How to charge for your social network

Jeremiah Owyang (of Web Strategy by Jeremiah) comments on Twitter: “users dont want to pay fofr social networks. thus the need for monetizations…enter advertisements”.

Users don’t want to pay for anything, but that doesn’t mean nothing is ever paid for. Still, it’s particularly challenging to charge for social networks. They’re all scrambling for users, because the network effect ensures that larger networks will grow more quickly. Charging users reduces the number who’ll sign up, the number who’ll tell their friends to join, and your network’s attractiveness to potential acquirers.

So how can you charge for a social network? The usual way: you don’t have the most users, you have the most relevant users. It’s the same strategy used by business schools (a lot of whose value is in who you meet) and professional societies (where you can learn from others and be seen as a leader in your field). You’re paying to join a particular social network (in the offline sense) because the others in it are people you want to know. Oh, and there are some other benefits like classes, conferences, etc. The Well has had essentially this business model for years.

On the other hand, creating a network of most relevant people also works extremely well if you’re selling advertising. Look at ModelsHotel, a selective “gated community” for models from top agencies, profiled in the Wall Street Journal and then on TechCrunch in September. As the Journal says, “It’s this promise of exclusivity that is drawing sponsors to the site. Among its high-profile marketing partners: eccentric fashion design house Heatherette, Diesel jeans and luxury jeweler Piaget.”

So the upshot? Make your social network either big or specific, and specific is a whole lot easier to pull off. If you can get the right people to feel invested in your site, if you can grow a community, then yes, you can charge for access to that community. It’s up to you whether you charge the participants directly or take their time with (hopefully ever more relevant) ads – but I’m hoping in the current ad-a-minute glut that more places will opt to ask for my money instead of my eyeballs.

ETA: Jeremiah asks how much would you pay for a social networking service; Business Week discusses social networking with the elite.

ETA 2: Washington Post article says Online Networking Goes Small, and Sponsors Follow, 12/29/2007