How do free websites make money? It's been on my mind a lot lately, as Soapbox delves deeper into the business of online community development. For this study (*I use the term "study" loosely as I used no scientific methods in documenting my observations), I looked at Craigslist.org, DailyCandy.com, UrbanBaby.com, Facebook.com, LinkedIn.com, and Treehugger.com.

COMMON INGREDIENTS FOR SUCCESS

Free For Users
Each website I looked at offers a comprehensive, free service. You can get real value from each site without

ever needing to whip out your credit card. While many of these sites charge for some service (Craigslist: job and real estate listings; LinkedIn: InMail), these services aren't tied into the site's core offering. As a result, you never feel suckered into paying for anything, which I am sure helps brand affinity.

Traffic Is Everything
Once you have traffic, your options expand (sell ads, introduce premium services, etc). Without out traffic, bupkis. Search engine optimization (showing up organically in Google) needs to be designed into your site's evolution -- not be an afterthought.

Time Commitment
To make money, in looking at the timelines of the websites I studied, expect to invest at least 2-4 years into building traffic and realizing revenue. Unless you build the next YouTube, expect this to be a long term committment.

Budget for Marketing
A good rule: Invest in marketing annually what you invest in initial development. This could include: email marketing production and delivery, graphic design, search engine marketing, ad buys and offline marketing. 

A Recipe For Success
(To conduct this research, I posted a question on LinkedIn's "Answers" service to blast my 200 connections with this research question (hello free value). The most useful response came from someone I don't know -- Sandy Rowley of Mega Star Media INC: http://www.megastarmedia.com, http://www.barnculture.com, http://www.ondecksoftball.net)

"We have been building Social Networking websites and fan communities for over ten years. The TOP way to increase user profiles is to do the following:

1. Have a useful product or service that is actually wanted.
2. Build the online community software to be automatically optimized for SEO search engine optimization.
3. Have a compelling offer to the end user to sign up and a good reason for them to email all of their friends and have them sign up too.
4. Ask your existing community what it is that they would like to have access to on the site.
5. Make #4 happen and then again let all of the users know and start the process over again.

All of this takes time and constant blogging, writing, contests and advertising ... along with brainstorming sessions, testing, measuring and growing."

Thanks Sandy! Mwuah

Bottom Line
Traffic, traffic, traffic > once you have it, any number of strategies can be effective.

OK, WE GET IT: TRAFFIC. SO WHERE DOES THE MONEY COME FROM?

Here are the top revenue strategies I uncovered, most of which I scraped together from this post.

• CPM Ads - ("eyeball ads" - cost per thousand views)
• Site sponsorship (this is like CPM ads, but more prominent and more strategic)
• CPC Ads - (e.g. Google AdSense -- pay per click)
• Affiliate revenues (ads that turn into sales bring you a percentage)
• Single service - like "Jobs" on Craigslist
• Premium content - examples: primary business research, member directory - something worth charging access to (really needs to be worthy)
• Premium service - LinkIn's InMail being a favorite
• E-commerce
• Rental of subscriber list

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Build to Sell?
written by Darrin , May 30, 2008

I see alot of websites out there that seem like they're just building so they can sell later. Traffic and Registered Users increase the value of a website I believe. Watch techcrunch I've seen a few of these rise up.

One site I use alot is Mixx, I'm a big fan of social bookmarking and I've enjoyed Mixx's site. Their lack of Advertisement or paid services astounds me, it's either going to suddenly pop up once they have a fanbase or they're planning on selling down the road.