UGC: Just a Loss Leader in the End?
Back in the late 1990s, dot coms were all about the land grab. The idea was the more eyeballs and shoppers you got- POOF!- the more valuable you were. Never mind, the advertising market wasn't quite there yet and you were selling bags of dog food at a loss. The common wisdom has been that this was irresponsible, and truth be told, none of these companies had any business being publicly traded. But, more than half of the companies started during this time, actually stayed in business-- incredibly high odds for startups. To many, that proves that the problem wasn't that too many companies were started and nor was it their unfounded business models. It was that too much money was wasted on each one, and that it was never a game the public markets should have been playing.
There was, of course, one very important benefit to that land grab and wasted millions in investment capital: All those free services and cheap bags of dog food did bring a ton of people online. And they stayed online, even as many of the companies that did survive did so by charging realistic prices and shipping if they were in ecommerce, or switching to premium services and subscription fees if they were in content or entertainment. In fact, throughout the post 2000s, nearly every Web startup pitching venture capitalists or reporters were all talking up their premium services and subscription fees. You can still see vestiges of it with The Wall Street Journal's stubborn resistance to giving away content for free and early Web 2.0 companies like LinkedIn that didn't wait for an ad market to develop, but rather charged fees for things like job posting and "InMail."
As the wet blanket of recession has settled around the Valley and startups have come under pressure to monetize what they've built, I've wondered when we'd see the same flight to subscriptions and fees. Instead we're starting to see something similar but with a Web 2.0 twist: The rejection of user generated content in favor of professional content that's more consistent, reliable and palatable to advertisers.
This is bold shift, as the whole Web 2.0 movement was predicated on user generated content and the engineer-centric idea that you could build an easy to use platform, everyday people would create content for free, and other everyday people would navigate it, consume it and push the very best up to the top. It was rooted in the conviction that you didn't need the kind of doomed content partnerships of the past between New York, Los Angeles and Silicon Valley, because Web 2.0 was democratizing media and entertainment and ultimately that platform was the future, not the content gatekeepers.
This was clearly the most pronounced on YouTube, where the viral sensations like the Evolution of the Dance and the Grape Lady (ow! ow! owwwwww!) became the lexicon of an entire generation and the myth sprung up that everyday stars of viral videos would become household names with their own movies and HBO shows. (They never did.) Sure there were whispered claims that as much as 50% of YouTube's views were actually of copyrighted material. Still, the company never would have sold to Google for $1.65 billion without UGC.
In other words, user generated content was to Web 2.0 what free-bags-of-dog-food was to ecommerce. But flash-forward to 2009, and there's still no clear way to monetize user generated content, either from the sites themselves or the would-be stars.
Guess what? The Web has evolved to the point where you can monetize professional content. And that's why you see most of the smarter members of the Web 2.0 elite doing the very content deals they would have rejected a year ago. First, there was YouTube's rumored deal with the William Morris Agency, and now Slide has teamed up with the Valley-addict Ashton Kutcher and his company Katalyst Media. Katalyst also launched its site The Blah Girls at TechCrunch50 and produced 24-hours-at-Sundance with Kevin Rose last month, to mixed reviews.
Under the deal, Slide's FunSpace application on Facebook will be the exclusive distributor for Katalyst's reality show about its own company, KatalystHQ. Cheetos will sponsor the show. (What's that? ACTUAL REVENUES!? Between Cheetos and BlahGirls' sponsor Vitamin Water, Ashton's poor fans are going to need gym memberships, stat.)
Liz Gannes over at NewTeeVee questioned the logic in limiting distribution to an application within a site, even if it is the highly popular FunSpace on the highly popular Facebook. That was my first question too. But, Ashton's approach to all things Silicon Valley is very hat-in-hand, you-guys-are-the-experts, teach-me-your-techy-ways. He wants to learn what works as much as he wants to make each particular project a raging success. I think that's smart. And Max, with his metrics-watching obsession, knows what works online.
I talked to Ashton and Max yesterday, and while they noted the shift from UGC to professional partnerships was real, both said "loss leader" was too harsh a term for User Generated Content. They were both careful to extol UGC's virtues. Max talked it up as an unparalleled way for sites to get a volume of cheap and frequently highly viral content, and Ashton said that professional content had learned a lot from more on-the-fly lifecasting and the interactivity of user generated video. Indeed, the content of KatalystHQ is little more than Ashton's receptionist shooting video of life around the office.
But the inconsistency and unpredictability makes UGC nearly impossible to monetize. Said Max, "It's a much easier ad sale to do product placement in professional video where advertisers can control how they want it to be. They don't really want to rely on thirty second clips of people slamming into trees." So UGC is a tool for bringing in users and content, but not very monetizable. Hmm...Sounds like the very definition of a loss leader to me...
But I grant their point that the shift hardly means that the move to democratize content is over. It's very possible there is still a genius way to monetize UGC, we just haven't found it yet. Remember how long it took the industry to come up with paid search ads? Back when Google was founded, many VCs deemed it too late to an already mature market with no good business model. It's also very possible a huge star does arise from YouTube and actually does cross-over to traditional media. But just like in the post-March-2000-era, companies need to focus on where advertisers want to spend money now, versus trying to sell them on the future. The future, simply put, will still be there when the economic crisis is over.
But why should we believe ties between Hollywood and the Valley will finally bear all that much-promised fruit? Max pointed to nearly every broadcaster voluntarily making content available online, the surprising success of Hulu, and viewers increasingly choosing the Web as the place to consume even long-form content. "A year ago, I think (Slide's sassy head of business development) Keith (Rabois) would have spit in the face of anyone suggesting a content deal with us," Max said. "Now you can't argue against it." The wake up call for Ashton? Five years ago, if you made people chose to get rid of their TVs or computers, most of the ones he knows would have said computers. "Now, you ask the same question and hands down everyone would get rid of the TV. You don't need it anymore."
When I teased Ashton about his third splashy Valley press tour in just a few months, he added, "By the way, I'm not going away so people can brace themselves for that."
Is a deal with Twitter next?
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