In this podcast, we interview Murtaza Hussain, CEO of Peanut Labs. Our focus is on making money in social networks by understanding the opportunity to turn a community into an economy.
Before we dive into the interview, it’s worth explaining why this is an issue.
Facebook and MySpace have grown very large as social networking sites and white label services like Ning have also grown very popular. These sites have lots of users and lots of page views, but how to make social networking sites profitable is still an open question.
There has been a lot of activity trying to make advertising work on these sites, but despite the ability to segment and target effectively, CPM (the price paid per 1,000 impressions) and click through rates remain low. My experience has been that Google Adwords have been 100 times more effective in terms of click through rate as compared to the same ads on Facebook. (Note: I would be interested to hear other people’s experience on this issue. If you’ve tried both leave a comment.)
So how can social networking sites make money? I posted a theory a little while ago that argued that organizations need to get beyond impression based economics and move to community based economics. And what are the economics of communities? They are micro-economies where trade, commerce and personal interaction are all intermingled with each other. I pointed to an example of Second Life where this is really happening.
While I was at the Graphing Social conference a few weeks ago, I hear Murtaza speak on a panel about monetizing applications. He mentioned that he thought virtual currencies were an effective way to monetize social networks.
I wanted to know more. Andrew and I caught up with Murtaza late last week and interviewed him for Digital Podcast 45.
Murtaza has a background in social networking. He co-founded XuQa.com, a leading online casual gaming community, which was built to 2M+ users and profitability. His experience with making money on XuQa led him to co-found Peanut Labs.
The core insight he got from XuQa was that they could turn the community into an economy by introducing a virtual currency into the community. In XuQa’s case, the currency is virtual Peanuts. The more Peanuts you have the more stature you have in the community. Peanuts can also be used to play games and buy virtual gifts. To monetize the currency, Murtaza turned to online survey’s. If users take a survey, they get paid in Peanuts. XuQa in turn gets paid in real money. The net result is an exchange rate that puts real value on XuQa’s Peanut currency.
Murtaza has taken the idea and founded Peanut Labs to act as market maker for matching market research needs with with Facebook applications and others who have created virtual currency that can be used to compensate users for taking surveys.
Here’s an example taken from a Peanut Labs PDF of how it works:
- A Gen Y Facebook user visits a favorite application, (fluff) Friends, which allows users to add, â€œcare forâ€ and â€œfeedâ€ a virtual pet as part of their Facebook profile. Facebook users trade â€œMunnyâ€ â€“ Facebookâ€™s virtual currency â€“ for gifts and â€œpet food.â€
- (fluff)Friends promotes Peanut Labsâ€™ surveys as a fun network activity. Promotion respondents complete a pre-survey profile questionnaire as a prerequisite to taking surveys.
- (fluff)Friends survey participants who meet qualification criteria received highly targeted survey invitations, which additionally include qualifying questions that further enhance targeting. Upon completing the survey, they are paid with Facebook â€œMunny,â€ which can be â€œspentâ€ on (fluff)Friends or other Facebook applications, for more social network fun.
- The research firm receives real-time respondent data, often within hours of survey launch.
This is how to turn a community into a virtual economy that can make real money. I wonder when Facebook and MySpace will figure it out.
If you have questions or thoughts about how you can turn your online presence into a virtual economy leave a comment.
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[tags]Peanut Labs, Murtaza Hussain, social networking, community based economics, virtual currency, virtual economy[/tags]