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?

We've Been in Idiot Land a While Now, Scoble. Get Comfortable.

Robert Scoble has a heartfelt post today that sums up his frustration with noise becoming more important than substance. Well, welcome to journalism in the Internet age. Actually, welcome to journalism period. It's just more pronounced in an age when we can measure how stories do and tend to place value on them solely for that reason. And it's in no way limited to Tech. If it were, CNN wouldn't be reporting on Paris Hilton.

This was a huge personal frustration when I was at BusinessWeek covering startups before they were hot again and important, but unsexy, technology trends like open source software. I would spend months breaking a story with huge impact, only to be dwarfed by traffic for a story that just rehashed the latest Apple rumor. To BusinessWeek's great credit, they still run those unsexy stories prominently, because the BusinessWeek brand of delivering all the news business people need is just as important as sheer page views. (Ahem, they also renewed my columnist contract for another year. Thanks, John Byrne!)

But is this the same in the blog world? Where the whole business is predicated on page views?

'Tis the Season of Disasterous Unintended Consequences

As I've said before, I'm starting to get irrationally freaked about the downturn and just how much worse 2009 could get. But my fears of every employer of ours going insolvent, and Mr. Lacy and I ending up in the poor house are-- by any stretch-- a long shot. Even the worst case scenario is likely some belt tightening, which we've done before and can do again. (Tip: Short Diane Von Furstenberg if this occurs.)

But there is something else I'm very scared about, and it's all too rational: Unintended consequences of government intervention. The TARP bailout was merely the beginning to a drunken spree of spending, regulation and scapegoats that'll continue at least through first quarter of 2009, and I'm betting even longer. It's a mad-dash to soothe the stock market, which is irrational at best. And you know what happens in mad-dashes? People fall and trip on scissors.

First, consider, a cautionary tale from the last bust: Here's a great piece in the Wall Street Journal by Mike Malone, one of my very favorite authors. (In fact, Infinite Loop is the best book written on Apple IMHO. Not too late to get one for your favorite fan boy for Christmas....) Malone's piece echoes several of the "Nontrepreneur" chapter in my book, and a good many columns I've written about the very real problems venture capitalists are facing, although I tend to point the finger at Wall Street more than Washington. As usual, Malone makes his points in elegant style.

And now a cautionary tale for 2009. Paul "It's only fairly apocalyptic" Kedrosky likes to come up with doomsday scenarios, and sadly in 2008 a lot of them were right on. But this situation he describes in our video below is one of the scariest. (Hint: ZOMBIES!)

This is what happens when we slap-dash regulations and bailouts to pacify voters and mob-investors. I don't know a single expert, journalist, commentator or luminary that said the bailout plan was well thought out. But at the same time there was high-pitched screeching when it wasn't immediately passed. This is just one unintended consequence of the "YOU HAVE TO DO SOMETHING!" school of governance. Do you know how many we haven't even seen yet?

I started my career covering regional banks and you can't overestimate how much the fabric of America is woven into them. The U.S. Government certainly can't afford to bail them all out. Already we're stretched so thin, China is downgrading our credit rating for the first time.

I know, I know, not exactly happy Christmas wishes. The above video is far more suited for Halloween.

The Long but Very Skinny Tail

Interesting article today about a forthcoming study that says "The Long Tail"-- the idea that online niches add up to way more money than mainstream hits-- is only good in theory. Indeed, to give the Tail's creator Chris Anderson credit, it's more than just "good" in theory, it seems ironclad. I remember when I first saw it drawn on a white board. It was that perfect writer's dream of a concept that's universal but only obvious once someone else has uttered it. (Well, it's a dream if you're the writer who came up with it. The rest of us say, "Doh! Why didn't I come up with that?" It's usually accompanied by that dorky I-should-have-had-a-v8 head slap.)

