Dreamwidth and the Ad vs. Subscription Social Media Business Model
There’s a hullabaloo! The hot topic in fandom circles on Livejournal right now is Dreamwidth and whether or not to move. The closed beta and impending open beta is prompting all sorts of conversations, and since I’ve opened up a Dreamwidth account I wanted to talk a little about why I’m interested in the project.
It’s not for ToS reasons. Let’s face it, no matter what is promised or who promises it, at some point all Terms of Service agreements start to look the same. As usual, the devil’s in the details. No service can legally allow anyone to publish child pornography, for example, but what qualifies as child pornography is the tricky bit. My guess is this will continue to be some fanartist’s battle for a long time no matter what service they use.
For me, Dreamwidth is all about their ad-free business model.
Not because I mind ads, necessarily, though I know a lot of people are uncomfortable with a service that makes money of their content. It’s because making money off ads on a social media site doesn’t work and is increasingly proving to be an unviable business plan.
Millions of people use social media tools like Facebook, Twitter, and Livejournal every day. Thousands of gigabytes of data is created and stored on their servers, and every day this data is repeatedly uploaded and downloaded by millions of people. Operating social media sites is not cheap, yet across the internet the service is offered for free. Why? Because, with all those hungry eyeballs, social media looks like a match made in heaven for ad serving.
Except it’s not. Ads (text or banner) sell on social media sites for dirt cheap. Why? Because their clickthrough rate is abysmally low, and in order to make the ROI (return on investment) worth it, you have to sell hundreds of thousands of impressions for a significantly reduced price to compensate for the low clickthrough. Social media sites practically give away their ad space. They have to, because otherwise no one would buy it. As a result, social media sites attract the cheapest looking ads from companies or people who have very little to spend on space. That’s why MySpace and Livejournal are chock full of brightly coloured, poorly designed, blinking scam-ads (like the plethora of YOU’RE THE ONE MILLIONTH VIEW AND YOU’VE WON AN IPOD/TV/LAPTOP ads) by companies you’ve never heard of. They’re the only ones who will buy them.
The question then is: why don’t people click on ads on social media sites? Ad revenue has become a silver bullet for search engines, why doesn’t the model translate?
A lot of reasons, but one of the big ones is that when you’re browsing your Livejournal flist or Facebook feed, what you’re not looking for is to purchase something. Not usually, anyway. Spending money is probably the farthest thing from your mind. You’re looking to find out what your friends have been up to, browse your sister’s vacation snaps, or read some fanfic. Buying something is probably the farthest thing from your mind.
Not so when people Google something. A lot of the time, you’re actually Googling for a service. A release date for a DVD. A product you’re thinking about buying. A trip you’re planning to take. That’s the prime moment for advertisers because, even if you don’t consciously realize it, you’re extremely receptive to ads when you search, especially to targeted ads. The ads you see every time you do a Google search get extremely high clickthroughs and are proven to make a lot of money for the businesses that buy them.
This brings us to the second big reason why sites like Livejournal and MySpace don’t make good ad partners: no targeting.
Targeted ads are why Google ads are so popular. When you search for a term like "hotels in Florida", you get all kinds of ads relevant to that search. All the ads you see will talk about resort packages or vacation packages for Florida destinations. This is prime ad real-estate for Expedia, BookIt, and other booking agents. They’ve all highlighted terms like "hotel" and "hotel Florida" as keywords they’d like their ad to appear on, because those are the ones that are most likely to convert to sales.
Some social media sites are able to target (Facebook being a notable example) but the reality is that most aren’t, because they don’t have any way of gathering the demographic information they need or because their search tools aren’t anywhere near robust enough to handle that kind of dynamic content targeting. And even when those social media companies partner with Google Adsense to leverage Google’s search tools, the pickings are still slim because the valuable keywords don’t deliver on Livejournal the way they do on other sites, partly because Google can’t tell the difference between the context of the term or why it’s been used. There’s a marked difference between the ROI of an Expedia ad that displays next to a blogger reviewing a hotel they went to and one that displays next to a curtain!fic where Ron and Hermione discuss their summer holiday plans.
There are lots of other reasons that ad-revenue is proving to be unsustainable for social media sites (trackability and companies not wanting to be associated with Harry/Snape erotica are just a couple of the others), but those are the big two. They’re the reason I don’t buy ad space for my company on social media sites, at any rate.
Which brings us back around to Dreamwidth.
I like their business plan. I’ve been thinking for some time now that the only way social media sites are going to survive the next bubble is if they make a tiered subscription system that is built around attracting users to pay for the service. Not everyone, because that’s a pipe dream, but a higher percentage than do today.
That’s the biggest difference between Livejournal and Dreamwidth: Dreamwidth wants paying subscribers. They’re serving their users and trying to sell us things, not trying to use us to sell things to other people, and if you think that won’t affect the way they implement and enforce their ToS, you’ve misunderstood something along the way.
Yes, paid accounts will be more expensive than they are on Livejournal, but that’s because that is the source of income for the Dreamwidth team, not merely a supplement of it. $40 a year for a premium account at Dreamwidth breaks down to just over $3 a month, and the lower $25 paid account works out to just over $2. We’re talking about the price of one Starbucks coffee (or two regularly priced coffees) a month for unlimited journal storage, unlimited bandwidth, more user icons than you’d ever really need, plus a swath of other features (some available now, some coming down the pipeline soon, and others on the roadmap), and a company that won’t side-step my interests to make themselves more attractive to advertisers. That, as far as I’m concerned, is a steal of a deal at twice the price.
Only time will tell for sure whether or not Dreamwidth’s plan is truly viable, and I hope it is. I like to support the things I use online and wish more people would remember that these sites are businesses and services. Everything you do on Livejournal — even if you’re just a lurker who doesn’t have an account — costs people money. If they can’t recoup the costs, then the service will go away. It’s really that simple.