5 Winning Social Media Business Models + Examples
In April 2020, a shiny new social app was launched.
Less than three years later, it's no more than a niche app that's been passed over in the voice space by social media regulars like Twitter and Reddit. Clubhouse reached a peak of 9.6 million installs in February 2021 before spiraling to just 719,000 in May. But why did it pancake so badly?
Because exclusivity isn't, on its own, a model for user growth and retention. Clubhouse might have been able to stir up some buzz, but the business model never seemed to account for the actual users they hoped to attract to their app. As Daniel Hopper wrote for Medium, "Clubhouse has little to no value to the average person. It's a time-suck hoping to stumble across a conversation of value."
No matter how popular or niche your social media app is, you need a roadmap to monetize your audience and actually turn a profit from the value you're delivering. And there are plenty of creative social media business models to implement, rather than hoping that simply having lots of users will magically produce revenue.
1. Social Ecommerce
With a social ecommerce model, users can buy and sell products using your app in an online marketplace. Unlike a traditional ecommerce model, the community aspect is the big differentiator here. Users can follow and message their favorite sellers and stay updated when they post new products in their store.
The social nature of these transactions is the value proposition for users, but it's the dealings themselves that actually drive in money for your app via flat fees or a percentage of sales from sellers or stores.
An ecommerce business model is not to be mistaken for social commerce, where the ecommerce funnel moves into native social apps. In that model, ecomm shops integrate with Facebook, Instagram, TikTok, and other platforms to serve up their products and create a frictionless buying experience for their customers. Instead, social ecommerce apps rely on peer-to-peer engagement and community building to increase adoption and sales and then take home a slice of the pie.
Social Ecommerce App Examples
- Poshmark: A reselling marketplace where users can follow sellers and like and comment on their favorite items before bidding. Poshmark also curates a personalized home feed for users based on who they follow and what items they like.
- Depop: Another resale app where users promote their stores and items to groups of followers. Lots of haggling over product prices takes place on Depop. According to the Evening Standard, users follow and message each other 85 million times a month on the platform.
- Meesho: Through Meesho, users buy products at wholesale prices and then resell them to their social networks and contacts. Meesho allows resellers to add their own margin and handles payment and transactions through the app.
2. User-Generated Content
By its nature, social media implies that the primary purpose of an app is social connection with other users. But in some cases, that two-way conversation actually becomes the product and the draw itself.
In a user-generated content (UGC) model, users populate the app with their own text posts, images, and videos. They share links to interesting articles, their favorite brands, new music they're listening to, and shopping recommendations. Instead of a brand or an app owner talking to a follower base, users interact with their peers around common interests, find answers to questions, and engage in authentic conversations with each other.
Almost every type of social media app has some user-generated component. Social media just wouldn't be possible without users interacting with each other through their own content. But in those cases, user-generated content is just an app feature, not the social media business model.
It's also important to keep in mind that user-generated content alone is not a monetization strategy. You can use it as a model to build your audience and differentiate your app in a crowded space. But once users are on board and interacting, you'll have to apply other revenue-generating methods, like ad promotion or subscription tiers.
For the UGC model to be successful, you need a lot of users contributing, which means aggressively prioritizing growth and adoption in the early stages. Consider adding integrations to import social followers from other platforms or incentives to enlist family and friends to create accounts and post frequently.
User-Generated Content App Examples
- Reddit: Reddit offers a forum-style social networking structure with sub-forums or "subreddits" on any given topic, from movies to music to videos of perfectly cut screams. Users can post and comment in threads and enforce their own rules and guidelines, maintaining a real community feel.
- Quora: Quora is a Q&A platform where users pose questions and others jump with answers in a thread-style format. The questions can be about anything and everything, sort of a modern-day version of Yahoo! Answers.
- Discord: Discord started as a communication platform for gamers, but plenty of other groups now use it to connect. Users can join public channels or communicate with friends or peers in invite-only private channels. Channels are similar to Reddit forums but organized more like giant group chats.
3. Affiliate Marketing
In an affiliate marketing program, users (also known as influencers) will promote products or services to their followers on your app. They usually receive a commission from the brand for doing this, and you can introduce it as a business model by also collecting a commission when affiliate sales happen through your app.
Affiliate marketing is more valuable to users than traditional paid ads because of its authenticity. According to a Matter survey, 61% of respondents said they're likely to trust content from friends, family, and influencers, but only 38% said they'd trust content from a brand. Good influencers naturally promote products, show how they use them throughout their lives, and even talk about some of the products' flaws.
