A Bear Market for User-Generated Content?

Posted on March 18, 2008
Filed Under Web 2.0 Kool Aid |

How quickly things can change. Just as Bear Stearns shareholders watched BCS close at $4.81 yesterday after closing at $62.30 a week prior, those invested in user-generated content (UGC) must be wondering if they bet on the wrong horse as questions are increasingly being raised about the appeal of UGC, both from a consumer standpoint and a financial standpoint.

Caterina Fake and Stewart Butterfield of Flickr graced the cover of the April 3, 2006 issue of Newsweek with the headline “Putting the ‘We’ in Web.” The accompanying article, “The New Wisdom of the Web,” applauded the UGC phenomenon and the companies that were taking advantage of it.

Later in 2006, Time named you the Person of the Year, stating:

But look at 2006 through a different lens and you’ll see another story, one that isn’t about conflict or great men. It’s a story about community and collaboration on a scale never seen before. It’s about the cosmic compendium of knowledge Wikipedia and the million-channel people’s network YouTube and the online metropolis MySpace. It’s about the many wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.

The tool that makes this possible is the World Wide Web. Not the Web that Tim Berners-Lee hacked together (15 years ago, according to Wikipedia) as a way for scientists to share research. It’s not even the overhyped dotcom Web of the late 1990s. The new Web is a very different thing. It’s a tool for bringing together the small contributions of millions of people and making them matter. Silicon Valley consultants call it Web 2.0, as if it were a new version of some old software. But it’s really a revolution.

And we are so ready for it. We’re ready to balance our diet of predigested news with raw feeds from Baghdad and Boston and Beijing. You can learn more about how Americans live just by looking at the backgrounds of YouTube videos—those rumpled bedrooms and toy-strewn basement rec rooms—than you could from 1,000 hours of network television.

It was a bull market for UGC. The Sand Hill Road ATM was open for business and the death of Old Media was being celebrated on a daily basis. With YouTube, we didn’t need network television. With citizen journalists, we didn’t need CNN. All we needed was each other. The media world was being democratized (or more appropriately, socialized). It was if Karl Marx had risen from the dead and was poking people on Facebook.

Of course, there were skeptics, myself included:

September 10, 2006
There’s an old adage “nothing is free.” Or, to be more accurate, “nothing good is free.” User-generated content is very appealing because it eliminates the costs of content production, which can be fairly substantial. Why pay writers and editors when you can build a business on content supplied free of charge by your users? In theory, it works great.

There are a few problems emerging with this, however, as the market matures:


90% (or more) of user-generated content is crap. A smaller fraction is good. At the end of the day, services that attract quality content have more appeal, and services that attract the crap will probably lose market share. Logically competition will emerge for quality content and the producers of that content. It will not surprise me to see media companies sign deals with really talented content producers, and in fact this has already happened.

The question to ask people that think MySpace and YouTube are doing nothing unethical, if not outright illegal, and proclaim the death of big media is: if big media is dying, why is everybody so fond of big media’s content and uploading/sharing it on such a massive scale? The answer is obvious: while there’s a lot of hype around user-generated content, for the time being, the professional content being produced by big media is what people primarily want to consume.

November 28, 2006
As much as I personally think that most of the television shows, like Friends, are crap, it’s naive to assume that mainstream America is flocking to Zefrank, Rocketboom, etc. And those represent the good user-generated content. 99.9% of the user-generated content out there is crap. Television/cable companies will continue to produce the content that appeals to the majority of Americans, and they will be forced to make their content available through other distribution channels.

March 19, 2007
Everybody seems to be in love with the idea that you can make boatloads of money giving other people their 15 minutes of fame, but fail to realize that Web 2.0 and user generated content is going through its own 15 minutes of fame. It’s not going to die and it will have an impact, but frankly, that impact is a bit “overestimated.”

And now the inevitable has occurred: more people are starting to recognize that UGC has some significant flaws and hasn’t really had the impact many thought it would.

