How Goodreads can monetize its business

While social reading is only beginning to get off the ground, with nearly 6 million users and over 20 million data points based on users’ book ratings, Goodreads is as close as it gets to a Facebook for books. But the company isn’t content with just being a social network for books, as it is now introducing a “Netflix-like” recommendation engine that would capitalize on its huge data set to provide highly customized, algorithmic recommendations for readers. As Goodreads expands from being a leader in social reading to developing an algorithmic recommendation engine, it is an interesting time for the company. With the combination of a large and thriving community and huge amount of relevant data that it has now put into a recommendation engine, the company can now start to look at other business models.

Book data as a service

Goodreads’ new book-recommendation engine is based on technology acquired from Discovereads, an acquisition made in March.

Today Goodreads derives its revenues by promoted book campaigns, where it works with major publishers to promote titles. The company’s data services mainly center on an open API for utilizing its book data on third-party sites and a new recommendation engine, but in the future it’s not a stretch to think the company could offer predictive book-data analytics to publishers, retailers and others who want to better understand how books will perform among certain reader groups and demographics. The company today probably has a better idea of success indicators for books than anyone, with the exception of Amazon. This is data that could be utilized to understand how genres, characteristics, writers and other factors perform among certain reader sets.

E-book storefront

The company connects to third-party storefronts for promoted book campaigns, but it doesn’t offer its own storefront. In today’s eat-or-be-eaten book-publishing environment, there is no doubt that a site with a reader community of 6 million should consider its own storefront for e-books. Goodreads has proven that it sells books with its promoted book campaigns, and a storefront would allow it to take even more of the pie. By combining a healthy margin for publishers and strong community loyalty, the company could become a true social commerce site.

Become a platform

Today Goodreads offers a data API to leverage its information on third-party websites, but there is a huge potential monetization opportunity by bringing third parties into Goodreads itself, where it can offer applications, services and content offerings to Goodreads’ members, much as Facebook has done with its platform. Here Goodreads could not only leverage developer creativity but also participate in any revenue streams from “hits” on its system.

The biggest problem for any prospective social network is scaling its community to a large-enough point that new businesses become a possibility. With Goodreads, it is already there. Now it just needs to leverage its large specialist community into a multipronged business model beyond its promoted-books advertising business. There is very little downside to trying to leverage its community, and by offering new businesses, it could more fully engage its community and become an essential partner to publishers big and small.

Disclosure: Goodreads is a True Ventures portfolio company. Om Malik is a venture partner at True Ventures.

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Michael Wolf

Chief Analyst NextMarket Insights

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4 Comments Subscribers to comment

  1. Is there a retailer partnership opportunity as well?

    They may well experiment with (or tie up with) group-buying for books.

    Opening up their own store-front for e-books will put them up heads-on with retailers. An alternate to consider would be “Want this book at 15% discount at your local retailer? Click here to choose our partner bookstores nearest to you and pay now. Collect your book from the store!”

    1. Good suggestions, Manish. Maybe a deal-of-the-day for books? Lots of potential for merchandising/storefronts for Goodreads IMO.

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