The business models within the social media realm are much different than traditional businesses. In social networking, they’re ever-changing, backed by eye-opening revenue and have very little documentation.

Reason: as soon as someone sits down to outline ways social networks can be monetized, another model emerges, and another model ceases. For this reason, this piece will be routinely updated with new models and new feedback from your comments.

Below are the Four Primary Business Models in the social networking space that I’ve experienced–they primarily are concerned with Facebook Applications. There may be others, or extensions of these, or even ideas out there that have yet to be tested yet are profoundly viable. All additions are welcomed.

I. Display Ads:

This is your bread and butter business model. It centers on showing showing Display/Context Ads. The two major forms of this are CPC (cost per click) and CPA (cost per action or acquisition).

Example:

With the ad above, the user clicks the ad, they take a quiz, and usually they fill out their email address or phone number. The advertiser (IQ Quiz), will pay the Facebook developer (you) each time a user fills out their email address or phone number. Usually, there’s a middle man involved. The middle man is called an ad network.

These types of ads can pay out a CPM of $0.05 – $0.80 (*Depending on Country*)

Say you serve 1 million impressions of these per day, at a $0.20 CPM, you can expect to make $200 per day, or $6,000 a month.

II. Branding Certain Elements within an Application

This business model is rather new, and personally, my favorite. This model centers on branding a certain element within your application.

For instance, LivingSocial is an application where users can make a list of their favorite things. Big brands, like Porsche, may want to get in front of their audience and have users speak about their brand in a viral, social networking space. Therefore, Porsche will pay LivingSocial for each exposure to their audience. By exposure, I mean hitting the newsfeed of the user on Facebook:

I like to think of this model as a Cost Per Share (CPS).

Using the above example, let’s say you have 1 million impressions of a certain application. For each person that shares Porsche with their friends via Newsfeed, Porsche will pay $5 because these users are loyal and will argue why the Porsche is the best car via comments.

Of those 1 million daily impressions or exposures to the app, 0.01% (or 100) users are into Porsches and post their Porsche list to their news feed.

With 100 users sharing on their newsfeed per day, at a price of $5 CPS, your app will be making $500 per day, or $15,000 a month.

This is much better than the Banner Ad payouts of $6,000/month; additionally, the user experience isn’t as bland. By this, I mean, the user doesn’t feel like he or she is getting hammered with ads.

The only cons with using the CPS model is, (i) As of this past week, Facebook is hiding and disabling application news to be blasted on the home feed; thus, this business model could be dead in a couple weeks; (ii) second, the CPS model requires someone who’s creative and persistent on your team. Because social media is so new, and this model is so new, it’s much easier to setup a business model based on banner ads (all you do is sign up with an ad network and place the creative ad code on your site). With CPS models, you must identify specific elements within your application that are valuable, and you must then find big brands (like Coca Cola) to buy it. When you’re a small startup, this is nearly impossible.

Thus, in place of this void, companies like Appsavvy, come into the picture. I highly suggest checking them out.

III. Virtual Currency

This business model is astonishing. The concept of virtual currency is profoundly simple, however, the numbers and revenue this churns out is eye-opening (see table below).

In order to advance in virtual games, you need to invest either (i) Your own Time, or (ii) Your own Money.

Being that most people don’t have the time to invest into building a virtual farm, they spend real money in order to save them time. Who’s profiting from this? The game developers. And they’re profiting big-time.

With this powerful element, alternative monetization methods have emerged. For instance, instead of investing your own money in a game, you can take a survey instead–likely, you’ll have to provide your email address. This practice has stirred up some controversy recently with some offers being ambiguous.

So, now the model looks more like this:

You invest either (i) Your own Time, (ii) Your own Money, or (iii) Alternative Method: Take a survey (in which a small fraction are misleading)

Prediction: The virtual currency model will likely experience a minor shake-out of the ambiguous offers; this shake-out will benefit both the consumer and Facebook application ecosystem. I’m predicting that Facebook will outline certain practices that these alternative offers must follow.

This is a long-term business model, and once Facebook outlines specific policies that outlaw some of the misleading offers that have crept through, the cash will start rolling in for these developers without eyebrows being raised.

