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 / Spring 2011 / Issue 62(originally published by Booz & Company)


The Coming Wave of “Social Apponomics”

The secret to profitability on the Internet has finally arrived in an innovative blend of social media, Web mobility, and creative e-commerce applications.

The short history of the Internet can be summed up in a few words: Attracting a crowd is relatively easy. Monetizing that crowd? Not so much.

Earlier it was (the now nearly forgotten) Netscape and (the barely memorable) Friendster that drew the big audiences. Then, MySpace surged in popularity. Now this distinction belongs to Facebook and YouTube, with their billions of active visitors. But despite the extraordinary numbers of enthusiasts they can claim, many of today’s Web giants are confronted with the same problem: no clear path to profits. Google, Amazon, eBay, and to some degree Facebook are the rare exceptions among a sea of unprofitable websites.

Still, the emergence of vastly popular community-driven sites offers a glimpse into a new business model for smart retailers and consumer goods companies that bygone Internet ventures didn’t offer: an approach we call social apponomics. By enhancing the sheer magnetic power of social media with community-based marketing and tailored applications, social apponomics affords companies a pathway for breaking down the barriers to profitably commercializing online activities, not just for individual transactions but as part of an ongoing customer relationship.

Three elements of social apponomics are critical to success. The first is social media. These interactive sites, where people can congregate to share information, ideas, and things that they’ve discovered (mundane and newsworthy) or that they have in common, are replacing broadcast channels as the primary way many people learn about products and services. It’s a perfect Internet format for companies that want to attract a “sticky” audience, particularly when Web mobility is exploited. For one thing, consumers themselves can be used to generate content and interest in products and services, as occurs with Foursquare, a smartphone application that lets people automatically alert friends to their location with GPS technology and win rewards — discounts, T-shirts, and other prizes — for recommending products and stores to their circle of online acquaintances. Retailers can best take advantage of Foursquare by offering coupons and other promotions for purchases and by providing special offers to the most loyal customers. Consumer goods companies can tap into social media in equally intriguing ways. For example, product placement in online games like the hugely popular FarmVille on Facebook, where some simulated fields have been planted to resemble McDonald’s golden arches and a zeppelin advertising Farmers Insurance Group was recently seen gliding across the screen. As a follow-up to their successful venture, FarmVille’s creator — a gaming innovator named Zynga Game Network Inc. — has just released CityVille, which may attract advertising from more urban companies such as Starbucks or major hotel chains. (Zynga has an additional revenue stream: the sale of add-ons that enhance the experience of playing the game.)

The second element, community-based marketing, is driven by keen insight into customer behavior on retailer-created social media sites. This insight is generated not just by surveys and studies of customers, but by analysis of how consumers engage with products and services online, as well as their Web connections to other individuals. Customized offers and campaigns, supported by sophisticated data mining and customer relationship management (CRM) analytics, ensure that site visitors receive advertisements or messages of interest to them and thus are more likely to click through to a sale; this is one of the most promising sources of revenue.

Finally, tailored applications attract people by offering easy-to-use online environments that speak directly to individuals according to their interests and needs — either on websites or, increasingly, via customizable applications for smartphones, netbooks, and tablets such as the Apple iPad. Support and advice, including product reviews and recommendations, can be generated by experts on a site, but they more often (and less expensively) come from customers themselves.

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