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.

 

 Digital Podcast 45 [26:09m]: Play Now | Play in Popup | Download (1321)

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:

1. A Gen Y Facebook user visits a favorite application, (fluff) Friends, which allows users to add, “care for” and “feed” a virtual pet as part of their Facebook profile. Facebook users trade “Munny” – Facebook’s virtual currency – for gifts and “pet food.”
2. (fluff)Friends promotes Peanut Labs’ surveys as a fun network activity. Promotion respondents complete a pre-survey profile questionnaire as a prerequisite to taking surveys.
3. (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 “Munny,” which can be “spent” on (fluff)Friends or other Facebook applications, for more social network fun.
4. 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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Technorati Tags: Peanut Labs, Murtaza Hussain, social networking, community based economics, virtual currency, virtual economy

Marc Andreessen posts at his blog that Ning has now passed 200,000 social networks using the Ning platform. Ning is a simple to use service that allows you to create a social network site for anything you want. You get user pages, photos, videos, discussions and the rest of the tools commonly used in social networking.

If you’re a podcaster and want a social network for your fan club it’s worth checking out. You can see a great example of Ning being used by Ask a Ninja to support it’s fan club. It’s a pretty easy to use service and provides a lot of functionality.

Marc provides some very interesting statistics about the growth of Ning. They now have over 200,000 social networks and will quickly surpass 300,000.

• Over 70% of the networks on Ning are active, as defined by “used in the last 30 days”. This is a considerably higher percentage than we would have thought when we created the service, given that we make it so easy to create a network that you can do it in two minutes, for free — I would have assumed there would be more throwaways. It turns out that people really like using social networks!
• As that “70% active” statistic indicates, the long tail is most definitely alive and well on Ning — activity on the system as a whole is spread out broadly across the base of active networks. This continues even as the largest networks on Ning are getting much larger than ever before.
• There are now more — actually, a lot more — social networks on Ning than there are on the rest of the Internet in total, including all of the other services that let you create your own social network combined (i.e., all of our honorable competitors combined). (Note: I highlighted this part)
• Our growth rate continues to accelerate as the overall penetration of social networking across the Internet expands. As more and more people all over the world use social networking — including the big one-size-fits-all social networking services that many people use first — people become more interested in creating and using their own social networks for many topics that they care about. This is a very large market, and it’s growing very fast.
• Finally, fewer than 1% of our current networks fall into the adult category — a number that’s frankly surprisingly low, but one with which we’re just fine.

I think this is great. I like Ning a lot and hope it is hugely successful.

I had two main reactions to the post. My first reaction was to challenge the boast that Ning’s 200,000 social networks is more than the rest of the Internet in total. I think he’s got that way wrong. Social networks have been around for a long time on the Internet in the form of forums. And there are way, way more than 200,000 forums on the Internet.

But my second reaction was to ask what’s missing from this data that matters. What’s missing is information about whether Ning is here to stay or not. Networks, users and page views are all good, but money is what matters.

I want to know if Ning is cash flow positive. Have they figured out a way to make their social networking business profitable? I want to know because if I recommend to a podcaster or company that they should use Ning as their social networking platform, I want to be sure that Ning will not go away someday.

If Ning stopped, I may be able to get the data out of Ning, but then what do I do. The data is set up to be used in Ning’s infrastructure. I don’t see where I would go to get the same kind of service and the business interruption would be very costly. Anyone who is setting up a Ning social network and not considering this risk is being foolish.

So I have to ask Mr. Andreessen and Ning, how can we be sure Ning is here to stay? Open up the books and show us a nice secure balance sheet and a cash positive business, or at least something that convinces people that Ning is here to stay.

If you know more about Ning, leave us a comment.

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Technorati Tags: Ning, Marc Andreessen, Social Networking

I’m here at Graphing Social West in San Diego. The guys from O’Reilly were kind enough to extend me a press pass so I get to see/hear what’s going on. The agenda looks good with presentations from analysts and company executives.

Charlene Li, from Forester, kicks things off with a presentation on the future of social networks, then Amit Kapur from MySpace speaks about MySpace as a platform. After that, there’s lots more on the agenda.