IV. Virtual Gifts

Virtual gifts may be even more astonishing than virtual currency. Giving a virtual gift is the same thing as giving someone a gift in real life; except one thing: they’re not real. Surprisingly this hasn’t deterred anyone, people are snatching up virtual gifts at an incredible rate.

How incredible? Well, Virtual Gifts are expected to surpass $1 billion for U.S. users in 2009. That’s right, $1 billion. Read more here.

The most important element of virtual gifts centers on its use within Southeast Asian countries.

In Southeast Asia, specifically countries like Indonesia, Facebook is in hyper-growth mode…right now. The only problem is that the traditional monetization model (I. Display Ads), simply do not scale or work in Southeast Asian countries. The only thing that works is virtual gifts–and they work–a lot.

Unfortunately, though, Facebook Developers don’t have access to this monetization model because Facebook has their own Virtual Gift Marketplace.

V. The Numbers

From TechCrunch, here’s a summary of how much Facebook apps are raking in:

Zynga:

• Farmville-61M
• Mafia Wars-25.8M
• Yoville-19.8M
• Texas Hold Em’ Poker-18.3M
• Total Estimated Revenue For Year: $200 million

Playfish:

• Pet Society- 20.5M
• Restaurant City-17.3M
• Country Story- 8M
• 135 million total installs for all games
• Total Estimated Revenue For Year: $75 million

Playdom:

• Mobsters -14M
• Bumper Stickers-11.7M
• Own Your Friends-10.1M;
• Sorority Life-7.1M
• Mobsters 2-3.5M
• Poker Palace- 1.5M
• Total Estimated Revenue For Year: $60m

Wrapping Up: What Business Model Should You Go With?

With Banner Ads, specifically CPA-based ads, I believe it’s only a matter of time before the revenue stream becomes less dominant. You’re going to have to get more creative. The user will cap out at a certain point because there’s only so many times you can see a quiz ads, or game ads. Though you can control this with frequency caps, after a while the revenues will plateau and quickly decline.

Additionally, Southeast Asia is in hyper-growth mode. However, it’s essentially unmonetizable at this stage (besides serving Admax ads, which face a limited ad supply); thus leading to the next point: the most viable way to monetize Southeast Asia and other international countries is through virtual gifts for now.

How You Should Implement These Models Going into 2010:

Display Ads

• Allocate about 60% of your ad space to high-quality brand ad networks (you’ll need traffic, and a lot of applying)
• Allocate about 20% of of your ad space to CPA-based Ad Networks
• Allocate about 10% of your ad space to Job Listing Ad Networks
• Allocate about 10% of your ad space to product/widget based ad networks (Amazon Affiliates, Widgetbucks)

Brand Certain Elements within Your Application for CPS (Cost Per Share):

• Get creative with your application and business model by identifying the major value for your users, and evaluating whether or not you can brand pieces of value without hurting the user experience, but enhancing it.

Virtual Currency:

• Build virtual currency extensions into your application, but be sure to conduct due diligence on who you’re partnering with.
• Keep an eye on this arena, as I have a feeling some players in this realm are going to be called out and chastised if the recent allegations about misleading users are indeed true.
• As a Facebook developer, Facebook made it clear that it’s your job to understand what types of offers are being presented to your users. Have someone on your team routinely click the offers and investigate each ad creative.

Virtual Gifts:

• Virtual gifts are going to continue to be a cash cow well into 2010
• It’s critical that you somehow find a way to implement Virtual Gifts into your application. Why? Because this will be the primary way to monetize International countries; you don’t want to find yourself with millions of users that make nothing for your application because they’ll end up costing you money in terms of support costs, as well as other expenses.
• For now Facebook has the monopoly on this monetization route; however, it seems as if they’ll soon be granting developers access to this revenue stream. Link here

Further Reading:

Recently, Ro Choy of RockYou wrote a two-part series for Social Times on the future of social media and monetization: part one and part two. It’s a fantastic read for those interested in learning more about the state of social media and monetization.

Michael Arrington calls out those behind misleading ads in this post. Very interesting read, and something to keep track of, as Facebook is likely to voice their opinion and policy soon.

