Ning: A social pioneer changes direction

April 22, 2011: 5:00 AM ET

The online company is saying goodbye to consumers and hello to big (paying) companies.

At a time when the hottest tech giants (Apple (AAPL)) and startups (Zynga) are focused on serving consumers, social-media company Ning is going in the opposite direction: It's largely abandoning individuals in favor of corporate customers such as publishing houses and nonprofit organizations. Even more surprising: The company is charging money for a service it once gave away free, sort of the tech equivalent of putting the toothpaste back in the tube.

Ning CEO Jason Rosenthal says the strategic change, instituted about nine months ago, is paying off. Last summer the Palo Alto-based company had just 17,000 paying customers. Today, more than 100,000 customers (from Martha Stewart Living Omnimedia (MSO) to rock band Linkin Park) pay anywhere from $3 to $50 per month to use Ning's software, which lets them launch and run their own mini-Facebooks. Revenue is up 400% year over year, and Ning expects to be in the black for the first time in the first quarter of next year.

Ning had managed to attract some corporate customers in the past. But the company, which launched in 2004, was known mainly for its consumer product, which enabled virtually any group -- a Little League team or a knitting club -- to start its own social network. Ning offered a bare-bones version of its service at no charge and sold ads across its customers' networks. But the ad-based business model didn't work for Ning, and the company switched gears. Founding CEO Gina Bianchini stepped down in March of last year; when Rosenthal took over, he soon phased out its so-called freemium service.

About 80% of sites using Ning for free opted to shut down their social networks rather than pay a monthly fee as low as $3. But Ning says the new business model has helped it attract and better serve more lucrative customers. Since last summer the company has accommodated its growing user base of brands and organizations with a series of new features like integration with Facebook Connect, site analytics tools, and a mobile application builder.

Because Ning's new customer base has deeper pockets, it is highly coveted. It turns out there are more than 125 competing vendors that sell software like Ning's -- and they've all discovered that while consumer services get the buzz, corporate customers pay the bills. "Community-platform software is a commodity," says Jeremiah Owyang, an industry analyst with research firm Altimeter Group.

Still, Ning's management (which includes founder and chairman Marc Andreessen) is convinced that it made the right decision in ditching its old model. "The company was suffering from the fact that it had a split focus," says Andreessen. Translation: Selling to consumers may be hot, but profits are even hotter.

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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