On March 6, the same Newsweek that put Flickr on its cover two years earlier published an article entitled “Revenge of the Experts” with the subheadline, “The individual user has been king on the Internet, but the pendulum seems to be swinging back toward edited information vetted by professionals.”

Why? Consumers are demanding it:

In short, the expert is back. The revival comes amid mounting demand for a more reliable, bankable Web. “People are beginning to recognize that the world is too dangerous a place for faulty information,” says Charlotte Beal, a consumer strategist for the Minneapolis-based research firm Iconoculture. Beal adds that choice fatigue and fear of bad advice are creating a “perfect storm of demand for expert information.”

And so are advertisers:

Fueling all this podium worship is the potential for premium audiences—and advertising revenue. “The more trusted an environment, the more you can charge for it,” says Mahalo founder Jason Calacanis, a former AOL executive who was previously involved with several Web start-ups. It’s also easier to woo advertisers with the promise of controlled content than with hit-and-miss blog blather. “Nobody wants to advertise next to crap,” says Andrew Keen, author of “The Cult of the Amateur,” a jeremiad against the ills of the unregulated Web.

Of course, Newsweek couldn’t help but raise the possibility of a new bubble by mentioning Web 3.0 and providing a bullshit Jason Calacanis quote about how Web 3.0 is taking Web 2.0 and “putting an editorial layer” on top of it. But that’s beside the point - the recognition that UGC wasn’t all that it was cracked up to be is what’s truly important.

And Newsweek isn’t the only one reporting on it.

The Associated Press with a headline that should worry VCs who have backed any of the many UGC video startups to fail: “Advertisers Shun User-Generated Video.” It points out the obvious reasons why advertisers prefer quality to quantity:

Although more money is going to online video advertising, relatively little of that is subsidizing user-generated video — the short, often-wacky clips from amateurs. Many advertisers, for now, are staying away for fear their ads could inadvertently appear with clips that have nudity, foul language or perhaps criticism of their brand.

Interestingly, Associated Press reporter Anick Jesdanun notes that consumers themselves seem to be more intolerant of advertising displayed with UGC videos than they are with professional videos.

The problems stemming from the fact that advertisers are, for the most part, unwilling to subsidize UGC ventures at the same clip and at the same price they will professional content ventures are exacerbated by the fact that the democratization of media that UGC is supposed to be causing just doesn’t exist.

The Pew Research Center’s Project for Excellence in Journalism its The State of the News Media 2008 report, which came to a conclusion that Web 2.0 kool aid drinkers won’t like:

Some people even advocate the notion of “The Long Tail,” the idea that, with the Web’s infinite potential for depth, millions of niche markets could be bigger than the old mass market dominated by large companies and producers.

The reality, increasingly, appears more complex. Looking closely, a clear case for democratization is harder to make. Even with so many new sources, more people now consume what old-media newsrooms produce, particularly from print, than before. Online, for instance, the top 10 news Web sites, drawing mostly from old brands, are more of an oligarchy, commanding a larger share of audience, than in the legacy media. [Emphasis mine]

The verdict on citizen media, for now, suggests limitations. And research shows blogs and public-affairs Web sites attract a smaller audience than expected and are produced by people with even more elite backgrounds than journalists.

In other words, for all of the Web 2.0 hype, not only does the emperor have no clothes, Old Media has actually taken note of some of the useful ideas within the hype and - and at that.

Of course, none of this should really come as a surprise. The old adage “content is king” didn’t lose validity the minute every gained the ability to produce “content.” Quality content has value and quality content typically doesn’t get created freely by people who have no skills and/or qualifications.

The fatal flaw in Web 2.0 as it relates to UGC is that kool aid drinkers focused on the means and not the end. They essentially gave monkeys construction equipment but never asked what was going to be built. The answer was always obvious: nothing much. Now that the “project” is over budget and overdue, even the ideologues can’t run from the issue.

