Does it pay to pay your users ?

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When mighty social networks are facing problem in retaining their users some people actually think that they will build a great social network by paying their users. The gist of the matter seems to be

"Looks like another pyramid scheme. 20,000 referrals and 20m impressions for a measly $1,000? Why don’t I put that effort into generating those users/impressions on my own site and make $40,000+?".

Common guys this is the most basic business principle - you don’t pay your users - you give them products and services and they pay you the money. You may enjoy it a little bit now but it won’t be sustainable in future. It will depend on how long you are able to continue with this model. I will tell you why this model works.

1) You get 100 advertisers who pay you 10,0000, you share 100 with 1000 users and pay 400 for your operation and 5,000 for your own advertising and still making some bucks.

2) But tomorrow when you have 10,000,000 users you will have to spend thousand times more for your resources and you will only have the tiniest portion of the share that will be available to you and that will be the time of the bust.

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