Conclusion:

2010 will be the year of social networking monetization. There will be a significant amount of changes, and more players are soon to enter the space. As soon as revenue is released to the public, and that revenue is significant, you’ll see Fortune 500 companies salivating at the chance to get in on the game. And they will. This will likely be met with acquisitions, as well as in-house spinoffs launched to capture some of the pie (think of Hulu’s launch in order to respond to YouTube).

If there’s one thing to take away from all of this, it’s simply:

Be creative with your business model in 2010, be flexible and make sure it aligns itself with the well-being and interest of your users. Good luck!

I attended a venture finance event a while back in Palo Alto, which was put on DLA Piper. They had a nice segment on legal aspects of venture finance and law.

While this post is geared towards the investor, venture capitalist and angel, if you’re an entrepreneur, you will obviously gain value from understanding this overall concept.

Calculation of Number of Shares To Be Offered to Existing Investors Pursuant to Preemptive Rights:

To determine the number of shares to be offered to a current shareholder pursuant to preemptive rights to maintain ownership percentage, you must first determine the basis on which the calculation of the holder’s ownership is to be made {e.g., fully diluted including all options in pool, fully diluted excluding ungranted options, based on shares actually outstanding [on an as-converted basis], including warrants, etc.).

In a venture-backed company, these rights typically will be contractural rather than statutory {i.e., pursuant to the company’s charter or state incorporation laws). The calculation of statutory preemptive rights will vary depending on the law of the state of incorporation.

The actual number of shares to be offered to existing investors pursuant to preemptive rights is the difference between the aggregate offering size and the shares to be offered to new investors.

To calculate the aggregate offering size, use a standard “gross up” calculation by dividing the number of shares being offered to new investors other than the holder(s) with preemptive rights by a fraction which is (1 – [the holder's percentage ownership of the company after making the determination above]). For example, if the company proposes to offer 8,000,000 shares to new investors prior to the offering the existing investor with preemptive rights owns 5% (or .05) of the company then the existing investor would have the right to purchase the following number of shares:

Aggregate Offering:

8,000,000/(1 – 0.05) = 8,000,000/(0.95) = 8,421,053

Offering to Existing Investor: 8,421,053 – 8,000,000 = 421,053

[You can view more resources, guides and helpful documents here...]

The concept of “listening” is thrown around quite frequently in everyday life. Some old greybeard will declare, “It’s all about listening in business,” or, “I’ve been married for 50 years because I learned to listen.” Certainly true; yet, many fail to follow this action up with the most important thing: asking intelligent questions.

Below is a picture where you can view how prefacing your questions statistically indicates smarter questions:

[Click to enlarge...]

I can’t even count the number of investing books I’ve read. The problem with most investing books revolves around the fact that they’re, well, books. The stock market can be extremely confusing. It suddenly becomes much more clear when you set aside a certain amount of money and just invest. Of course, you don’t want to go in blind. Thus, if you decide to go all in (with a small pot), check out these nine tips:

1. Don’t invest like a hedge fund manager
2. Don’t quit when you get back to even
3. There’s always a chance for take-overs
4. Don’t let short-term poor performance alter your long-term expectations
5. Invest, don’t trade
6. Trust your instincts, not your friends
7. Love the product, not the stock
8. Your portfolio doesn’t need to replicate the market
9. Avoid technical analysis

Guess where this is from?

Nope you’re wrong, it’s actually from Jim Cramer.

I know, I know. At first I couldn’t believe it. This is actually great advice.

Although Cramer has been getting hammered in the press, I do support the advice above. I just wish he followed it, heh.

While Facebook has clearly become the ideal social network for those wishing to stay in touch with their friends, one thing has always been missing: the ability to change your facebook background with layouts.

Some protest, “But I don’t want any backgrounds–I don’t want to sacrafice speed and simplicity.”

That’s fine. You don’t have to change; however, the lack of ability to actually style your facebook experience is ridiculous. And, finally with PageRage, the ability to style your facebook is now achievable.

I’ve personally looked through a handful of solutions to styling your Facebook background, and without a doubt, PageRage is the best one. Why? Because with PageRage, your friends have a choice to either (i) view your background and install PageRage, or (ii) use Facebook the way they always have: in a plain way.

