Social media for social enterprise

Cute Title: 
How your non-profit can earn revenue with Web 2.0

Summary

How can non-profits find the money to pay for sites that can be costly to build, and just as costly to run? The kick-off post in a series looking at how your social media presence can start earning your organization some real income.

Social Signal has worked with many different non-profit organizations, of varying size and means, to create a variety of social media sites, of varying scale and ambition. One thing that just about every non-profit client (and most for-profit clients) ask is about the return on investment. How can non-profits assess the financial value of their social media investments? And perhaps even more fundamentally, how can they find the money to pay for sites that can be costly to build, and just as costly to run?

When we work with non-profits to think about the financial model behind social media projects, we encourage them to think not only about the cost of building a site, but the costs of maintaining an active online community -- which can be a much more expensive endeavour than running a conventional site. A social media site thrives on active and ongoing user contribution. That typically demands ongoing infusions of content, skilled animation, participation incentives -- all of which cost money.

The great news is that social media sites offer at least as many opportunities for revenue generation as for spending. Over the years, we've worked with our clients to identify a range of revenue-generation options for social media sites. This is the first in a series of blog posts that will review options for non-profit revenue generation using Web 2.0. Over the coming weeks we'll review:

We'll conclude by helping you think about how to choose between these different options for revenue generation -- and how to consider whether revenue generation is even an appropriate part of your site's business model.

But first, let's talk about why you might want to earn revenue from your social media venture. Here are some of the reasons that our clients have looked at generating revenue on the web:

Of course, there are also some reasons to hesitate before looking to earn money from your online community. Bear in mind...

These are reasons to tread carefully, not reasons to foreclose the potential opportunity of revenue generation on your site. If your revenue targets bear a reasonable relationship to your site's development and operating costs, and your revenue model maintains a responsible relationship to your organization's mission, your site's revenue model can provide a great source of financial support for your online operations, and your revenue-generating activities may even enhance the value you provide to users.

If there are specific questions or issues you want us to tackle as we work our way through the different kinds of revenue options listed above, feel free to leave a comment below. And if you want to know when the next installment comes out, subscribe to the RSS feed for our Social Media for Social Enterprise series.

How your non-profit can earn revenue with Web 2.0: Part 2 - Intellectual property

Summary

Your social media presence is helping you engage with your supporters... but maybe it could be paying its own way, too. In the second part of this series, we look at how the intellectual property you create and distribute through your Web 2.0 project could become a revenue stream - along with some of the pitfalls you'll want to avoid.

This week, I return to the questions I recently posed about social media and social enterprise:

  • How can non-profits assess the financial value of their social media investments?
  • And perhaps even more fundamentally, how can they find the money to pay for sites that can be costly to build, and just as costly to run?

One potential answer lies in the value of intellectual property that non-profits create or distribute through their social media projects. The creation of a sophisticated web site involves the creation of a lot of intellectual property -- property that has financial value. This property can be monetized in a number of ways:

Software licensing: If you create a software service or web platform that is useful to other nonprofits, too, they may pay you to use it. You can license your software by selling it (one-time fee), by licensing (monthly or annual fees) or by hosting (including web hosting along with the software license itself). Before you take this opportunity, though, consider the potentially benefit -- for your mission and your brand -- of giving the software away to the people you serve, or organizations that are working for the same ends.

Content sales: If your staff or site visitors create original content on your site, you may be able to resell some or all of that content to other sites or media outlets. Just be sure that you are completely clear with your contributors that you will or may repurpose their work -- even if the contributors are staff. Make sure your user agreement on the site reflects how you're re-using content, and consider sharing revenue with your users (à la Squidoo, among others) as a way of motivating their contributions.

Data sales: If you have a high volume of site traffic, or serve an influential or sought-after audience, data on your site's users or usage patterns may have financial value. This an area in which you want to tread VERY carefully -- respecting your users' privacy is crucial to building site loyalty, and is also just a good thing -- so we'll return to it in our "gray zones" post. But you are probably ok if you are selling aggregate data, rather than individual data. For example, you could survey your users and sell the results of that survey -- perhaps as a quarterly "subscribers only" report. Here more than anywhere it is crucial to be 100% transparent about your use of data; burying this aspect of your business model in the fine print of your user agreement may provide legal coverage, but it won't make your users happy if they're caught by surprise. If you can explain how data sales support your work -- ideally, not just financially, but in some way supporting your mission -- so much the better.

mini-case: the Environmental Defense Fund launches GetActive

Environmental Defense is a large US-based non-profit that works on environmental issues, with a 300 person staff and a $72 million annual budget. In the late 1990s, Environmental defense had a total of about 8 staff on its online team, which was responsible not only for maintaining the main ED web site, but also a couple of related projects. One was scorecard.org, which provided information about environmental performance to the public. The other was actionnetwork.org, a site that gathered supporters' email addresses and turned them into online activists -- winning an early victory when they mobilized thousands of supporters to win a ban against the practice of "shark finning" (where hunters catch sharks, amputate their fins for sale, and return the sharks to the ocean to die).

