Another New Social Network Revenue Model" Affiliate Fees

Pinterest, the social networking site, has the typical problem any software or application provider often has: no immediate revenue model.

Traffic to the Pinterest website has grown by a factor of 10 over the past six months.  In January 2012, the number of visitors on Pinterest.com was almost a third of that on Twitter.com. That’s a lot of users.

"Pinterest's monetization strategy isn't in the oven and it's not even off the baking table," says Jeremy Levine, a board member of Pinterest and a venture capitalist at Bessemer Venture Partners. "We have one hundred ideas but no execution as of yet."

But Josh Davis  says that isn’t quite true. Highly unusually for a start-up social network, Pinterest does seem to have an existing revenue stream that is different from all the other monetization schemes other major social networks have developed.

Twitter has “promoted tweets.” Facebook has display ads. LinkedIn had the same “no revenue” problem years ago, but now makes money from subscriptions, advertising sales, and hiring solutions.

LinkedIn gets  25 percent of its revenue from premium subscriptions; 33 percent from text and display advertising and 42 percent from LinkedIn Jobs, a job-matching or automated headhunting service.

Pinterest apparently already has develooped an affiliate revenue stream. If you post a pin to Pinterest, and it links to an e-commerce site that happens to have an affiliate program, Pinterest modifies the link to add their own affiliate tracking code.

If a user clicks through the picture from Pinterest and makes a purchase, Pinterest gets paid. So add “affiliate links” to the list of possible revenue models for a “free to use” social network.

Pinterest apparently is using a service called SkimLinks. SkimLinks' software looks at links users post to websites, determines if there is an affiliate program to which they can be linked, and appends a code that ensures Pinterest gets credit for (and data from) the referral.

That is highly unusual for a young social network. But it tends to validate the notion that users are the “product” that underlies all social network revenue models, at the end of the day.

Some would argue that Pinterest already is driving truly massive traffic to retail sites, by some accounts more than YouTube, LinkedIn, and Google+ combined, and the affiliate links model should be meaningful.

Commissions on sales for affiliate links vary widely, but they average around five percent. After SkimLinks gets paid, Pinterest might be looking at 3.75 percent net revenue. That will not be enough, by itself, to keep Pinterest in business over the long term. But it is more revenue than virtually all the other big social networks had when they started.

Consumer Group asks Federal Trade Commission to Take Action Against Google

Consumer Watchdog has asked the Federal Trade Commission to take immediate action against Google for tracking user web browsing on Apple Mac PCs,  even though Apple allows Safari operating system users to disable tracking. Precisely what action the FTC could take is not clear, since Google has stopped the tracking already.

Consumer Watchdog did not mention iPhone or iPad devices in its complaint, but the insertion of cookies to track behavior apparently could affect users of iPhones or iPads as well.

The complaint illustrates a growing business issue Google faces, namely regulator scrutiny of the sort that lead to the breakup of the AT&T system in the early 1980s and the consent decree Microsoft battled and lived with for two decades.

And dare one mention that Apple now is bigger than both Google and Microsoft put together? The point is that Google now faces the sort of mounting scrutiny of just about any significant move it makes, and there is historical precedent for arguing that, eventually, “something” will be done to limit Google’s further expansion into new lines of business.

The issue of Google bypassing built-in security settings on the Safari web browser on iPhones and iPads, which Google now has discontinued, or the FTC complaint, is not the biggest problem.

The danger is that Google has provided regulators one more bit of evidence that it might now be time to start regulating Google, as antitrust regulators earlier had placed limits on Microsoft’s own freedom to bundle applications and essentially enter new businesses.

Some might note that Microsoft has spent 21 years fighting antitrust battles with the U.S. government and similar battles with regulators for the European Community.

Most do not remember that there was serious talk of splitting Microsoft up into separate companies in 2000. Microsoft agreed to a court settlement in 2002 that ended that threat, but at a price. Microsoft essentially was placed in hand cuffs.

In April 2000 U.S. District Judge Thomas Penfield Jackson ruleed that  Microsoft unlawfully maintained a monopoly in Windows and unlawfully tied its browser to Windows. The proposed remedy was a breakup of Microsoft into two different companies, one for apps and the other for operating systems.

The Department of Justice and Microsoft agreed on a proposed settlement for the antitrust case in 2001.
In November 2002, U.S. District Judge Colleen Kollar-Kotelly approved the settlement, which included a five-year consent decree on the part of Microsoft. That deal was extended in 2006 to 2009 and then again in 2009 unitl May 2011.

The consent decree barred Microsoft from entering into Windows agreements that excluded competitors from new computers, and forced the company to make Windows interoperable with non-Microsoft software. In addition, an independent technical committee would field complaints that might arise from competitors.

But some would argue that the tedious litigation made Microsoft more cautious as a company.

Some now say growing scrutiny of Google is not helped when Google takes actions that raise the perception that it now might require similar throttling.

The problem for Google is going to be growing antitrust scrutiny that, sooner or later, is likely to be applied.

So far, little discussion of that sort seems to have occurred about Apple. History suggests such scrutiny ultimately will happen. Apple already is a bigger company that Google and Microsoft put together.

Sooner or later, should Apple continue to grow, antitrust scrutiny will start to happen.