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9 Responses to “A Bear Market for User-Generated Content?”

  1. jro on March 18th, 2008 1:49 pm

    Great blog, thanks Drama.

    Couldn’t agree with you more on UGC. Non only is most content crap, it also multiplies over time, thanks to Google’s free blogger utility and advertising model that encourages spammers to fill up the search indexes of the world with craptastic offspring of the crap. Awful begets awful.

    In the end, it comes down to advertisers and their willingness to dump dollars into the platforms that reach the consumers of the crap content. As is now playing out, the returns just aren’t there for advertisers, so the value of UGC is crap.

    Note to self: if Jason Calcanis is already on Web 3.0, I think I’ll “uninstall” that version of the internets from my machine.

  2. Web 2.0 “Investment Boom May Be Peaking” : The Drama 2.0 Show on March 19th, 2008 2:15 am

    […] hype to the realization the Old Media isn’t dying to the growing consumer and advertiser dissatsifaction with user-generated content, it’s clear that common sense is starting to make a comeback, […]

  3. Stephen Joyce on March 19th, 2008 11:16 am

    At a recent travel industry blogger summit in Berlin, I and several other industry bloggers discussed this very issue with traditional journalists. Although the workshop was titled “Bloggers vs. Journalists”, it wasn’t really an us versus them debate. I don’t think that user reviews and user generated content are going to go away, but I do think that the role they play is changing and will continue to change over time. My feeling (and my statement to the audience) is that user generated content will continue the conversation that the traditional media starts. There will always be a need for credible and reliable expert content but the ability for “engaged” citizens to participate in the ongoing discussion is an important part of the democratization of information. Perhaps it is just me but I would never claim that anything is dead just because something else has become the flavour of the month. This debate is not about one technology prevailing over another, it is about trust, credibility, and reliability.

  4. on March 20th, 2008 12:07 pm

    Perhaps it is worth mentioning that within the communities that allow users to express/shape their identity as well as content, expert users emerge.

    Using Flickr as an example - as a community member you learn so much about other users that you will rate any info/statements given by them by your prior experiences of said users - I trust person A’s views/opinions/ - while I don’t care much about what user B says.

    Communities are formed when you are able to find the contacts that will be most valuable to you. This means that even though there are a lot of crap photos and group discussions on Flickr, I know where to go to find real value, and I am able to filter out what isn’t useful to me.

    It’s too easy to slam UGC as rubbish. I think the truth is that while some of it is, you will also find a huge part of it extremely valuable.

  5. BareFoot CEO on March 20th, 2008 1:57 pm

    This post is unnecessary destructive criticism against the democratized internet the world needs.

    The Web 2.0 revolution is as important - if not more important than the industrial revolution. You just haven’t realized it yet.

  6. Joe Buhler on March 20th, 2008 10:59 pm

    There are many levels of UGC and granted the majority might be useless but who is to judge? Certainly not the main stream media who too often jump on and off bandwagons without fully understanding the real issues. Newsweek and Time are a case in point when it comes to UGC. First hype it up then trash it. It’s one main reason why more and more people trust insiders who have specific know how about issues more than the general media.

    Travel is one area where reviews and comments have great influence and in the aggregate are of high value to travelers when making their own decisions. The same is true for many high ticket item consumer goods like HD TVs as well as movies and books.

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    […] A Bear Market for User Generated Content. Some interersting implications for travel, especially in the area of user reviews vs user experience. […]

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    […] be filled with a democratized version of what art means, but to date it’s mostly just so much unfulfilled potential. Leave a Comment […]

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Drama 2.0 spikes the Web 2.0 kool aid by providing critical analyses of Web 2.0, its people, its startups and its impact on the world of media. Other topics are explored when Drama 2.0 has been drinking too much 1975 Dom Perignon. Read more about the Internet's version of Keyser Söze here.