For those of you that don't know, Sermo is a social network for doctors to share information, insights, and advice with each other. You would think, given such a high quality demographic profile, that driving advertising revenue would be like shooting fish in a barrel. What pharmaceutical company wouldn't want to get their ads in front of doctors talking to each other about medicine?
Of course, what doctor really wants to join a social network full of pharmaceutical ads--not to mention how likely are they to click a banner ad about drugs? (Although they might be able to sell a list of the doctors with the highest clickthroughs to patients, so I know who NOT to go to in an emergency.)
Unfortunately, given current ad formats, monetization through advertising directly flies in the face of the quality of interaction in the community. It degrades the user experience, creating a problem for startups.
Instead, Sermo is making the user experience a priority, ridding their site of ads, and instead, allowing financial investors, government agencies, and yes, the pharma companies, an opportunity to observe the interactions and pull useful insights out of the community. Instead of taking their customers out of their natural environment to do surveys and research, they're making the whole community into a huge research panel.
The value to the institutions that live and die with drug approvals, potential recalls, new patent uses, etc. is unquestionable. In fact, Sermo should become profitable this year, after securing almost $40 million in investment.
Does it really take that much money to build a social network? No, but these types of information creating communities are requiring a second phase of build--tools to secure and to harvest the data, as well as a more robust infrastructure to scale the community and insure it's continued growth.
This is an interesting potential path for communities like Twitter, Get Satisfaction, and Tumblr. On their face, it might not be obvious to folks how they'll ever drive revenue, especially since these aren't necessarily places people want to be sold to.
The information coming out of Twitter is a gold mine--whether it's about brands, stocks, events, music, etc. I'm a bit surprised that Twitter hasn't done more along the lines of search and trend tracking, but I suppose their amazing growth has given them more immediate fish to fry. Anyone who's ever tracked a consumer brand on Twitter knows that a marketer or brand manager would pay through the nose for this kind of insight into customers in the wild.
Get Satisfaction--the community powered customer feedback portal--is creating a place where people can tap into their userbase and understand issues, problems, opportunities, etc. Since the Kryptonite lock incident, companies have realized that social media engagement isn't a choice--it's a business necessity, and yet great tools for engagement and participation haven't really been built until GetSatisfaction.
I love the fact that customers can create pages for the companies they love or hate even before the company joins the network. Not surprisingly, many companies will be the last ones to the party, but what this model also does is to give the company a great pipeline for who to sell to next.
Tumblr may wind up with a similar model, especially if it continues to be a place where cool people share cool things on the web. I don't know of they can continue to maintain this atmosphere and scale at the same time, but if they can, there's surely a lot of interesting trend data that can bubble up from Tumblr.
In a lot of ways, this model is just like the way Google monetized search. You built a place where people could get something done or solve a problem for free--try not to interrupt their experience, and then try to harvest the data their participation created.
There are, of course, several challenges with this model. First is that the visionary community person who created the community may not be the same person tasked with building the application that packages the data and the participation tools for the entity that ultimately pays for the service. Of course, it's integral for the visionary community folks to be a part of this process to protect the interests of the consumers, but ultimately, you need an industry person to really understand and service the needs of the pharma companies, Comcast, or the brand marketer, whoever it may be.
Second, investors may have to make a kind of leap of faith about the value of the data and the ability for the team to build a product that gleans valuable insights from it. Whereas now they don't have to make much of a leap of faith as to whether or not there's user value in these free applications, the chasm has shifted to betting on whether or not the business information seekers will buy in.