A Piece of the Free Economy - Last.FM

Last.FM is a social networking site that is built around the wonderful world of music. Site members build profiles, join groups, make friends, listen to music, and track listening habits through a simple iTunes (or other listening software) add-on application.

In order to generate revenue, Last.FM uses a combination of strategies. The primary strategy used is the Freemium, where varying subscription tiers exist, from free to paid. On Last.FM, however, there are only two subscription levels - free or paid. Free users are able to enjoy most of the major site benefits of paid users, and the majority of Last.FM members stick to the freebies. Those who chose to pay (3$ per month) enjoy the following features: blue icon status (instead of the free grey), no ads, recent visitor tracking, personal radio station, shared tracks with other users, preferential treatment during peak traffic times, and top secret beta access. Currently, the company is Beta testing a subscription based listening service in partnership with many of the major recording companies, which will add another tier to the subscription services.

The second major revenue generating strategy for Last.FM is the Advertising Model, where free content is sponsored by advertisers. Last.FM is probably one of the best sites for music related advertisers to spend their money. Site members are typically music trend setters, and keep up to date with the constantly changing music scene. A typical free member will see a variety of ads for new music releases or upcoming local concerts. Users also have the ability to preview and listen to free music tracks, and are provided links to buy the song legally through an affiliate site. In traditional advertising terms, the site could be compared to a magazine or cable channel in relation to its appeal to a niche market.

The beauty of Last.FM's business model is that the company is able to generate revenue no matter what type of member is using the site. If it's a free member, then the company generates revenue from selling ad space and from affiliate revenue. If it's a subscription member then the company generates revenue from the subscription fee. It would be interesting to see what the site's main costs are - my assumption is that the company is able to generate large profit numbers off of near minute expenses.

Moving forward, the streaming music subscription service should be a major source of revenue for the company - assuming they don't charge an obscenely high price. My prediction is that it becomes a competitor to iTunes and other digital music sites. Last.FM should look into setting up several more subscription tiers on the site to take advantage of members who want to interact more with the site and who are willing to pay a premium for the privilege.

Jellyfish.com Case Anlysis

Once again, for my Marketing on the Internet class...

Jellyfish.com is a new breed of online shopping website. Instead of a simple task oriented interface, like Amazon.com or Wal-Mart.com, Jellyfish chooses to include a large experiential element to their web business model. The site works like this: you sign up and create a profile -- the profile is very similar to one that you would create for a social networking site, name, interests, a shopping wish list, and any photos you wish to include. From there, you participate in the Smack Shopping experience. Smack shopping is basically a reverse auction (the price drops as time goes by) with an unknown quantity of items. The items are organized in different shows (electronics, mens clothing, etc.) throughout the day. Users who watch the shows can participate in a live chat, as well as a variety of games where users can win coins, (which can later be redeemed for prizes), money, and other jellyfish schwag. Users can also win chances to co-host shows, which means they get to pick the merchandise that's auctioned, and spur the live audience to participate.

This is why Jellyfish is an experiential site -- it is designed to encourage users to spend inordinate amounts of time on the site, engaging with the brand on a level thats hard for other e-commerce sites to achieve. As one spends time on the site, social connections develop with fellow "smackers", and it becomes even harder to leave the tight knit online community. It is not rare to hear of groups of smackers getting together for real world events (recently, a group from the finger lakes area went wine tasting). This is the kind of devotion and engagement money can't buy. It's the kind that comes with a clever business model, and an ability to nurture and engage the customer in ways other online retailers cannot.

What is most interesting about Jellyfish, however, is the way in which they choose to market their site. Jellyfish doesn't advertise much online. That means no banner ads and no Google AdWords (a quick search of relevant keywords returned no results -- though if you search for "jellyfish" the site comes up on the first page). What Jellyfish does have, however, is an affiliate advertising program and an opt-in e-mail newsletter. Thats it. Yet somehow, Jellyfish managed to build enough traffic, and establish a large enough user base that Microsoft purchased the company in October of 2007. So how did they do it?

A big part of their traffic building strategy was turning Jellyfish into a Lovemark -- so adored by its users that they would do anything to get friends and relatives using the site. For several months last year, Jellyfish ran a contest called "Smack Daddy's Quest". Smack Daddy's Quest was the ultimate in a word of mouth recruitment campaign. How it worked was the Smack community was charged with reaching certain point levels (1o points were awarded for each new refferrel) reaching those point levels triggered different rewards (larger money pots for games, smacking a car, etc.). Users were provided with a custom referral link, static banners, an e-mail footer and a widget to use as recruitment tools. This campaign alone increased the user base of Jellyfish by over 30,000 users in about 2 months.

Jellyfish also takes advantage of a public relations style of online advertising. Much of their users sign up when a popular blog mentions the site in a blog post. Jellyfish will also run co-hosted shows with popular blogs like The Consumerist and Tree Hugger, which also generates a lot of traffic. Jellyfish users will also post to the message boards of Woot during their famed Woot-offs (instead of one item being sold per day, a constant stream of items are sold until everything sells out) which encourages even more people to sign up for Jellyfish.

The traffic building strategies of Jellyfish are an example of a small online company taking advantage of every method available to them, without necessarily breaking the bank. It's a strategy that will only work for a certain class of website, but if your site belongs to that class, it's a good way to go.