When you build your social media app, you can distinguish affiliate content from other types with filters and tags to be transparent with followers. It's even legally mandated by the FTC for influencers to disclose their advertising relationships, and your app design can help make it even easier for them. Allowing sponsored content is an incentive for brands and influencers to use your app to make money, so make sure you set commissions at a fair rate for all parties. More affiliate sales overall will still add to your bottom line.
Affiliate Marketing App Examples
- Instagram: Up until August 2022, Instagram had an affiliate program that allowed professional profiles to tag products from their own shop or use affiliate tags to link to other ecommerce sites. Influencers could then easily earn a commission from these trackable links. Now, Instagram is shifting focus to its Creator Marketplace.
- TikTok: Along with allowing other types of sponsored content, TikTok has found a unique way of monetizing interactions with influencers directly on its platform. TikTok sells virtual coins that can be gifted to influencers. TikTok then earns a 50% commission once the virtual gift has been sent.
4. Subscription-Based Content
Instead of allowing users to access content for free, you can have them pay a subscription. But to convince users to sign up for a subscription, you'll have to offer an experience that's really unique and valuable.
Subscriptions are a really useful social media business model because they promise consistent, recurring revenue for your app. You typically charge users the same amount every month and can even offer pricing in tiers. There are two ways to approach a subscription-based app:
- Subscription services: You provide a way for individual creators to charge their followers and fans with recurring subscriptions, then keep a percentage or fee.
- App subscriptions: Your own users and customers subscribe directly to your app to unlock content and services.
Subscriptions are a more reliable source of revenue than paid or digital ads, where spending can fluctuate based on marketing budgets and user impressions. To entice users, you can offer free trials or a discounted price for six months or a year — as long as you can maintain healthy margins.
Subscription-Based Content App Examples
- Substack: A newsletter-style platform where content creators write their own newsletters and Substack distributes them. Creators can set their own prices for subscriptions or bonus content, but Substack takes a percentage of the income generated.
- Patreon: An app that allows creators of any kind to manage their subscriptions. It's common among podcasts and independent news outlets. It often features tiered subscription prices, with tantalizing bonus content available at the highest levels. BraverMountain Mushing, a dogsled team from Wisconsin, sends out "paw-printed" photos of their dogs at the $20-per-month tier.
- The Athletic: A subscription-based sports news platform where readers can comment on articles, forum topics, and app-native podcast episodes.
Similar to a subscription model, you can save some of your app's best features for paying users but offer a slimmed-down version for everyone to use for free. They're getting the "freemium" version instead of the premium experience.
A freemium version can introduce new users to your app, give them a teaser of what's so great about it, and then entice them to sign up for the full version — which is the end goal for you to actually make money.
If you're trying a freemium model, it's important to allow users on the free version to interact and engage with your services. You want your free service to be so compelling that users feel they should pay to get access to an even better experience.
Freemium App Examples
- Twitch: With Twitch, a popular live-streaming platform for gaming, it's free to join and watch streams. But users can subscribe to Twitch Partners to support their favorite streamers. Subscribers can gain access to exclusive chat rooms, competitions, and ad-free viewing experiences.
- LinkedIn: Anyone can sign up, create a LinkedIn profile, apply for jobs, and connect with other users on the platform (LinkedIn's core functionality). But LinkedIn's Premium version offers tons more perks, like the ability to become a featured job applicant, see who's viewed your profile, and send more InMail messages.
- Twitter: Since the initial rollout of Twitter Blue and the acquisition of the platform by Elon Musk, Twitter is now going full steam ahead with its plans for a more robust subscription option. Twitter Blue subscribers can post longer Tweets, are promoted more by Twitter's algorithm, and will retain SMS two-factor authentication.
Pull From Multiple Models to Maximize Your Revenue
There's no one right or best model for any app, and you can combine different models to create a more intuitive experience for users while diversifying your options for monetization. For example, you might populate your app with user-generated content to attract an audience but monetize it with a freemium model. Or you might encourage users to subscribe to a social ecommerce offering instead of charging commission to resellers.
The key is to implement a business model that not only pads your bottom line but also excites your user base as well. Redditors don't flock to the app because they love to scroll past video ads as they're sipping their morning coffee — it's because they love engaging with like-minded people, and Reddit has fostered that community. With the right business model, you won't just be building an app — you'll shape the missing piece of somebody's daily routine.
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