• by Gord Hotchkiss , Featured Contributor, July 17, 2014

Last week, I talked about the maturity continuum of social media. This week, I’d like to recap and look at the business model implications of each phase.

Phase One – It’s a fad. Here, we use a new social media tool simply because it is new. This is a classic early adopter model. The business goal here is to drive adoption as fast and far as possible, hoping that acceptance will go viral. There is no revenue opportunity at this point, as you don’t want to do anything to slow adoption.  It’s all about getting it into as many hands as possible.

Phase Two – It’s a statement. You use the tool because it says something about who you are.  Revenue opportunities are still limited, but this is the time for cross-promotion with brands that make a similar statement. Messaging and branding become essential at this point.  You have to carve a unique niche for yourself and hope that it resonates with segments of your market. The goal is to create an emotional connection with your audience to help shore up loyalty in the next phase. This is the time to start laying the foundations of an user community.

Phase Three – It’s a tool. You use it because it offers the best functionality for a particular task. Here, things have to get more practical. This is where user testing and new feature development have to move as quickly as possible. Revenue opportunities at this point are possible, depending on the usage profile of your app. If there’s high frequency of usage, advertising sponsorship is a possibility. But be aware that this will bring inevitable pushback from your users, especially if there has been no advertising up to this point. Advertising shakes the loyalty of the “Statement” users, as they feel you’re selling out. The functionality will have to be rock-solid to prevent attrition of your user base during this phase. Essentially, it will have to be good enough to lock out the competition. But there’s another goal here as well. Introducing new functionality allows you to move beyond being a one-trick pony. This is where you have to start moving from being a tool to the next phase…

Phase Four – It’s a platform. If you’ve successfully transitioned to being a social media platform, you should have the opportunity to finally turn a profit. The stability of the revenue model will be wholly dependent on how high you’ve been able to raise the cost of switching. The more “sticky” your platform is, the more stable your revenue will be. But be aware that using advertising as your revenue channel is fraught with issues in the world of social media. Unlike search, where we are used to dealing with a crystal-clear indication of consumer interest, social media usage seldom comes tied to clear buyer intent.  You have to worry about modality and social norms, along with the erosion of your “cool” factor.

In the last two phases, the best revenue opportunities should be directly tied to functionality and intent. The closer you can align your advertising message to the intent of the users in the moment, the more stable your revenue model will be. In fact, if you can introduce tools focused on users in social modes where commercial messaging is appropriate, you will find revenue opportunities dropping into your lap. For example, if users use LinkedIn to crowdsource opinions on B2B purchases, you have a natural monetization opportunity. If they’re using your app to post pictures of their cat playing a xylophone, you’re going to find it much harder to make a buck. Not impossible, but pretty damned difficult.