links for 2009-04-16

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2 Responses to links for 2009-04-16

  1. Drew says:

    Ethan, you’re right about the apples and oranges, but it’s more than that that upsets me about this article. A friend of mine, knowing my interest in the subject area, e-mailed me the following question after reading it:

    “You’ve probably already seen this at Slate, but I found this to be an
    interesting article. I had no idea that youtube was doing that poorly,
    and also the broader point about how this whole notion of
    “user-generated” content and its revolutionary potential is not
    necessarily moneymaking”

    And sorry to flood the comment box, but here’s my response:

    I hadn’t read that article yet, but to a certain extent, the theme of “the Internet can’t make money like they thought it could” has been propagating lately. While I think there’s some truth to the general theme, this article is the bottom of its barrel and is founded on so many falsities as to make it a non-contributor to any sensible discussion about whether user-generated web sites (or web worlds, which is more apt for YouTube and Facebook) are profitable or “revolutionary”.

    To start with, there’s the assertion that any tech evangelists said user-generated content would be profitable. To the contrary, tech evangelists don’t care that much if it’s profitable. For them, the technology changes the equation for amateur broadcasters and makes it cheap enough that there doesn’t need to be a profit stream to reach a decent audience and every once in a while alter debunk a media myth, raise awareness of and money for a righteous cause, or even impact a political race. Users have been doing all those things and more for about 6 years running now with videos and at least a decade for non-video content. So that’s living up to expectations, I’d say.

    Now the question of whether a YouTube can be profitable is different. To start, and back to the original point, Google et al. never expected it to be massively profitable with 2 minute clips that are strictly amateur. This is why Google is investing so much in copyright and media partnerships. And look at the numbers closer: YouTube generated $240 million in revenue last year! The loss came from investments of $740 milllion, and some of those are sunk costs (bandwidth – which is a big cost right now but will get cheaper in the medium term, storage, operating), but much of it is in usage rights, competitive upgrades, and other investments. Now if Google wanted to keep YouTube a niche community site where it charges for membership and limits its investments mostly by not paying for copyright, then they could probably be profitable because there are many models out there that are. They’re obviously going for more than that though and that takes time, but it also allows for a web world that can once in a while change the course of the “real” world.

    Meanwhile, what the article says about advertisers not willing to support user-generated content is crap. To begin with, half the viral videos they cite (Glenn Beck etc) are not user-generated content, they are off of TV where advertisers are clearly playing along. Additionally, look at the degenerate shit that has been the only source of revenue for television for the last decade, it’s the two Rs: Reality or Riske’. Advertisers will follow large numbers of viewers they can impact. Google’s investments in YouTube amount to an attempt to achieve that formula online.

    The article says: “As a result, the economics of user-generated sites are even more crushing than those of the newspaper business.”

    So no, the Internet hasn’t changed the value proposition for delivering “free” media: it still means having someone pay to reach the users the media connects with. The article says: “As a result, the economics of user-generated sites are even more crushing than those of the newspaper business.” That is patently false, the “economics” are no different (in fact, that could be one of the most outrageous uses of the word “economics” when you think about it….). Why is Facebook worth $15billion? Because, if you’re willing to sell everything you know about your users to advertisers, you’ll make that back in 3 years. Those are the economics, they are the same for every medium, with a slightly different formula. However, that doesn’t mean the Internet has to have look the same (from profit to content point of view) as TV in its heyday (by the way, with TV and newspapers dying you would have to ask the author if anyone’s “economics” work?). The author wants the Internet to look the same as those mediums, but if that’s what it wants, well, get ready to have all of your Facebook data sold to the highest bidder. No tech evangelist ever advocated that because it’s unsustainable. The economics are the same but the equation is different, the players on both sides are different, and therefore the possibilities are different. This is all why it will take some time to generate a model that sustains a business case and effectively main-streams various web worlds. Meanwhile, beyond the main stream, user generated content has already achieved a revolution.

  2. Ethan says:

    No pushback from me on user-generated content being a revolution, Drew. Complete agreement. The article was interesting to me mostly due to my personal history. We faced economic questions similar to the ones raised in this article at Tripod as early as 1998. At that point, there really was a great deal of concern about advertising appearing on user-generated content – one of the reasons we invented/popularized the pop-up ad (sorry, everyone) was to separate the ad message from potentially offensive/controversial user content. I’m not close enough to the online ad biz to evaluate the claims about unsold inventory, but my sense is that folks who’ve got highly targeted, high-quality content (user-generated or otherwise) are getting good CPMs, while inventory on sites where content is pretty undiferentiated, like YouTube, is significantly cheaper.

    I’m not sure I buy the Facebook argument because I’m not sure the Facebook valuation is a sane one. We thought the ability to microtarget based on Tripod author’s demographics and interests would make our inventory worth more – for the most part, it didn’t, or didn’t significantly. Clearly tech is vastly better a decade later, but I wonder whether your scenario isn’t too optimistic for the value of targeted ads.

    Thanks for dropping by and posting your thoughts.

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