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While monetizing a business network, community or marketplace, a successful company would be one which knows what the central proposition of the product is and would know how to monetize that particular proposition. It doesn’t take a genius to figure out that the central proposition for a marketplace is the transaction happening between two parties on it.

Borrowing a parallel from computer science and graph theory, the assets in a network or community may be understood in the following way:

1. Users (graph nodes): N in number
2. Interactions (graph arcs): Potentially, as high as Factorial N in number. For the mathematically nitpicky, this would be approximately NCx (N Combination x) where x is the average number of interactions per user
3. Transactions (weighted graph arcs): Potentially as high as Factorial N times the volume of interactions between any two parties on an average.

Clearly, the value diminishes as we move from monetizing transactions to monetizing users. The further you go away from the central proposition, the lower the likelihood to tap the real value of the marketplace.

Revenue models in order of how close or far they are from the central theme of the site would be:

1. Transaction-based revenue models: Directly monetizes the transaction. The best ones even monetize the volume of the transaction. 
   1. ODesk, which monetizes volume of the transaction by billing by the hour for service provided
      
   2. Cyworld: A social network where SOHOs set up shop and sell to customers, a cut of which goes to the network
2. Lead generation-based model: Monetizes the interaction but fails to create value out of the life-time value in the transaction.
   
   1. Justdial on voice. Yes, it does connect the SMB  to the customer but potentially loses out on the ability to continue monetizing it on an ongoing basis.
3. Value-added service model: Monetizes off the interaction, but not off the transaction. Monetizes secondary services that may be offered to the community while actual transactions are free thereby encouraging people to transact more and hence use the VAS more often.
   1. One of the many monetizing models on Alibaba
4. Subscription model:  Monetize one-time or once a year on a float subscription irrespective of number of transactions. This only monetizes the users in the community offering them special privileges but fails to monetize all the activity.
   1. Indiamart
5. Advertising model: In my opinion, a very poorly thought out business. Anyone owning transactions and interactions and monetizing only the users (or the nodes) would be wasting his asset. You might as well get this done as a media company
   
   So why in the world do people not want to monetize transactions. Some of the major reasons we get to hear from time to time are:
   

• Tracking and monetizing interactions and transactions are more complex to implement technologically than tracking and monetizing users
• Monetizing transactions on an ongoing basis sometimes ends up restricting the users in how they interact on the network. E.g.to monetize transactions, the marketplace may make free interaction more inconvenient than paid interaction to prompt users to pay. More often than not, this is antithetical to the free world of the internet and fails miserably
• Monetizing transactions and interactions usually require multiple payments collection touchpoints with the user. If payment collection from the end-user isn’t online and mobile and involves significant costs, a onetime subscription collection seems better.
• The end user in a few cases is not evolved enough to understand anything beyond the one-time subscription service
• More often than not, the business owner ends up monetizing through advertising because he didn’t think it out well enough. “Get the community and the users will monetize themselves” doesn’t work unless you are a Yahoo!

If it’s the last problem that your company faces, you’re in for a tough time. Any site in the world can sell eyeballs. The power of the community is not in the number of people you have but on the number of connections the community can potentially generate. Monetizing that is the big deal!

Social networking is at a point where a lot of us are almost bored to death with the daily launch of new networks. Strangely enough, not many of these social networks, boasting enviable usage and engagement metrics, can really claim to be running on a revenue model which really monetizes off the user engagement on the product. Many have taken the advertising path and it’s clearly not been the best. In the middle of all this, Cyworld from South Korea stands out as an important example of how one can make money off a social network.

South Korea boasts the highest household penetration of broadband internet in the world and online shopping is a huge fad out there with nearly 80% of internet users having shopped online. Cyworld seems to have united the best of both trends by combining social networking with online shopping and emerging as a highly profitable business in a field where Facebook, as the leader, is struggling to break even.

More than 90% of South Koreans in their 20s and more than one-third of the entire population of South Korea are registered users of Cyworld with more than 25 Mn unique users per month. Great stats but not out of the world as far as social networks are concerned. What absolutely bowls one over, though, is the degree to which they’ve monetized this user base.

Cyworld is a lot richer on features than many social networks. Somehow feature-rich seems to have worked for them. Interestingly, Google doesn’t have any significant market share in South Korea and it’s possible that users actually prefer feature-rich and heavy websites, what with the top notch broadband infrastructure that all Koreans have. On Cyworld, every member has a homepage, referred to as a mini-hompy in the Korean Internet world. Basic services on the site are free (as with most social networks) but the site generates close to $250 Mn in annual revenues following a very unique revenue model and makes nearly $10 per user per year (MySpace makes $2-3 per user per year, largely from advertising). Most of these revenues come from the sale of Cyworld’s virtual currency (dotori) which then users use to buy virtual objects to decorate their homepage and accessorize their avatars. Since these digital goods are micro-priced, there are a lot of transactions happening on the site, and given the huge user base, a lot of revenues flowing in.

The craze for virtual goods has resulted in a lot of online vendors setting shop on Cyworld to sell virtual goods. Given the richness of content that the mini-hompy service offers, Cyworld also has a sister service called Cyworld Town where SOHO (Small Office Home Office) owners display their offline goods through videos and graphics on their mini-hompy resulting in online order and offline conversions.

Given low online shopping outside the travel category and low connectivity (thus ruling out feature-rich sites), the model might not necessarily be directly relevant to the Indian scene. There are, however, pertinent points that one can note form Cyworld’s success:

1. A revenue model that monetizes actual actions that user must do to interact with the community can provide a more steady stream of revenues than one where the user has to perform a non-central action (like clicking on an advertisement) for the site to make money
2. Value added services like accessorizing one’s page etc. can be used to good effect on social networks. There is an inherent tendency to go one-up on friends on a social network, especially in showing off popularity, and if a value added service can help users do that, it could prove catchy