How PageRage Works:

With PageRage, you must install a Firefox or Internet Explorer extension/plugin that allows you to view stylized facebook backgrounds. After you choose a decked-out Facebook background, your friends can view yours, too; but they must also have the Firefox or Internet Explorer extension found here.

The steps to install PageRage are very simple:

1. Download the plugin for your browser (just click yes whenever the browser asks you a question–and yes, I’ve been using it for months PageRage is 100% safe. )
2. Make sure you’re logged into Facebook
3. Head back to PageRage and select your layout
4. Share with your friends: I’ve found this to be the most important step because your friends can view your styled-out profile only if they have downloaded the plugin, as well.

So there you have it. You can now surf and style out your Facebook profile.

So why am I writing about this?

I’ve always been a fan of letting your users enhance and customize their experience. The lack of ability to style out your Facebook profile should not be a decision made by a group of kids in Palo Alto; but a decision made by the user. Looking at the reverse side of things, like MySpace, so too shall the ability to make MySpace plain. I for one, don’t like how MySpace is overly customized in that the user isn’t allowed to turn off all of the designs. This is now possible, too, through SanitySwitch

Best of luck, and have fun pimping out your profile! You can keep track of PageRage through their blog here.

Complete Property Management Software for Commercial and Residential Properties

http://www.propertyboulevard.com

One line pitch

Complete Property Management Software for Commercial and Residential Properties

Team

Complete Property Management Software, with full accounting. Property Boulevard is easy and comprehensive Real Estate Software for commercial and residential portfolios.

Pain

Leads, Leads, and Leads. More traffic to http://www.propertyboulevard.com.

Solution

Internet marketing, SEO, marketing campaign, improvement of the Internet site http://www.propertyboulevard.com.

Technology

Window 64-Bit. More info at http://www.propertyboulevard.com

Market

Real Estate Property Management

Business Model

Software Licenses and custom features delivered via http://www.propertyboulevard.com.

Competition

Yardi, Domin-8

Milestones

Implementing a new marketing strategy via http://www.propertyboulevard.com.

Conclusion

Property Boulevard is the most advanced software in the property management arena.

This guest post is from Robert Tuchman. As president of TSE Sports & Entertainment, Robert has recently published Young Guns: The Fearless Entrepreneurs Guide to Chasing Your Dreams and Breaking Out On Your Own.

An entrepreneur needs to be someone who can both visualize and actualize. He needs to be able to visualize something—and once that “something” is visualized, he needs to see exactly how to make it happen. In order to make it happen, there are several steps that you as an entrepreneur must take on your way to entrepreneurial success. Do not just enhance what is, but advance towards what will be.

WHY NOT ME?

Get into the habit of asking, “Why not me?” The answer to this question will be the single most important thing in your personal campaign to build a great business from scratch. The answer to this question will lead you to success: it will strengthen your resiliency, persistency, fortitude and sense of purpose.

THE DECISION

You have to make a decision to make a name for yourself in the field that inspires you. The decision to change, whether it is catalyzed by unhappiness or otherwise, must come first. Commit yourself, with all your energy and enthusiasm, without reservation to what you love.

THE BIG IDEA

You need a big idea to transform roadblocks into reasons to move forward. The big idea will awaken you and ignite your motivation. Find ONE passion and pursue it—it should be one connected to an activity you love and should engage you emotionally.

THE FIRST TEST… AND THE FIRST PLAN

Once you have the big idea, test it. If what you are doing reminds you in any way of doing homework or feels like a chore, you have the wrong “Big Idea.” If your work passes this test, do your research and build a plan. Find a mentor! Stay focused on your short-term goals leading you to your long-term end.

THE PARTNER PRINCIPLE

Start-ups that feature two people have a significant competitive advantage over businesses in which one person, without consultation, makes all the major decisions. Picking a partner is analogous to picking a spouse: find someone who compensates for your weaknesses. Take your time: be positive about your choice as partnering with the wrong person can destroy your business, reputation, vision for the future, and physical or mental health.