As the team behind these two Internet projects outgrew its place within Environmental Defense's organizational structure, it came up with an innovative solution: spin the Internet project team off into a separate company. The new company launched in 2000, and eventually became GetActive Software. GetActive supplied software and services to Environmental Defense, and Environmental Defense got an ownership stake of less than 20 percent in the new company. GetActive earned an estimated $13 million in revenue in 2006, making it one of the largest software vendors to the non-profit sector, before selling to competitor Convio in early 2007. Later that year, Convio announced its intention to go public -- putting Environmental Defense in a position to reap the rewards of a still-forthcoming I.P.O.

For more see:

 

How your non-profit can earn revenue with Web 2.0: Part 3 - Earning revenue with advertising

Summary

In the third part of our look at how your social media presence can earn your organization some money, we look at advertising: how to use it, how to weigh ad revenue against the possible impact on your online community, and possible alternatives.

Welcome to the latest installment in our series on revenue sources for non-profit social media projects. Today, I'm looking at what many non-profits first think of (and often, recoil at) when it comes to earning money online: advertising.

If your site attracts a lot of visitors -- or even a niche community of visitors that advertisers want to reach -- you can place advertising on your site to generate revenue. There are three types of advertising to consider:

  1. An ad service. Ad services handle all the work of finding advertisers, and place ads onto your site based on your content or keywords. In return, they take a (usually large) percentage of ad revenue. The most widely-used service is Google Adsense, which places advertising on your site based on keywords; this means you may have some ads appear on your site that don't fit with your message (for example, a web page about endangered fish may end up displaying ads for fish recipes) but you can veto ads as you identify problems. Other services focus on building specific communities of content based on quality; for example, Federated Media is an ad network for high-traffic bloggers. Some ad services place plaintext ads; others place images; Google itself gives the option of text or images.
  2. Your own ad system. If you want more control over the ads that appear on your site, you can sell ad space yourself. You can sell ads on a "per impression" (advertisers pay for how many times their ads get shown) or a "per click" (advertisers pay for how many times people actually click through to their ads) basis. You can sell ads that show up anywhere or everywhere on your site ("run of site" advertising) or you can sell ads on specific pages (for example, a youth-oriented brand may want to place ads specifically on your youth services page). You can place multiple ads on a single page, and you can charge higher rates for more prominent pages or spaces -- for example, the top banner ad on your home page will likely command the highest price on your site. Selling your own ads means you can keep all the revenue you generate, but be aware of both cost of sales (you'll need someone to sell those ads) and technical costs (for payment processing and setting up a system for placing your ads).
  3. Sponsorships. As a non-profit organization, you may prefer advertiser "sponsorship" to traditional advertising. A sponsor (or set of sponsors) typically supports the entire site, though it is also possible to have specific sponsors support specific programs or areas of the site, particularly if they are highly specialized or resource-intensive. You could have one organization as the supporting sponsor of your main site, and another organization as the sponsor of an online community for a specific group of users (e.g. a community of young mothers). Sponsors will typically be credited as the sponsor of a site with a (potentially quite prominent) display of their name, logo, and possibly a tag line, but rarely place a full message on the site as they would with an ad (although in some cases sponsorship could include advertising). Sponsorship can feel less commercialized than an ad (which some organizations feel uncomfortable placing on their sites) and may have tax advantages for the sponsor, compared with advertising.

Advertising is one of the most obvious ways for a non-profit to earn revenue from its web presence -- and if you use a service like Adsense, one of the easiest ways, too. But many non-profits are wisely cautious about placing ads on their site. Typical concerns include:

  • possible conflict with non-profit tax status
  • appearance of being overly commercialized
  • driving traffic away from the non-profit's own site
  • introducing off-message ads or content

Before you decide whether advertising is the right fit for you, consider:

  • How much revenue do you stand to earn? If you a have a low-traffic site, the upside of advertising is limited.
  • How will ads affect the perception of your site and organization? Ads feel particularly inappropriate on sites with a deeply personal or difficult message. Imagine how you'd feel if you saw an ad on a campaign page about Darfur.
  • What form of advertising would earn the most revenue? Consider whether to go with "per click" ads (which pay only if your visitors follow the links) or "per impression" ads (which pay simply for appearing).
  • How can you test advertising options? Ads aren't all or nothing. Consider placing ads on a few pages on your site, and asking for feedback before you proceed.
  • How will advertising affect other possibilities for revenue generation? Be sure to look at the other options we cover in this series. It might be that an option like premium service would yield more income -- and your premium service could be an ad-free version.

