To read the press you’d think advertising is the only way to make money off of the “social graph.” Not so fast. Companies like Leverage Software, which offer brands the infrastructure to white label their own social networks, have carved out nice businesses for themselves. I recently sat down with Mike Walsh, Leverage Software’s CEO and Founder, to indulge in some Hocus Pocus (that would be the affordable and flavorful Syrah from Santa Barbara – not some sort of voodoo). Among the questions I had: does it really make sense to build your own network when your customers are already on Facebook? How many social networks do we expect consumers to actually join? What’s the end goal of such branded networks and how is success measured?
What emerged is a great reminder that organizations are just scratching the surface of the value these networks can provide. Most Leverage Software clients don’t attempt to directly monetize their communities – instead, the ROI comes from decreasing customer attrition, building loyalty and shaving support costs by enabling the community to troubleshoot each other’s issues. But it’s not all warm fuzzies. There’s an explicit marketing agenda served here too – Mike notes lead generation and upselling opportunities are tangible ways he can showcase ROI to his clients, who are overwhelmingly marketing execs. For example, inviting prospects into a branded social network and allowing the community to convert the sale is a huge benefit. It’s also telling that Leverage sells mostly to marketing departments – not customer service or product. Which means marketing foots the bill, and sees benefit in the resulting leads and loyalty flowing through the branded community.
So is there really a killer ad model that will turn Facebook into the next Google? Perhaps. But for now, Mike’s pretty satisfied with a social net revenue model that’s entirely independent of whether users click on ads. Pour a glass of Syrah and check out our discussion here.