The point is that Google cannot, henceforth, take the risk of appearing “too big, too cavalier or too influential.” Dumb mistakes will have consequences.

Mobile Continues to Reshape Computing

We continue to see, on a continuing basis, more evidence that mobility is reshaping the telecom, computing, content and marketing and advertising businesses. 

Apple’s mobile operating system, iOS now has surpassed the desktop operating system (Mac OS) in web browsing market for the first time in history. 

IDC reports that in 2011, Apple shipped 93.2 iPhone units and 40 million iPad units. 

Nor is Apple the only example of that trend. According to new research from Canalys, smart phone shipments overtook personal computers in 2011, moving 487.7 million units over the course of the year, compared to 414.6 million PCs. 


Without much doubt, these changes illustrate the importance of mobile trends in consumer behavior that indicate a clear shift towards a more mobile, on-the-go lifestyles and devices. 

It is possible that the shift to mobile devices now is having clear impact even on the use of specific browsers and operating systems. Over the last seven months, for example, Chitika Research has noted a steady decline in Windows browser share, at the same time that iOS surpassed Mac OS in terms of browsing share. 

Since August 2011, Windows has declined in share by almost 10 percent, Chitika notes. 

How Much Money Can Facebook Make from Mobile Advertising in a Year?

Facebook could generate over $1.2 billion from mobile advertising in its first year from just the United States, United Kingdom, France, Germany, Italy and Spain, analysts at mobileSquared predict. 

Facebook could earn an average revenue oer user of about $6.50 a year.

Based on a further assumption that Facebook will serve an ad every 20 seconds via its mobile sites or apps, and using  using a cost per thousand impressions model of $0.25, Facebook would generate $653.7 million in revenues from mobile advertising in the United States alone over a 12 month period.

Facebook also could generate mobile advertising revenues of $166.6 million in its first year in the UK, around $100 million in France, Germany, and Italy, and around $70 million in Spain.

Walgreens Mobile App Drives 40% of Online Transactions

Walgreens says 40 percent of its online transactions came from its one-year-old mobile app, where the most active customers are tapping through to shop, order prescription refills or find nearby stores to get flu shots. 

The Walgreens mobile commerce experience shows what can be done using mobile devices, mobile apps when harnessed to marketing and mobile commerce. 

All Devices Now are Content Consumption Devices

Mobile devices increasingly are content consumption devices. “As these device categories evolve and new ones come into being, consumers will continue to expect digital content to be available on all screens, at all times, in all locations,” says Paul Verna, eMarketer senior analyst.

In the United States,  over the next two years, eMarketer expects more than 26 million mobile phone users to turn to smartphones, helping put the devices in the hands of more than half of all US mobile users by 2014. That will dramatically expand the "small screen" audience for content consumption to about 133 million people. 


By any measure, that is a potent potential audience. 

But smart phones are not the only fast-growing new screen. Tablet penetration will increase even more quickly in the United States, from a user base of nearly 55 million by the end of 2012 to almost 90 million in the next two years. By 2014, more than one in three U.S. internet users will have a tablet device, eMarketer predicts. 


Those new screens will join the 75 percent of U.S. households that own either a desktop or notebook computer, a potential audience of about 100 million homes. 


Those statistics indicate why mobile devices increasingly are important. Smart phones already outnumber PC screens, and tablets will, at some point, rival the installed base of PC devices. 

“Without movies, TV shows, games, photos, books, magazines, newspapers, video clips and music, few would care to own a tablet, a touchscreen smartphone, a connected console or an internet-enabled TV,” says Verna. “As consumers continue to gravitate toward digital media consumption, and as content owners and device manufacturers continue to find ways to meet the demand for it, more content will become available in the digital domain.”


The shift of user activities toward content consumption explains, in part, why tablets have become such a "hot" product category. Over time, PCs have become platforms for content consumption, rather than "work" tools. 


In a similar way, smart phones have become content consumption platforms as much as communication devices. Tablets, on the other hand, might primarily be called content consumption devices, even though some amount of communications activity (email, messaging) and "work" activity (mostly related to web surfing and mobile apps). 

Apple Is Making Over the Top Streaming to TVs Much Easier

AirPlay, a feature of Apple's new "Mountain Lion" operating system, allows users to wirelessly beam what's on the screen of your iPhone, iPad, or Mac to your TV, if you have an AppleTV.

That means suitably-equipped users can send "webpages, YouTube videos, iTunes rentals or anything else you can think of onto an AppleTV unit without wires," says Jason Snell at MacWorld. Apple AirPlay will boost OTT video

To be sure, the ability to do so does not automatically mean all the content people prefer is available. That is a matter of content licensing. But the capability will mean it is much easier to view any web content directly on a TV, which means the user experience for any over the top TV viewing is vastly better.

Some might say the issue, going forward, is how long it takes for "piracy" to become a big enough issue that content owners will have different incentives to permit lawful viewing of movies and licensed TV content without having to do so illegally.

Hulu, for example, apparently blocks display of its content on a TV, even though it obviously allows such viewing on a web device. ABC, CBS and NBC also do so.

AirPlay on the Mac doesn't materially change the economics of entertainment video, at least for the moment. But it is one more building block for the eventual infrastructure that will pressure the existing economics of the video entertainment business.