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Monetising online communities

There’s never been a very convincing answer to the question of how to monetise successful digital communities. The answer certainly did not come soon enough for many entrepreneurs during the internet boom of the 1990s. When it did come, the survivors found that it was in the rather mundane shape of display advertising – a carbon copy of the print world’s version that had been keeping printing presses rolling for centuries.

While the online world has moved on a little since then, it still depends largely on this model albeit with new variations to provide it with more momentum. Social networking sites are pioneers and early adopters of these variations and the sites with most growth momentum are currently scrambling to unlock the possibilities before their momentum slows.

Facebook, with the best-known brand in the sector, has a real challenge to monetise its strong position before the next phenomenon explodes onto the scene and steals some of its thunder. Its business model has never been totally clear, despite the $15bn valuation it commands following an investment by Microsoft last month, and it is likely to make a profit of just $30m this year despite its high-profile brand.

One of the reasons advertisers have not yet swamped Facebook is that social networking sites are notorious for providing low click-through rates. Yet Facebook is a potential goldmine because it contains a host of data on its users, such as their birth date, interests, events they plan to attend, holidays and musical tastes. This provides perhaps two big opportunities: one is to target the audience more precisely. The other is to develop (branded) widgets and applications that feed into users' interests. You could, for instance, have an advertiser associated with an application that allows people to play chess against each other.

Social networking, of course, also exists outside of social networking sites. The popularity of Microsoft’s Xbox, for instance, has transformed it into a meeting place of like minds. So much so, that Microsoft has launched third-party advertising. In response to this, at least one US company has developed metrics that track television and internet usage, so companies can see which games users are playing, on which devices and when.

Provided games players can tolerate the intrusion, this model could be lucrative. However, some ideas may never be accessible to marketing efforts. The “greater good” ethos behind Wikipedia, for instance, ensures that its worldwide proliferation will probably never translate into hard cash.

How to turn users into cash is just one of the subjects that will be debated at Essential Mediatech, a major industry conference taking place next month in London. Debating the monetisation issue will be Gunnar Larsen of RealNetworks, Emily Melton of Draper Fisher Jurvetson, Chris Coffman of Library House, Lorenz Bogaert of Netlog, Alain-Gabriel Courtines, of Intel Capital and Joshua Hong of K2 Network.

The Week's Deals

OpenHydro, the Ireland-based designer and manufacturer of marine turbines for tidal farms, has raised €40m from One51. The deal values the company at €140m, according to the Irish Independent. The funding will be used to support the commercial development of the company’s core technology. OpenHydro says that it has recently won contracts to supply turbine technology to projects in Nova Scotia, Canada and the Channel Islands.

CamSemi, the UK-based fabless semiconductor company, has raised $26m (€18.2m) from The Carbon Trust, 3i Group, Scottish Equity Partners and TTP Venture Managers. The additional funding will be used to support the commercialisation of CamSemi's products that can reduce the energy consumption of electronic equipment in operating and standby modes.

Clavis, the Norway-based research and technology company, has raised €3.9m from Viking Venture. Clavis has developed technologies in the fields of marine propulsion, transportation of fluids and energy conversion. The company has been working with Rolls Royce Marine in a program for development of a new thruster design. Viking’s investment is to be used to pursue the further development and commercialisation of its marine propulsion and pump technologies through this and other industrial partnerships.

Retiwood, the France-based developer of technology for treating wood, has raised €3.4m from Naxicap Partners and Oddo Asset Management. Retiwood has developed a process for treating wood, without the use of chemicals, that is designed to increase the woods stability, durability, and resistance to the elements. The investment is intended to enable the company to accelerate its development. Retiwood expects turnover to grow from €2.5m in 2006 to €7m in 2007 and to reach €14m by 2009.

The Week's Exits

Meridio, the UK-based provider of enterprise records management software, has been acquired by London Stock Exchange-listed Autonomy for about £20m (€28.7m) in cash and shares. Meridio’s electronic records management software is designed to help companies identify, classify, archive, and destroy records.

Terraplay Systems, the Sweden-based provider of connected-gaming services, has been acquired by End2End for an undisclosed amount. End2End believes that by combining Terraplay's expertise in connected gaming with its experience in mobile content delivery, it has created a valuable and unique proposition for operators.

Mondosoft, the US and Denmark-based software company, has been acquired by Denmark-based SurfRay for an undisclosed amount. Mondosoft offers a suite of enterprise search, analytics and site optimisation products to make websites, intranets and portals easier to navigate for users and to provide feedback for improved site quality and efficiency for owners.

People Moves

Jagex, the UK-based online games developer, has appointed Geoff Iddison, the former European chief executive of PayPal, as its new chief executive. Mr Iddison takes over from Constant Tedder, who will remain on the board of directors. Mr Iddlison intends to drive the growth of the company’s most popular browser based game, called RuneScape, which already has more than 6 million active players, as well as bring new online games to market.

Figleaves.com, the UK-based online retailer, has appointed Julia Reynolds as its new chief executive. Ms Reynolds quit her role as Tesco’s head of Central European clothing to join the specialist retailer of lingerie, swimwear, hosiery, sleepwear and men's underwear. She will be supported by Debra Wood, who has joined as chief financial officer from Waterstone's Booksellers, where she was interim finance director.

CopperEye, the UK-based provider of data retention and retrieval products, has appointed Allen Swann as the company’s chairman. In this role, Mr Swann intends to help to refine CopperEye’s strategy while accelerating the company’s sales and marketing momentum in the European and North American markets. Mr Swann joins CopperEye as the company is making investments in all areas of the business following a recent round of funding from LMS Capital and In-Q-Tel, the venture arm of the US Intelligence Community.

Most Accessed Companies

Green Biologics, the UK-based industrial biotechnology company, has attracted a lot of attention this week. Green Biologics is aiming to become the world’s leading supplier of advanced fermentation techniques for conversion of cellulosic plant material to renewable biofuels. The company recently raised £1.58m and revealed to Library House that it would be looking for a further investment of about £5m in approximately 12 months.

Rawflow, the UK-based provider of live peer-to-peer (P2P) streaming technology that enables internet broadcasting of audio and video, has also attracted a lot of attention. Over the last few weeks the company has appointed Erik Lumer, founder and former chief executive of internet TV company Babelgum, as chief executive, and also closed a second round of funding from Balderton Capital. The company recently told Library House that it expects to begin fundraising again in approximately three months.