But I've since wondered if the Long Tail actually is true in practice or like one of those baseball teams that looks great on an opening day roster, but somehow finishes dead last. Sure the Web allows us to buy that extra 80% of things out there. And if we did, in any kind of individual volume, it would surely add up to a huge number.

But do we? I know a lot of startups who pitched themselves as Long Tail businesses and are out of business now. Personally, I'm hard pressed to think of many examples where I've paid money for an obscure song, book, or product. For one thing search and discovery just don't work as well as they should on the Net. The study certainly backs up this anecdotal experience:

"However, a new study by Will Page, chief economist of the MCPS-PRS Alliance, the not-for-profit royalty collection society, suggests that the niche market is not an untapped goldmine and that online sales success still relies on big hits. They found that, for the online singles market, 80 per cent of all revenue came from around 52,000 tracks. For albums, the figures were even more stark. Of the 1.23 million available, only 173,000 were ever bought, meaning 85 per cent did not sell a single copy all year."

Anderson counters that this is but one example, and it hardly undercuts the whole theory, and that's a fair point. But I wonder if a better defense would be invoking one of the most important maxims of Silicon Valley: People frequently overestimate what a company, trend or technology can do in a year and underestimate what it'll do in ten years. Think online video: Remember when Yahoo was laughed at for Finance Vision? Today, TechTicker is arguably the most widely watched financial show in less than a year of its launch. We even shoot in the same studio.

Perhaps Anderson was a bit too breathless in just how much, how fast the Long Tail would revolutionize business. But with better discovery, search and even more targeted advertising through social networks, I could see a scenario where that tail fattens out. It's not that I don't want to discover obscure music and books, after all. It's just that most of the Web is aimed at demand fulfillment, not demand generation, and we're likely to want the things we already know exist. Those are likely to be the most well known and popular items, right? There's no doubt the infrastructure for the Long Tail exists online, it's really just a question of demand.

Busy Little Valley Bee

SO. After a whirlwind 2008 where I met entrepreneurs in about 25 cities or more, I am finally back in San Francisco for a while.

I feel very torn. It's been an amazing year, and I've met so many amazing people. My entire concept of entrepreneurship has been forever changed, and I am, of course, so grateful for the outpouring of support for the book. It's been one of the toughest book-buying markets in publishers' memories and it was no small feat to keep copies moving!

On the plus side of being home, I've barely gotten to live in the house that's continually draining my bank account lately, and it's always nice to see my husband. I also feel like meeting so many entrepreneurs around the world has come at the cost of not staying in better touch with entrepreneurs in the Valley. So it'll be nice to stay put for a bit and reconnect. And what better time than a month with a zillion Holiday parties? Headed to the Zynga party tonight, and of course, there's the sarahlacy.com happy hour at the Beauty Bar in one week! RSVP, y'all!

Here are Olivia and I after the spectacular Get Satisfaction party last Friday, inhaling some Arinell's pizza. (Just a few blocks from my house-- another win to being home!) [photo credit: Geoffrey Ellis]

Of course, another *huge* plus in being home is that I can focus more on my actual job: reporting. I forgot to mention it, but I re-upped my columnist contract with BusinessWeek in November. I was incredibly flattered to even get it renewed given the macro state of the economy and how hard hit media has been already. (And how flaky I've been on deadlines. Doh.)

I wrote two columns that detailed *why* things are going to be far worse for Venture Capitalists in this downturn, even as the Valley will have an easier time than in 2001-ish. You can read them here and here. Then, this week, I wrote about everything that's wrong with eCommerce and why I think we're about to see an explosion of innovation. (And why I can't wait!) I've got a lot of great ideas for the next few months, but as always hit me up if there's a topic you want me to tackle!

I've also been pretty busy at TechTicker. A few recent videos I liked on the jump!

A whole slew of other changes are in store for my various jobs and include a few new projects that I can't wait to tell you guys about. But more details on all that later... Bottom line is I'm mostly out of promotion mode (FINALLY!) and solidly back in reporter mode so more great content coming your way this month and in 2009.

