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Monetizing the wasteland

May 01, 2006

User-generated content is great stuff. Why? Because it's generated by users. And as we all know, users are natively gifted at producing great content. Users would have been generating great content for the last few millennia if they only had the right software tools. But they didn't, so they had to be content with just being users. Which was a monumental drag of historic proportions. Think how much nicer the Sistine Chapel's ceiling would have turned out if only some users had been involved.

But that's all changed. Want to see some great user-generated content? Head over to everyone's favorite purveyor of video clips, YouTube. Now, a lot of the most popular stuff on YouTube isn't actually generated by users. It's clipped out of TV shows and commercials and other professionally produced programs generated by non-users. Never mind that stuff. You want to look at the user-generated content, like, for instance, MY HUMPS!, which is currently the fourth most popular YouTube clip, rated four-and-a-half-stars by other users. Man, those users are creative, aren't they? They call TV "a vast wasteland." Hah! That's nothing compared to what users can generate.

So who's going to make money off all this great user-generated content? YouTube? The media giant that eventually buys YouTube for a billion or two? The users that generated MY HUMPS!?

It's worth stopping for a second and thinking back to the old-school web - Web 1.0, as we call it now - and who made money off that big boom. Most of the money back then wasn't earned by the cool dot-coms. It was earned by the boring old farts who sold the cool dot-coms the computer and networking gear they needed to rapidly scale up their businesses to the point where they'd be certain to collapse in the most spectacular fashion possible. It was the vendors like Cisco and Sun and EMC that made the big bucks. Most dot-coms, it turned out, were just middlemen who were really good at taking investor capital and funneling it to IT vendors.

The way the Web 1.0 dot-com pioneers used pricey computer gear, the Web 2.0 digital-media pioneers use bandwidth. They devour huge gobs of it. YouTube, Forbes's Dan Frommer writes, is probably burning through a million bucks a month in bandwidth costs, a number that's going up as rapidly as its traffic. Follow the money. In this case, as Frommer reports, the trail will lead you to Limelight Networks, which YouTube uses to stream all that user-generated content - like 200 terabytes a day - back to us users. Once again, it looks like it's the suppliers - in this case, the content delivery networks - that are positioned to be the most reliable money-makers as more and more investment pours into the creation of our vaster, user-generated wasteland.

Comments

Old news - in any goldrush, the people who make a *reliable* income are those selling picks and shovels to the miners, not the prospectors themselves.

What I find most pernicious about Bubble 2.0 is that it *requires* large amounts of critical delusion and huckerism, and is uncomfortably akin to tawdry carnival scams.

Don't trash the users for being vain. Trash the con-men for preying on that vanity to make a buck - or, in the net world, a penny.

Posted by: Seth Finkelstein [TypeKey Profile Page] at May 1, 2006 02:56 PM

Great rant! You go, Nick!

Posted by: Steven Levy at May 1, 2006 03:08 PM

Yep - it is tech bubble all over again! Except there is less magain on the hardware this time ;-)

The networks are making out like bandits on the bandwidth costs, and the financial models are getting more and more questionable!

I say again, web 2.0 is really Web 0.2a: http://www.techpersonality.com/general_rants/web_20_back_to_the_future.html

Cheers,

Posted by: Simon at May 1, 2006 07:07 PM

macromedia and now adobe since the merger seem to be positioned well for user content as well. better margins as well.

Posted by: howardlindzon at May 1, 2006 08:57 PM

>Most dot-coms, it turned out, were just middlemen who were really good at taking investor capital and funneling it to IT vendors.

...and ad agencies. sock puppet, anyone?

Posted by: Christopher Carfi at May 2, 2006 01:25 AM

Old news, yet repeatedly forgotten. Good rant, reminiscent of having my eyes opened for me about the web-advertising circle-jerk of Web 1.0. It's a drag that all this user-generated content is going to disappear as its home companies fall off the map or get absorbed, but maybe that doesn't matter? Easy come, easy go.

Posted by: michal Migurski at May 2, 2006 02:38 AM

Are the telecoms companies actually making money, though? A million bucks a month is chicken feed to them when Voip is eating away at their old skool business. They certainly aren't making out like bandits.

Posted by: Ben King at May 2, 2006 06:57 AM

Nick, the first part of your post is elitist. If users like user generated content... then let them like it...

However, in the second part you hit the nail on the head. Companies like Skype have a profitable business model despite free VoIP, while web2.0 companies lilke YouTube are basically champions in burning cash...

I'd suggest web2.0 startups all do a simple web2.0 business model health check:

http://business-model-design.blogspot.com/2006/04/simple-web20-business-model-health.html

Cheers from a warm spring in Switzerland, Alex

Posted by: Alex Osterwalder at May 2, 2006 10:31 AM

Alex,

re: "Companies like Skype have a profitable business model despite free VoIP"

I'd like to see your evidence for that statement.

re: "the first part of your post is elitist."

I suppose you could label any act of criticism "elitist," but personally I'd call that "dumb," even though, by your definition, that would also be "elitist," I guess.

Nick

Posted by: Nick Carr at May 2, 2006 10:52 AM

Nick, I interviewed Zennstroem and the Skype business team last spring in order to write something about their business model. While they didn't give us the numbers it is possible to estimate them once you understand their business model. In fact, they don't have that much costs to bear at all. Essentially, they are a software company that does some additional deals with telcos for SkypeOut. They don't have any telco infrastructure costs because the calls run P2P over the Internet - that's what makes them different from Vonage...

I have a draft paper on Skype posted on my website at:
http://tinyurl.com/9wb62
or
http://www.businessmodeldesign.com/publications/Skype's%20Disruptive%20Potential%20Potential%20in%20the%20Telecom%20Market%20-%20A%20systematic%20comparison%20of%20business%20models.pdf

and slides here:
http://www.businessmodeldesign.com/presentations/PACIS05.ppt

Re: "elitism". OK, let's just call it different taste. That's a Swiss compromise...

Cheers, Alex

Posted by: Alex Osterwalder at May 2, 2006 03:54 PM

unfair, unfair.
MY HUMPS! may not be Michelangelo lipsynching Maria Callas. But I've seen worse - professionally produced, made for TV stuff.

Point is: users are generating content since some cave-dwellers bonescribbled graffitis in Lascaux. And sure it's a nice thing, that some production tools are getting cheaper (but then: pencil drawings were never that expensive to produce).
The main difference is distribution (or better: accessibility).

It's not about you adding your doodles to Michelangelo's. It's about getting your own Sistine Chapel for free (without having to be catholic and buddy-buddy with the pope), where you can paint, draw and doodle and lipsynch Maria Callas until you hit the 1 million viewers mark on YouTube (which, in Michelangelo's times certainly took a bit longer).

Posted by: hubert gertis at May 3, 2006 04:09 AM

Nick, this would make a great drinking game -- make any kind of critical value judgment about "content" and take a shot for every time someone accuses you of being "elitist."

Drunk yet?

Posted by: Scott Karp at May 4, 2006 12:28 AM

Wouldn't this blog be categorized as "user-generated content?"

Posted by: David Foster at May 14, 2006 04:35 PM

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