. The company had a successful first day with shares jumping from $15 per share initial pricing to nearly $25 per share, making early investors very happy.

While the shares dipped 14 percent yesterday in the company’s second day of trading, some fluctuation is to be expected in the early days of trading. However, one can’t help but wonder if the high about Yelp will continue or diminish.

Can Yelp meet investor and consumer expectations going forward? Let us know what you think in the comments.

While Yelp has experienced significant growth since its launch in 2004, the company has also experienced its share of criticism, which is the reason people are questioning its future. Most people associate Yelp with restaurant and other business reviews, but it is actually an Internet advertising company. In other words, it competes with the likes of Google and Facebook.

As we know, this marketplace is very competitive and is growing. Foursquare is even breaking into the review space by allowing users to offer local recommendations and tips after they check in to places of business.

For Yelp, this means that it has to defend its position. The company has had a rough road in this sense as it has been accused of ripping off the small businesses that advertise through it. Rocky Agrawal on VentureBeat wrote:

“At a time when much online advertising is being sold for 60 cents per thousand impressions (CPMs), Yelp is charging some local advertisers $600 per 1,000 impressions.

That’s not a typo. Yelp is charging small businesses 1,000-times the standard online CPM rates for local ads that appear on Yelp. Even when compared to its own ads for national advertisers, the company is charging a 100x premium.”

Unfortunately, for Yelp, many of its users feel that Agrawal presented an accurate portrayal of how Yelp’s advertising model works. In a follow up article written by WebProNews CEO Rich Ord that focused on “defending online advertising,” we received numerous comments similar to this one from AJ:

Is Yelp misleading its advertisers? If so, how? Please share you experience with us.

In addition to these ongoing advertising concerns, there are also other issues regarding its advertisers and the economy. Francis Gaskins, the President of IPODesktop, told WebProNews:

“In this flat-lined economy, customers that Yelp deals with are not experiencing a lot of growth, so they have to claw and fight for every ad dollar that they get.”

This information raises some big red flags for investors in terms of long-term profitability, which is another questionable area of the company. Yelp has always struggled with making money, and the following chart shows that the company is actually losing money.

An even greater red flag for analysts and investors, however, is the fact that Yelp relies on its competitor Google for traffic, which, of course, ultimately means that it depends on it for revenue as well. According to Yelp’s S-1 filing, the company revealed just how dominant of a role Google plays in its business:

“Google in particular is the most significant source of traffic to our website accounting for more than half of the visits to our website from Internet searches during the year ended December 31, 2011.”

Incidentally, Yelp has taken a particularly outspoken stance against Google claiming that it shows favoritism toward its own products in search results. The filing also stated:

“Google has removed links to our website from portions of its web search product, and has promoted its own competing products, including Google’s local products.”

Yelp’s stand against Google is similar to that of FairSearch.org, which is an organization made up of various companies that believe Google has monopoly power. The group and Yelp are working to encourage policymakers to take action against the search giant in order to, based on information from FairSearch’s site, “protect competition, transparency and innovation in online search.” Yelp has even testified toward this effort, but at this point, the government has not acted.

When WebProNews spoke to Gaskins about these issues, he equated it to Demand Media/Google situation. If you remember, the companies had a deal where Google directed searches to Demand Media’s eHow platform. In Google’s infamous Panda algorithm update, this all changed.

“I don’t know whether the people buying the stock… at $25 or $24 realize that Google can turn off half their revenue faucet by changing the algorithms and putting their own searches up there,” said Gaskins.

He went on to say Google could easily do this since it is a private enterprise that controls its own products. As he explained, Google doesn’t need to worry about what could happen to Yelp.

However, it is these concerns that have Gaskins and other analysts qualifying Yelp as a risky investment. Rick Summer, an senior stock analyst, recently wrote why his firm Morningstar wasn’t applying for Yelp’s IPO:

“Unfortunately, the company faces challenges translating the small advertising budgets of local businesses into profitability, as about 70% of ad revenue is eaten up by sales and marketing expenses. Although we ultimately expect operating leverage and resulting profitability, success is far from certain.”

It’s clear that Yelp has several challenges to overcome, but only time will tell if it can prove its naysayers wrong. Do you think it can? We’d love to hear your thoughts in the comments.

March 6, 2012