UGC: All eyeballs and no business model?

User Generated Content companies have been springing up dime a dozen over the last couple of years. Led by YouTube which today serves close to 90 million videos per day has 240 other competitors. With so many companies in this space, all of them allowing users to upload and view videos for free, often copyrighted content, it begs the question “what is the business model”?

This was the title for a recent panel discussion at TiE. UGC is an acronym for “User Generated Content”. (It’s getting so popular that it’s now an accepted abbreviated term.)

Introduction to the companies on the panel

Video Egg – Platform to serve video ads.

Second Life – Platform to build anything. Simulated regions of real world places which has been created by the users themselves. (Initially the platform just had virtual dirt and a bunch of tools for users to create anything they like!). Today there are 3000 regions each with 16 acres of land and is the largest 3D Experience on the internet.

Guba – A mix of free content created by users and pay per view shows and movies licensed from the leading publishers and content creators (the studios, Sony entertainment and the like). For example they have the rights to sell Spiderman 2 in the US.

Reality Digital – Platform that helps businesses to create and insert their brand in user generated content.

Who is watching UGC?

Surprisingly people of all age groups watch UGC also known as “silly videos”. The speaker from Second Life was very forthcoming to questions from the audience on their user base – very interesting insight for those starting their company in the UGC space. Currently they have 400,000 registered users with a SMALL % of them paying customers. The median age of users is 32, with the oldest being 82. 43% of the users are female and 50% International audience. The international audience comes primarily from English speaking countries (UK, Australia and some countries in Europe and Japan).

Other speakers on the panel, who all run video websites and platforms, also agreed that people of all ages and demographics are today viewers of UGC. However only a small % (10% or less) of these actually create and contribute to the content.

How do you build a business model for a UGC company?

The business model is very unclear today and still to emerge. Companies are offering a mix of advertising (on the website and inserted in videos, product placements), licensing of the platform to businesses, buy/sell UGC among users. Here is what the speakers had to say about their business model.

Video Egg – Partner centric approach. They license their technology to businesses and sell via partners. Apart from licensing, they also serve ads and the revenue is shared with the partners.

Second Life – Subscription for users to play the game. The interesting aspect of this company is that the platform is emerging as an online marketplace for users to trade their land assets. One example is a lady who makes 200,000 $ a year on the platform creating cool houses, arts and crafts and sells is to other users. She has quit her job and now does this full time and even hires people to build the stuff which she sells on the platform. She is the undefeated Donald Trump of the platform.

Guba – Hybrid model - Selling/renting of premium content and free UGC. They also make money from ads – they serve unobtrusive ads (text or rich streaming video ads that play before the video starts)

Interestingly none of them share the revenue with the users who create the content. This business model is being tested by the new entrants and niche companies targeted to specific communities. (An example is a service called www.pickspal.com which is a fantasy sports picks site where you can play for points on real sports events using the actual odds).

What are the technology and standards available?

There are over 150 video encoding formats available which makes it a huge challenge for companies in this space to accept all formats and playback in a single viewable format by all users. Thanks to open source, cheaper bandwidth and hardware companies have been able to solve this problem.

As far as standards are concerned – the video industry will continue to see many video formats and video capture devices (cell phones will be the next most popular device to capture and upload video content)

What are the challenges in this space?

Apart from the obvious challenge of creating a viable business model, companies have to constantly monitor content to make it suitable to their customers and to stay out of trouble from law enforcers.

Monitoring the service for naughty content: A significant percentage of content uploaded today is naughty or adult content. Companies spend significant time and money to find and remove such content. This is a bigger problem for companies selling their service as a platform for businesses to serve advertising. One way to police the content is to provide tools to the community for themselves to find and remove such content, which would probably work only in specific community websites and not a mass market service.

Laws and regulations: DOJ 2257 is a new regulation from the Department of Justice intended to regulate the adult entertainment industry that extends to “secondary producers” such as website owners, bloggers and online journalists. You can read about the specifics here https://www.eff.org/deeplinks/archives/003741.php .

So what are the opportunities for companies in this space?

A differentiated idea is important as there have been tons of companies serving up videos available for free and/or premium content for a fee. The key is not just content but a COMMUNITY around it. Hence one should be able to find an issue or topic and then serve that community.

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