Resources to help you learn more:

Using Google Adsense to generate income for your church or non-profit organization

A look at some Adsense alternatives


 

How your non-profit can earn revenue with Web 2.0: Part 4 - Fee for service

Summary

It's not for everyone... but if your social media site offers compelling enough value to your users, you may be able to start charging them. Here are some guideposts and warnings if you decide to take the plunge into the fee-for-service web.

This blog post is part of our series on Social Media for Social Enterprise: How non-profits can earn revenue with Web 2.0.

Social media sites and online communities create a compelling user experience that can let non-profits earn fees for service, just like many for-profit web sites do. Fee-for-service revenue models require very careful pricing and management: when you're charging people to use some or all of your site, you need to ensure you're offering something that's more compelling than what they can get for free.

You also need to beware of potential ad-driven competitors: if someone else can create a site that offers the same benefits of yours, but make it free to users (by earning revenue from ads rather than user fees) you are extremely vulnerable to competition. Your best way to insulate against that is not just market dominance (free sites can catch up to even very large fee-for service sites quite quickly) but by creating (fostering?) "sticky" social relationships -- tight, intense bonds among users that make them reluctant to leave their online friends.

If you want to earn money from online service fees, here are some guidelines to keep in mind:

  • Assess your competition. Is anyone else offering this service, and how much are they charging? If you want to charge as much or more, what can you offer to make your service more attractive? (Don't forget the value of supporting your organization... but don't overestimate it, either.)
  • Assess your service. Bear in mind the network effect that lends value to many online services: the more people who use them, the more valuable they are. Don't charge so much for your service that it reduces participation enough to diminish its value significantly.
  • Assess your mission. Are you pricing yourself out of the reach of some potential "customers" -- even if these customers are the very folks you were set up to serve?


If you're looking for ways to earn online revenue through fees-for-service, your options include:

  1. Listings or classifieds: Many user-driven sites include user-placed listings or classifieds. These are quite different from other forms of advertising because they can become a very substantial part of a site's content or value to users: in the case of craigslist, user-generated listings constitute the entire site. Because user-contributed listings can in fact create a lot of value on a site, you want to tread carefully before you charge people to place them. Charity Village (itself a for-profit) charges non-profits to place recruitment ads. Craigslist charges ad fees for certain categories of ad in certain cities.
  2. A la carte services: Some web sites offer particular value-added services. If your organization already provides some services on a fee-for-service basis, consider placing these online. For example, career counselling, writing services. etc.
  3. Basic membership/access: Some sites make access available only to paying users. This makes it very hard to build traffic or membership, since prospective members can't see enough of your site to evaluate its potential value to them. A site that strictly limits access to paying members is most appropriate for elite level networks in which limiting membership is actually desired, such as a leadership network. If you're trying to achieve large-scale membership or traffic for your site, a pure pay-for-access model is probably not for you.

  4. Premium membership: Many sites make basic membership or use available for free, but charge users for premium membership or a higher level of service. This is very common practice on professional association websites like that of the American Nurses Association, which offers members access to policy papers, an online journal, and a social network.

    A good for-profit example of this model is Flickr: Flickr lets anyone use its photo upload and sharing service, but if you want to store more than a couple hundred photos online, you need to pay a $24.95 per year service fee that gives you unlimited use of the site. This example highlights a few best practices for premium membership or service fees:
  • Allow users to try out most of your services for free so they can see why it's worth paying for
  • Let users view the full range of content on your site, at least in "teaser" form
  • Keep premium fees low to reduce user hesitation
  • Allow free contribution of content as well as access, so users can see how easy it is to add content
You can charge a premium for:
  • Higher volume of service (unlimited downloads; access to archives; unlimited hours of use)
  • Higher quality of service (higher quality images; full text articles; customer support)
  • Higher volume of relationships (number of people allowed in a user's network; number of users allowed in an organization's account)
  • Ongoing access (after an initial, but generous, period of free service -- probably 30 days)
  • Full profile information: home swaps and dating sites sometimes show listings for free, but charge for the ability to contact


If you are thinking about charging fees for some part of your online service, consider these questions:

  • What offline services do we currently charge for? If your non-profit already charges fees for certain kinds of services, taking those services online may provide a great opportunity for earning revenue. But bear in mind that people expect some things for free online that they're perfectly used to paying for offline (like access to their local newspaper).
  • Will charging a fee for this service make it less accessible to the people we're trying to serve? If your goal is to serve a specific community or client base, be sure that your fees don't get in the way of your mission. One option is to charge for the service but set up a generous policy for providing complimentary access on request or application.
  • How could charging fees improve the level of service we provide? Many software companies provide their tools for free or cheap, but charge a premium for support hours. If your clients are asking for services you can't afford to provide, start asking how much they'd be willing to pay for an upgrade.

