Thursday, August 23, 2007

Lending Club featured in Business Week

Business Week has just published an interesting article called Profiting from Social Networking which looks at the challenge of monetizing Facebook applications such as Lending Club. Lending Club is one of the four most popular applications in the business category and, according to Buisness Week, may have "the most successful business model."

One application Business Week looks at is HedgeStop.com. "The application has yet to offer features unique to Facebook. There seems to be no reason users shouldn't simply go right to HedgeStop.com." I made a very similar point in my Lending Club/Facebook analysis. Facebook adds very little added value to Lending Club outside viral marketing potential. Most of the Lending Club activity takes place outside of Facebook; it's simply required to verify login credentials and does offer some potential group associations.

Facebook Senior Platform Manager Dave Morin would disagree with me and thinks applications like Lending Club should focus solely on the Facebook application. From the Business Week article:

It's a common mistake, says Facebook Senior Platform Manager Dave Morin. According to him, too many companies still see applications as marketing rather than as new business. They bring users to an application either to advertise to them or to build a connection they hope will subsequently send users off Facebook and to their main business—a company Web site, say, or its online store. Instead, companies should be trying to make the application into a self-sustaining business that generates revenue through the service it provides on Facebook. "The applications that are the most successful are the ones that integrate seamlessly into Facebook," Morin says, a model that conveniently supports Facebook's own business ambitions.

Business week considers Lending Club "the closest to developing the most appropriate business model." Here is a portion of the article which discusses Lending Club:

Says Lending Club CEO Renaud Laplanche, "Person-to-person lending works best in an a environment where people feel connected to one another, lending to friends and friends of friends." He also claims that peers trust peers to give better rates than a bank. So far, the site has attracted 13,163 users. With its 3% transaction fees, Laplanche estimates that by the end of August, the company will have moved $1 million since its June launch. But the revenue for the company in the same three-month interval is only $30,000. Given the minimal costs of maintaining the Web site and its relatively small staff of 21 people, this may be enough for now, but as the application grows, its infrastructure costs will expand. Raising the company's commission, however, would quickly jeopardize its value proposition to users.

Facebook, where users expect applications to augment their social experience with little effort and at no cost, may be a tough environment for companies whose ultimate goal is making a buck, especially since so many companies are still trying to work with traditional ad models. Ultimately, the most successful applications are those whose business model, brand identity, and natural users match the culture and demographic on the network. As such, the top applications may not provide plug-and-play solutions for every brand hoping to enter Facebook. But the lessons they teach about the need for authenticity and relevancy are universal tenets for marketers in the Web 2.0 age.

The figures are interesting and help explain the need for venture capital. It's hard to cover salaries with only about $10,000 in revenue per month. At least $8,000 has gone to the video contest. Of course, Lending Club is very young and they are growing rapidly. Revenue will grow too.

3 comments:

Anonymous said...

Hopefully they will have better borrowers than Prosper -- my Prosper return is close to 0 because of defaults. Interesting to see how lendingclub's defaults compare to Prosper's overtime and if lendingclub can keep the quality of the borrowers as it grows.

Matt (IHG) said...

anonymous - can you post your prosper username so we can see what your portfolio looks like?

Rex said...

As always, thanks for the coverage. Hopefully by installing stricter approvals (640+ FICO/less than 20% DTI), we will be better in the defaults even down the road.

Rex Dixon
Director of Social Media Content
Lending Club