Full article below:
Social media platforms in the United States mostly rely on advertising to make up their revenue. Facebook has created an extremely robust advertising platform for targeted advertising. Same with Twitter, Instagram, Snapchat, YouTube, etc. But relying mostly on advertising revenue (Figure 1) can be a risky way to run a digital business because there is basically an infinite amount of advertising space online. I could sell advertising in this post if I wanted to.
There is another way to generate revenue if you’re a company with a user base: micro-transactions for virtual goods.
In this post, I’ll use Reddit as a case study to show how they can use micro-transactions to generate revenue streams. (By the way, I pitched Steve Huffman this idea years ago, saying it was outlandish. He replied with “Less outlandish than you think!” but hasn’t implemented it yet.)
Reddit’s virtual, paid products include Reddit Premium and Reddit Coins. Users can give different awards to posts they like – Silver, Gold, and Platinum. Gold and Platinum awards grant users Reddit Premium for a certain amount of time (a week or a month). Reddit Premium can also be purchased by users individually (Figure 2). Reddit Premium is a very alright product–promising features such as no-ads (as if I don’t already have an ad-blocker installed), Reddit coins to award high quality posts, access to /r/lounge which is a vague subreddit for Premium users, Reddit Snoovatars (more on this later), and “directly supporting Reddit and the communities that it hosts.”
Reddit Premium is $5.99 a month, which is kind of ridiculous for what you’re getting. I can easily 1. install ad-blockers, 2. comment on someone’s post how much I liked it, and 3. join one of the thousands of very active communities on Reddit instead of /r/lounge.
Reddit does have a secret weapon: Snoovatars. Snoovatars are custom Snoos on Reddit Premium Profiles (Figure 3). They have been mostly phased out in favor of typical profile pictures when Reddit redesigned the site in 2018.
Snoovatars have a bunch of different options – basketballs, hats, props, you name it (Figure 4).
Why is Reddit not monetizing Snoovatars?
To do so, Reddit can take these steps:
- Get rid of user profile pictures. Make Snoovatars the standard for profile avatars.
- Make the props and accessories of Snoovatars able to be purchased for Reddit Coins (which already exist) (Figure 5).
- Allow users to trade and gift Snoovatar items.
- Make promotional Snoovatar items for corporate sponsors – A cool Iron Man mask promoting the newest Marvel movie, or Beats branded headphones (Figure 6).
- Allow a limited amount of karma to be traded for Reddit Coins. This promotes participation on Reddit (Figure 7).
- Create scarcity so items have more value – some items would only able to be earned through Reddit objectives (such as getting a certain number of viewers on an /r/PAN livestream), and some items would be really expensive in the Reddit shop.
- Display Snoovatars next to everyone’s comments. This makes it known who has the coolest Snoovatar (Figure 8).
This is modeled after the Team Fortress 2 hat economy (Figure 9).
It does not make the site more annoying to use (which ads do), it’s fun, and still allows advertisers to make promotional items to get their brand out there. And if TF2 is any indication of the power of vanity micro-transactions: this will work.
The great part is: this can be applied to any social networking site. By the way, it’s not like this is all that new of an idea. Chinese conglomerate Tencent allows users to customize their avatars on the messaging app QQ with Q Coins (Figure 10). This is the main way Tencent QQ generates revenue, and is massively popular in China.
If you really want to generate revenue as a platform with users, introducing virtual goods is a lucrative way to create a more interactive, fun experience that won’t annoy users with endless advertising.