• Silicon Alley Insider, Tuesday, June 17, 2008 11:17 AM

Silicon Alley Insider contributor Sean Ryan says it's clear that social networks won't be able to pay for themselves through advertising alone, "at least not at the rate their owners would prefer." Yesterday, The New York Times had a piece about MySpace's struggle for monetization, concluding that better targeted advertising has to be the solution, but Ryan says that history shows that the most successful media models offer premium services/subscriptions in addition to advertising.

Unsurprisingly, Ryan, whose company Meez sells virtual items on social networks, thinks the secondary revenue streams for social networks should be the sale of virtual items. Why, because roughly 50% of a social networking service's overall engagement (read: page views), comes from about 10% of the audience. This 10% is really engaged, and they've seen all of the ads that you have to show, so Ryan argues: why not upsell them on virtual items and get them to engage even more?

Indeed, your loyal users are more likely to subscribe to premium services if you give them a good enough reason to do so. Status plays a big role: these users want to stand out, have more authority, and according to Ryan, there's no better way to do this than to allow these users to pimp out their profile pages with special virtual items. Regardless of whether or not you believe in virtual items, there's no denying that social networks could leverage the idea of premium services, especially when it comes to that 10% base of hardcore users.

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