The financial performance of internet based companies has been heavily discussed following the recent announcement of Facebook’s, Zynga’s and Groupon’s disappointing second-quarter results. The main concern arising from these results is what the respective companies are going to do to improve their future monetisation strategies. In my view there are two proven, if contrasting, solutions to this concern – one focuses on the user while the other focuses on advertising.

The strategy of focusing on the user has been successfully implemented by LinkedIn, who have just announced their revenue for Q2 was $228.2m, an 89% year-over-year increase, which exceeded Wall Street’s predictions. LinkedIn generate the majority of their revenue from providing business customers with access to its user base in order to either hire the right talent with services like Hiring Solutions (which accounts for 53% of all revenue) or sell to the right people with services like Marketing Solutions. Only a third of their revenue comes from advertising and the rest comes from selling users subscriptions to its premium services.

To support the services it offers, LinkedIn has continued to invest heavily to ensure there are a sufficient numbers of users for its services. In Q2 this investment included spending $118m to acquire SlideShare, a professional presentation website, adding extra features to its news service LinkedIn Today and releasing new apps for mobile access through devices like the iPad. The cost of these new changes cut gross margin to just 6% but helped increase the number of members from 161m to 174m in just three months; a 50% increase in the space of a year which is a phenomenal for a ten year old company.

Twitter has followed an alternate strategy that focuses primarily on advertising and according to market research company EMarketer Inc; in 2011 they generated $139.5m in revenue which is forecasted to grow to $540m by 2014. This revenue was generated from providing advertisers with Promoted Tweets, Promoted Trends, Promoted Accounts and a self-serving advertising platform. They also generated millions of dollars by supplying live feeds to Yahoo, Bing and Yandex, a Russian search engine.

Twitter is already looking to expand the amount of advertising it offers and in preparation has severed its cross posting partnership with LinkedIn and is looking to block or restrict third party developers. The problem with focusing completely on advertising is that the more messages you push towards users, the more they become irritated until eventually they switch elsewhere. Twitter already has a problem with haemorrhaging users as according to a blog on their site currently only 140m of their 517m accounts are active. Further advertising will only exacerbate this problem.

In my view the best monetisation strategy for sites like Facebook, Zynga and Groupon to follow would incorporate the best elements of LinkedIn’s and Twitter’s and focus on both the user and advertiser. A combination of providing brands with the ability to directly target the appropriate demographic together with some advertising should ensure the long term financial stability of the internet based companies.