The event focuses on social networking with a heavy dose of MySpace and Facebook. I will do my best to pick up the high points of the show and report them throughout the day on my CinchCast, where I call in to Blog Talk Radio’s Cinch service and record a short audio about what’s going on.

Technorati Tags: Graphing Social, gspwest08, social networking

It’s good to see brand marketers are working to produce some interesting work that ties TV together with online social communities. This post from Dave Deal titled Listening through communities shows off efforts by Levi and Kraft Crystal Light.

It’s great to see marketers start to understand why community matters, and it’s why we’re seeing investment in sites like these. Both are nicely designed sites that offer the promise of community.

The problem is that huge brands like these need to be attracting the attention of large audiences to make their marketing efficient, and trying to create large, new communities from scratch is both high cost and high risk.

In the physical world, you don’t try to create another shopping mall so people can come to your store, you take your store to the existing shopping mall so you can tap into an existing community. The mall shoppers are not going to go to a remote store in large numbers because it’s too much hassle.

By that logic, brands should not expect people to leave where they are now to travel to these new spaces. If the people are hanging out in MySpace and Facebook, why not build community there, or at least make that a major part of the your community building effort?

I looked, but could not find ways these sites link into MySpace/Facebook. If they are not built to connect to these huge social networks then they are making a mistake. Perhaps they are, but I couldn’t find out how. It would be interesting to find out if they have plans to connect into these communities.

I looked to see what others thought about the build versus join question. The question has been asked and debated in some depth. While there seems to be a strong leaning towards “it depends”, I think you have to go with the economics of community building.

Building large communities from scratch is hard, costly and risky. Anything you can do to lower the cost (hassle, time, etc) of connection and participation is incredibly important to building community. A well thought out strategy that makes it easy for people to connect to these new spaces from their existing hang outs will reduce the cost and risk of community building.

The social web is a distributed community with people in lots of places and increasingly they expect the content to come to them. RSS, embeddable players, and Facebook apps are training people that they can get what they want, wherever they want it. And that place is where they hang out now. Start there, and then give them a good reason to come visit your place.

If brand marketers don’t start getting this, they will spend lots of money and end up with lots of disappointments.

Technorati Tags: brands, community, social marketing, Levi, Krystal Light, Razor Fish

As part of our Super Fan podcast series, we interviewed Jason Feffer, Founder and CEO, of SodaHead. Jason was one of the earliest employees at MySpace and experienced their rapid rise into a major social networking site. After MySpace, Jason founded SodaHead, a company in the Social Answers space. SodaHead allows users to set up opinion polls that users get to vote and comment on. It’s a fun and addictive experience, and well worth trying.

Jason’s discussion of his experience at MySpace illustrates the importance of operational optimization to drive monetization of super fans. In his new company, Jason is putting a lot of what he’s learned to use in creating a new and fun social site. SodaHead has mastered the art of lowering the difficulty and barriers to user generated content. It leads to an experience where its much easier to join in the social mix in a more meaningful way than just asking someone to be your friend. SodaHead is definitely an experience everyone should try.

 

 Digital Podcast 36 [1:06:33m]: Play Now | Play in Popup | Download (381)

Jason Feffer has an exciting eight-year history of Internet startup experience leading up to his most recent startup, SodaHead.com. Mr. Feffer helped start MySpace in 2003, which sold to News Corp for $580M. During his three years at MySpace, Jason served on the executive committee and as Vice President of Operations as the membership grew to 100 million. Mr. Feffer oversaw advertising operations, revenue reporting, policy enforcement, government relations and several other departments at MySpace.

Technorati Tags: Jason Feffer, MySpace, SodaHead, social media, social networking, social media optimization, super fans

The folks at Google must be smiling tonight. Microsoft has been lured into putting a bid in for Yahoo. This is a waste of time, money and energy by Microsoft and that should make the Google folks more confident that they are on their way to overtaking Microsoft in the battle for leading technology company on the planet.

Combining two companies that DO NOT GET IT is NOT a recipe for competing with one that does. So let me get specific about what I mean by NOT GETTING IT as it relates to Microsoft and Yahoo. Anyone who has used Google Adwords as an advertiser and Google Adsense as a publisher and done the tests on the competitive products from Microsoft and Yahoo knows what I’m about to describe.