How your non-profit can earn revenue with Web 2.0: Part 5 - Product sales

Summary

What bake sales once were to PTAs, online storefronts are to today's non-profits. Your online community members can also be customers... customers who may be delighted to spend their dollars in a way that supports their values and your work.

This blog post is part of our series on Social Media for Social Enterprise: How non-profits can earn revenue with Web 2.0.

What bake sales once were to PTAs, online storefronts are to today's non-profits. We're used to thinking about participants in non-profit web sites as members or supporters, people we are trying to reach with a message or mobilize around a campaign. But your online community members can also be customers -- customers who may be delighted to spend their dollars in a way that supports their values and your work.

Here are some of the forms that online product sales can take:

  1. Schwag: Your site can earn money by selling promotional items (t-shirts, mugs, posters, bumper stickers, yo-yos) with your organization's name or a related message. (I'm waiting for someone to buy me an Obama Mama t-shirt.) This is a great way to get your message out and earn money at the same time. While you can earn more money by mass producing these items for sale, you can limit your risk (or test the waters) by using a print-to-order service like Goodstorm (a printing service set up to support non-profits, and recently acquired by Zazzle) or Café Press.
  2. Educational materials: If your organization engages in education or issue awareness work, your web site can be a great way to sell or distribute educational materials like books, DVDs or CDs. Think carefully about how to weigh your revenue goals against your desire to get the message out: selling your products at high prices may limit their circulation. On the other hand, shipping stuff for free may make it hard for you to fund development or distribution.
  3. Media downloads: Selling educational or cultural products electronically is a terrific way to earn revenue while limiting distribution costs. If your organization has produced a book, magazine, poster, DVD or CD, could you sell it in electronic form? Once you create an electronic version of any of these products, the marginal cost of each additional sale is zero: selling a thousand copies of your Christmas concert in MP3 form costs no more than selling ten. Again, think about the trade-off between revenue and mission: distributing media products electronically for free (or very cheap) is also a great way to get out your message.
  4. Social enterprise: If your organization supports community enterprise, you can sell the products of that enterprise on your site. Tilonia.com is an online store specifically created to sell the products of the Barefoot College.
  5. Mission-aligned products: Even if you're not directly involved in a community enterprise, you can still find mission-aligned products to sell on your site. For example, an organization promoting responsible forestry could sell recycled paper products. You can stock a warehouse and ship products yourself, or you can partner with a retailer or social enterprise, and earn transaction fees from each sale that is processed by or referred from your site.
  6. Affiliate sales: If you don't want to deal with the costs of production, fulfillment and credit card processing -- or you want to test your visitors' appetite for on-site purchasing before you make an investment -- consider setting up affiliate sales. The Amazon Associates program is a great, unobtrusive way of generating revenue from books or other products you happen to mention on your site; linking those recommendations to an Amazon account earns you dollars and makes the follow-up process easier for your readers. The BookSense affiliate program is similar, but sends your visitors' business to independent booksellers. For a wider range of potential advertisers, check out Commission Junction, which runs affiliate programs for many major retailers.

Before you setup your virtual storefront, here are some issues to consider:

  • Do our visitors like to shop online? Unless your site visitors include a meaningful number of people who already buy products online, they're probably not going to start with you.
  • What products do our visitors want? If you're already selling products,you know which t-shirts or community products are most popular with your members and supporters. If you've never sold products before, do some market testing before you commit to production or sales.
  • How much will it cost us to set up our sales capacity? There are lots of e-commerce options, including Paypal, that make it easy to set up storefronts and complete credit card transactions. Be prepared to invest some money to make your storefront look good, and to make it easy for people to shop. Invest in airtight security for credit card transactions -- ideally avoiding any in-house handling of credit card numbers.
  • How much will it cost us to fulfill our orders? Look for products that have low marginal costs to produce or ship. Information products (like document, music or video downloads) are ideal because once you produce your first unit, every additional unit sold is virtually 100% profit. If you're producing physical products look carefully at the costs of both product design and fulfillment, and figure out the price point and sales volume that optimizes your profit margins.
  • Can we outsource production or fulfillment in a way that aligns with our mission? Outsourcing the production of your product or fulfillment of your orders can save you time and money, and keep your organization focused on its core mission. But be sure that you outsource in a way that supports your mission and values. Find out about the wages and labor conditions of your contractors; if you wouldn't feel comfortable seeing that information disclosed with your organization's name attached to it, look for another option. Better yet, look for contractors who actively reflect what you stand for: if you're a women's organization, look for women-owned businesses. If you're a development organization, look for partners in countries where you work.

I'll venture to say that most non-profits have at least a couple of good options for products they can produce and sell online. If you have loyal members or active supporters, you have a message that people want to hear. Figure out whether that message fits better on a t-shirt or in an e-book, and you're on your way.