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Business - Written by on Friday, October 16, 2009 9:48 - 2 Comments

Laura M.  Carrillo
Marketing Hierarchies Inside Social Networks – An Old Model with a New Twist

As the social networking world expands, not only are people finding new, different and many times more efficient ways to connect and stay connected, but new business models are appearing every day. Who would have thought just one year ago that a site like Twitter would have taken off and evolved into the ecosystem that it is today?

Last month I learned about a hierarchical marketing model that sits inside of a social network. The company doing this work is called 6dgr. The basic premise is that you get paid for getting your friends to join a social network. The structure is similar to Facebook: individuals can create profiles, post pictures, blogs, use an inbox, connect with others, everything you’d expect plus you are automatically connected into a hierarchy when you pick your sponsor (the person who recommended you to join). What further differentiates this model is that you attach a bank or credit card account to your profile when you join. That account is used for direct deposit of your funds when your friends join, sign up for a bank or credit card account, and name you as their sponsor.

While there are some ads on the site, the revenue is insignificant and not something 6dgr anticipates pushing for. So, how can they afford to pay you when your friends join? The company partners with banks that offer the accounts and credit cards for direct deposit and share the revenue with the company every time a new person joins. That money is split among sponsors up to six levels down (6dgr for six degrees, as in six degrees of separation). Credit card companies pay $60 and up for approved customers, so even with the split sponsors would still make a few bucks.

By having you name a sponsor when you register, the site is aiming to develop a very large hierarchical group. As more and more individuals join, the site should be able to offer more and better deals to members. Right now the site offers products like person-to-person loans, debit cards, savings accounts and even a tie into mobile wallet technology in the European market. So, while the site offers the same experience as a traditional social network, it also ties in product and service offerings.

The vision is for 6dgr to become a brand, a lifestyle site offering a bunch of different products and services to people. The company negotiates with retailers so that their members are treated like one big buying club and are offered deep discounts on merchandise purchased through the site. The company could private-label products like credit cards and once they hit 100,000+ people they could negotiate decent offers for things like health insurance. Though the company never intends to get into any one specific business, it could become a substantial channel master.

So the obvious question is: If it’s such a great idea wouldn’t Twitter or Facebook want to jump on board? 6dgr has already planned for that and has patented the entire idea of a network marketing hierarchy inside social networks. They have also protected the idea of financial products for social networks. But the biggest protection has to be the barrier to entry – the complexity required to pull this off, including the upfront structure required to develop the hierarchy in the first place as well as all of the behind-the-scenes processes that need to work to make sure the hierarchy remains intact and accurate, members get paid, the vendors are tied in correctly, etc.

It remains to be seen if the concept will take off and what adoption will look like. There are already over 50,000 members, all based on word of mouth; to date no money has been spent on advertising. But as with other online social networks, the member experience will be the key factor in the success or failure of this model. If members feel like they are being constantly sold to, activity will dwindle very fast. However, if the company remains on top of its member experiences, and smart about how members interact, this could become a powerful new way to conduct business and take advantage of the economies of scale that social networking offers.



2 Comments

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Colby
Oct 16, 2009 10:24

Great post Laura….

I see there being three dynamics that will influence the chance for success for 6dgr’s business model and others like it. I think you nailed two of them :

1) Members attitudes toward being constantly subjected to marketing

2) Smart management of member experience such that the benefits of joining and engaging vastly outweigh marketing overload

I think the third factor is this:

3) Will classic hierarchical marketing organizations begin to leverage 6dgr like communities in the way that classic marketing has leveraged other social networking communities? (ie, like Dell and Best Buy distribute coupons on Twitter and ike Krispy Kreme has a fan page on Facebook) What if Amway, or Herballife were to open up ‘channels’ on 6dgr, or bring their already rich member communities to leverage this collection of members who have a proclivity toward hierarchical marketing? This could bring member traffic that is actually looking for this type of engagement/experience.

EIther way, its an interesting convergence of mature business models leveraging social technology for new results.

postcard marketing
Oct 20, 2009 18:24

Hmmm, i’m often weary of such programs. I got burnt in the past and often times such business model don’t last. Good luck.

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