GUT CHECK: GETTING STARTING

Prioritize internal workings before external: the external observable processes will not make or break your company in the first year. Your answer to “Why not me?” will lead you past your gut-check moment. You will have to expose yourself to short-term pain in order to secure the long-term that you believe you deserve.

PRIORITIES FOR THAT FIRST ALL-CONSUMING YEAR

Make a commitment: three years of long hours, hard work, and high energy. Your commitment to yourself will shape the commitment others will make with your company. You should have some main priorities—some of these being building a culture of action and enthusiasm and taking daily action on your business plan.

YOU ARE THE COMPANY

The best entrepreneurs are focused on their “why” that drives them to connect to customers—if you are truly connected you will never stop selling; it will be automatic. There is no right or wrong way to sell: just jump on the phone and talk to everyone you can with all your passion and enthusiasm.

TECHNOLOGY: OUR GENERATION’S GREAT EQUALIZER

Online, your message must be crafted carefully, resources invested wisely, and potential and actual payoff evaluated closely. To sell, find out how your customers are communicated and connecting. Hang out with customers online and in person. There are inexpensive ways to launch and promote a business and its target message.

SERVICE IS WHAT YOU’RE SELLING

Business is all about relationships—it is the service that you deliver to support these relationships that is your one true product. And that service is all about follow-through. Be upfront about everything of consequence that affects your client; take ownership of any problem. Sell light, perform heavy!

BACK UP YOUR SELL

Honesty is the only policy. There is only one way to build credibility: tell the truth to clients and prospective clients, and then surprise them and deliver more.

INSIDE PLAYERS: YOUR TEAM

Entrepreneurship is not just founding a stage where you as the founder deliver all the good results yourself—it means building a good team. Delegate! Hire people who share your values and attitudes. You should have a strong personal connection with every person you hire. Keep in mind that the general atmosphere is more important than any one employee.

CELEBRATE FAILURE, REWARD SUCCESS

You learn the least when you succeed, and the most when you fail. To never fail is an impossibility. Failure does not equal losing! You only lose when you halt your momentum and do not move forward to help the people on your team to success. Learn to bounce back and look for a silver lining.

YOUR VENDOR RELATIONSHIPS MATTER

It is just as important to keep your vendors happy as your employees. Nurture, sustain and service your relationships with the right vendors. You are placing the future of your business in the hands of the vendors: you relationship with them needs to be one of trust. The two most important outside vendors you can have are your accountant and lawyer.

BY THE NUMBERS

Find someone who can keep you organized and on top of your expenses and obligations AND who can adapt and expand as the business starts to take off.

WHY NOT YOU?

Over time, you will have to find different ways to answer that question to keep you motivated on your path to success. Find new rituals that engage you in a fresh and motivating way. Master the art of supporting, learning about, and growing yourself before you try to do the same for your business.

In the end, take energy from taking risks. Live in the spirit of the entrepreneur!

People-powered company nutrition labels

http://www.projectlabel.org

One line pitch

People-powered company nutrition labels

Team

Led by Brian, Web Developer since adolescence, and Liza, marketing extraordinaire, the Project Label team brings together those passionate about the Web and social change.

Pain

Want to know how a company or product is impacting your health, community, or planet? Currently, there is no one-stop-shop for this. Typically, you would have to dig through a plethora of articles, research publications, and reports from a variety of sources to find such information.

Solution

Project Label strives to create community-powered company nutrition labels that assess companies’ health, social, and environmental impacts. Project Label users can learn, discuss, and vote on how these labels should be built, based on data added by Project Label users and the Project Label team.

Technology

PHP, MySQL, AJAX

Market

Consumers who want to be informed, NGOs who want to gather information for their campaigns, companies who have a commitment to Corporate Social Responsibility (CSR)

Business Model

1. Custom reporting and consulting geared towards corporate clients,
2. Brand and data licensing

Competition

GoodGuide, Crocodyl, Scryve

Milestones

1. Promote and gather a critical mass of quality data,
2. Iterate on features based on user feedback,
3. Build mobile and social network applications,
4. Build premium custom reporting tools

Conclusion

Project Label wants to practice what it preaches. Just as companies profiled on the site should account for fiscal, social, and environmental impacts, Project Label wants to be a profitable company as well as create a positive social impact. Project Label’s goals are to create open communication and goal alignment between consumers and products, increase corporate reporting and transparency, and increase awareness of issues related to CSR.