When I set up a campaign at Google Adwords, it is an automated process that is rich with interaction and feedback. I can test a campaign, keywords and ads in a very responsive manner that allows me to set it up, test it and optimize it quickly. Yahoo’s equivalent service was a captive to the belief that permeated Overture/Goto that only human editors could screen ads to make sure that they were relevant. It would take days under that process to do what Google did in minutes As a result, I advertise at Google and do so with Yahoo when I get around to it, if ever. (BTW I told this to the senior team at Yahoo’s search marketing group, but they either didn’t want to hear it or could not change the business process that had been set in place 4-5 years before) Since then, Yahoo has tried to reinvent its ad platform and Microsoft has launched their own version, but both still lag way, way behind Google.

How will Microsoft be able to merge two hugely expensive computer platforms when neither is yet good enough to compete with Google’s ad platform? And the same problem exists when you look at it from the publisher side. Google’s Adsense delivers better ads than does the equivalent Yahoo product despite huge investment by Yahoo. What will Microsoft do, scrap one deficient set of systems for another or try to make both work? Either way, the path leads to doom and gloom for both Microsoft and Yahoo.

There is obviously much more to both Microsoft and Yahoo than search and search advertising, but let’s be clear. Search based advertising is the engine that powers Google and everything it does. Social networking/media, a la MySpace and Facebook, has huge potential and Yahoo should have been the king of that domain given all their acquisitions in that arena over the years, but if Yahoo can’t turn My Yahoo, Flickr, GeoCities, De.licio.us etc. into a Social Media powerhouse how can we expect Microsoft to do so.

I can only hope Yahoo turns down Microsoft and they come to their senses. Yahoo can still do great things with the audience and assets it owns by changing its focus to become the queen of social, instead of the king of search. Microsoft should stop listening to bankers and get back to making products that work well and can out perform the competition.

Technorati Tags: Yahoo, Microsoft, Google, social networking, social media, search

Nokia has produced a fun little video that tries to define Web 2.0. Nokia defines Web 2.0 as being all about connecting people. It makes sense coming from Nokia given their focus on mobile communications, but I think they’ve got it right. To much is made of all the technology and not enough about people’s basic desire to connect and know other people.

In a post I made a while back, I think it is all about people communicating with people.

It should be obvious that since the invention of runners to carry messages it’s been about people communicating with people. Mail, telephone, email, IM, texting are all killer apps that have been about people communicating with people.

That’s why social networking is important. It’s not about the documents or what the documents are about, it’s about the people and what the people are all about. And yes, we do need a way to figure out how we are all connected other than telling everybody every time.

Thanks to Gigaom for bringing the video to my attention.

Technorati Tags: Nokia, web 2.0, social networking, video

Alex Blum, CEO of KickApps, met with me at Digital Hollywood. KickApps like some of the other companies Digital Podcast interviewed at the show provides an on demand white label social network application. Unlike some of the other services, KickApps can be self administered and if you are willing to give up some advertising inventory KickApps can be used without cost.

 

 Digital Podcast 22 [20:07m]: Play Now | Play in Popup | Download (644)

A KickApps-enabled website provides your visitors with a complete rich media community experience. Users are invited to upload media and create their very own “personal space” directly at your site. Site visitors are provided with easy to use media management tools to manage their personal space. Similarly, your site administrator is provided an array of easy-to-use media management and administrative tools to ensure that only appropriate content makes it on to your website.

KickApps has a rich feature set focused on social networking, community building and managing user generated content.

Sites that use KickApps have lots of features to choose from including uploading videos, audio and photos, user customizable profiles, guest books, blogs, feeds and a variety of widgets. They also go beyond technology and offer help via white papers such as their current whitepaper called Nine Steps to a Successful Online Community which you can download for free.

You can use KickApps for free if you allow KickApps to take part of the advertising. If you want to keep all the advertising for yourself, then you can use their paid version which is based upon a CPM model.

This is definitely worth checking out if you want to add social networking features to your site.

Technorati Tags: KickApps, Social Networking Application, Social Networking, Digital Hollywood