And now, to some videos...

Me on Stage at a Strip Club. (Sadly, I'm Serious)

Here's some clips from my London book launch event, which in Robert Loch's infinite politically correct wisdom was held at the second oldest strip club in London. It sounds shadier than it was. It was actually an amazing venue and the proper business-y crowd and Fidelity Ventures sponsorship poshed it up more than my Minnie Mouse hairbow ever could have. If you've heard me speak, you've probably heard half of this before. If not, enjoy! Thanks again to Loch, Washy and Carr for an amazing event. Let's do, say, Germany next?

Um, Do You Know What Business We're In?

So, I better write this post now because after tomorrow it might violate David Hornik's sacrosanct "What Happens at the Lobby Stays at the Lobby" rule. Some people-- cough, cough ValleyWag-- take that rule to mean the Lobby is about partying and the attendees don't want that to get out. In actuality, the Lobby is about business and the attendees don't want THAT to get out. "Who's shameless enough to go to the Lobby this year?" Hmm... off hand, I'd say people doing their jobs.

Bad News for the Valley and Media (Ok, Worse News)

Henry Blodget has a frightening-- but I think right on-- post about display advertising online. His take: Wake up! It's going down. Why? The economy, yes. But more important, I don't think display advertising has yet managed to make itself an indispensable part of the ad mix the way paid search has.

There's a debate subtly raging about whether we've really nailed display advertising on the Web to date. Some people, Henry included, say "Duh, it works." But "it works" isn't the same thing as having nailed a new and unique method of advertising consummate with the uniqueness of content and audience on the Web. Online should be something different, the same way print publications should be doing more than just putting the same words on a digital page. Floating ads? Pop-up? Pop-unders? Roll overs? Isn't it all just a quick gimmick until we find ways to block it? I can't remember a time I clicked on a banner ad and those automatically loading video and audio ads just enrage me to the point I don't have a positive brand-association.

Anecdotally, I keep hearing about no-brainer opportunities for brand advertising online to unique, highly desirable, mass demographics that are not selling. Not even at comparatively cheap rates! (It's all been off the record, so I can't cite examples. It's off the record for obvious reasons as blabbing about it doesn't exactly help the selling process.) This says one of three things to me:

• There is a lack of qualified ad sales people working in the online space
• Advertisers don't yet value this market
• To quote LOLcats: UR DOING IT WRONG INTERNETZ!

Yes, I realize display advertising is a multi-billion industry and it's sustained sites like Yahoo-- my part-time employer-- not to mention offered a new revenue stream for dying print media (albeit an apparently anemic one). But if you consider the demographics and time spent on a lot of these sites there's clearly money being left on the table.

It's not too crazy to draw an analogy to Facebook's situation. (Bear with me, here.) Facebook is generating hundreds of millions in revenue this year. Clearly Facebook has ad inventory people want. But Facebook considers itself in the first inning of figuring out a must-have revenue answer for its unique inventory.

In short, for years now proponents of display advertising have been saying-- and blindly believing-- it's all growth until the percentage of time spent online catches up to the percentage of the ad budget spent online. Maybe we need to assume there's a deeper problem and the hungry company that wants to survive needs to work harder to fix it.

October Is "Sarah Is a Sucky Blogger Month"

OK, here's the thing. I have about five or six things per day I want to blog about. I have never, ever sat down and thought, "I really want to blog, but what about?" I keep a running list of posts I want to write everyday. So why don't I write six posts a day? Little things called time, husband, sleep, Yahoo and BusinessWeek.

Lately, I've even gotten a few emails from readers asking me to blog about certain topics. That hurts about as much as when I came back from the September leg of my book tour and my poor cat, Mr. Vinnie (pictured here), greeted me with a bald spot on his back. (He'd started to rip out his fur from loneliness. It's grown back since, with much petting and about a bag of Greenies.)