A year ago (well, I’ll be honest, 11 months ago), I was one of those people that always had about 60 unread items in my gmail inbox. About every 3-weeks I would empty out all my unread items. This was how I lived. I just accepted my crowded inbox.

However, I changed specific habits that not only helped me clear out lingering items in my inbox, but also lingering items everywhere: my home office, appartment, projects and work-related items. I’ve tried most organization systems, Tim Ferriss’ philosophy, David Allens, online software, SaaS, etc. In the end, the following three items worked best for organizing, getting things done and keeping my inbox clear:

I. Three Options:

You have three options when reading email:

(i) 5-Min Rule: If it takes about 5 minutes, just do it. I used to only do things under two minutes, but more and more things are requiring thought. Just do anything under 5 minutes.

(ii) Add it to your calendar: If you’re too tired, and it’s the end of the day, just defer it. Put it in your calendar. The best add-on feature of the year was Gmail’s Gcal integration. In google labs, enable the Gcal, which sits right under the left-navigation tabs, and above your “Contacts/Gtalk” tab. That set up allows you to quickly defer any non-timely task. If the time comes in a week to do it, sometimes you’ll realize how unimportant the task is, or it’s already solved.

(iii) Don’t do anything [not offensive]: Sometimes non-work-related items just take too long. Especially the requests and items from people that want something for nothing. If something sucks your time, and doesn’t provide any value, you don’t have to do it. It’s optional. Don’t forget that. Don’t get me wrong: I’ll help people out for nothing if I know they need help, they’re a regular reader and/or I know the solution; however, I’m not a charity. If I’m exhausted and I get a question that someone can easily google, I’ll ignore it. Don’t feel bad. Just tell people, “Hey, I’m not a charity.”

II. Quick Responses:

When I first entered corporate America, my emails read like a Tolstoy novel. When I browse through my archives, I’m amazed. How and why would anyone read something that long? I’ve since looked at email as if it’s twitter. I keep my replies and responses short and sometimes sweet. In work-related occasions, with instructions or important items, I’ll write a couple paragraphs–but those make up only 5-10% of my emails. The other ones are around three sentences. Believe it or not, when you see email as quick blasts, you can clear out responses and only focus on tasks and people.

III. To-Do List

I tried out an electronic to-do list for three months, but decided to go back to pen and paper. Simultaneously while clearing out the inbox, I’ll usually write out to-do list items that I can scratch off throughout the day. I use email as the source, and my paper to-do list as a measurement. This also frees me from getting sucked into my inbox. It allows me to focus on items that are in a separate environment than the online world, which has definitely proven to be a time-sucker.

That’s it.

Those three elements are quite simple; however, through trial and error they’ve taken me a long time to learn. Hopefully this helps you out.

Matching people with content to drive conversion, using smart math.

http://www.cognitivematch.com

One line pitch

Matching people with content to drive conversion, using smart math.

Team

CEO: Alex Kelleher – was previously co-founder of Touch Clarity, and is supported by a team of University Professors in artifical intelligence and machine learning Commercial Director: Glen Conybeare

Pain

Sites have been through usability and basic content testing. Now they are missing out on the revenue and profit that can be delivered through smart content-targeting

Solution

A highly effective solution to matching individuals with content. The software and approach are focused only on increased relevance – that drives increased user response and ultimately revenue and profit.

Technology

Technology is a SaaS (Software as a Service) remote service

Market

Large ecommerce and content (publisher) sites

Business Model

Our success is directly related to the success of our clients – and our business model is based on this

Competition

A range of content targeters, but typically those in the “recommendations” area, though these tend to be less commercially rigorous

Milestones

- Get more customers – Help them be ridiculously successful

Conclusion

The internet is moving towards one-to-one relevance, at last. That shift needs technologies capable of processing the vast amounts of data thrown up by individuals’ behavior online. Cognitive Match is a key part of that.