I hate to tell you, but October isn't going to be much better. Last week, I felt like anything I had to say just paled in comparison to the urgency of the election and the crisis of the stock market. It all felt so trivial. This week--and going forward--I have a better excuse. I am writing again. For reals. None of this quippy blog post, video script writing. Chapter writing, bitches!

Once You're Lucy, Twice You're Good is not only debuting in the UK in November under the far more commercial-- and yet equally long-- title, The Stories of Facebook, YouTube and MySpace: The People, the Hype and the Deals Behind the Giants of Web 2.0. (Londoners: Come party with me and buy a signed copy!) But the paperback of the good old U.S. version hits in March 2009. That means a new chapter. A new chapter due, ahem, October 31.

Now, normally I am very deadline-oriented. I'm one of those few dorky authors who actually turned her book in early. But that was when all I was doing was the book. This time, I'm having to squeeze in intensive reporting and writing around an already crammed schedule. Yesterday, that meant a work day that spanned 5 a.m. until 8:30 p.m. and another 5 a.m. wake up today. Since I can't actually mint more hours in the day, this means I won't be able to blog as much as I'd like for the next few weeks.

But here's the good news: I really, really love book writing. I've always described the year I wrote OYLYG as the best year of my life, but really forgot the rush that came along with it until yesterday. Spending hours in deep, substantive conversation with entrepreneurs, seeing the chronology and scenes arrange themselves in my head as they spoke, witnessing the common threads and themes leap out in front of me, and of course, the sleepless night of sentences and paragraphs and structure working itself out in my half-awake dreams like some sort of alternate personality that won't shut up. As I told my husband, I've enjoyed sleeping over the past year, but the intensity? Well, I didn't realize how much I missed that until yesterday.

So even though I'm not quite sure how I'm going to find time to get this chapter done, (on the plane to Kona or on the beach at the Lobby might be necessary options!) I'm thrilled to be writing it and I think conceptually it completes the book in a very profound way. This is what I'm good at. Everything else, I'm just pretending.

(BTW: Yes, book two is in the works. More news when I have it. Meantime, wish me luck...)

Um, Gym Time Anyone?

I went on Flickr to find a picture of me giving a keynote for the speaker tab I'm about to add to the blog. (Yes, having conquered all that keynote angst, I am for hire!) Apparently, I've never searched my name on Flickr and was stunned to see so many pictures from the book tour that I'd never seen. It was actually a nice walk down memory lane. We're so nostalgic, Olivia is going to pull a few for a post later today.

I also came across this one by Thomas Hawk and suddenly, viscerally remembered how much MORE I worked and stressed out when I was on staff at BusinessWeek. This was right after my Digg cover that sucked up six grueling months of my life--including weekends and evenings-- and almost didn't even run. When it did run, it was my first big controversy, and I had no idea how to handle it. All I wanted to do was hide under a bed. It was just before the book deal that changed my life. It was a period when I wasn't eating (clearly!) or sleeping and actually started running to stay sane. I was barely in my 30s, depressed about the state of magazines and trying to figure out what the hell to do with the rest of my career. I honestly didn't know if I could even be a reporter still and be happy or if all those jobs were just gone.

It reminded me of Jason's now much written about (and somewhat mocked) Startup Depression post. This was my period where my ass was getting kicked-- the point when it was, as he says and the awful cliche goes, darkest before the dawn. It was the time I could have just given up and, I don't know, gone into PR or had some babies. (Stop laughing, Olivia.) There was no way for me to know how much my life would change in just two years. I should remember this time every time I feel overworked, because I'm really amazingly lucky. (Or maybe good...? Groan, sorry.) I don't know many reporters who have as great of a life as I do right now.

Also, um, I know it's a wide angle lens and an artsy shot, but I don't remember ever being that skinny!
I'm going to the gym now. (Such a girl, I know.) After the gym, less sap. Really.