Want to Monetize User Generated Content? Make it Consumer Generated Media!

Users_AdvertisersOne of the biggest things Web 2.0 will be remembered for is its proliferation of user generated content (UGC). With falling bandwidth and storage costs, the thinking was that entrepreneurs could amass a large audience fast, and lock-in users in the process, by offering visitors a place to create, upload, manage and/or share their personal content (articles, photos, videos) with friends- and provide it all for free. The network affect would drive adoption as users invited friends to the site to check out their content, who in turn would sign up for the service themselves (thus the user acquisition costs could be defined as the per user cost for hosting and delivering the content). Once a site’s audience reached a certain threshold, the idea was to monetize these visitors through advertising and, to a lesser extent, premium services (i.e. get people to pay for more storage, additional features, etc.). Sites like Blogger, Photobucket and YouTube were launched to meet specific user needs around content verticals (articles, photos and videos respectively), while social networks like MySpace enabled the content to be aggregated by allowing their users to embed widgets from these UGC sites for everyone to see on the social network. While this tactic was a boon from a user adoption perspective, the revenue opportunity hasn’t proved itself for the acquirer of these web properties (both Blogger and YouTube were acquired by Google, while MySpace and Photobucket were acquired by News Corp/Fox) as of yet. While adjacency issues (displaying a brand advertisement banner next to objectionable content on a website) have been a primary excuse for poor CPM rates on UGC sites, the real issue has been the lack of higher value, integrated branding opportunities available to advertisers to leverage the unique behaviors of these communities. Since visitors to UGC websites are there to develop their content and interact with other users, standard ad units that push contextually irrelevant content are completely ignored. Considering that the Internet population is increasing the amount of time it spends on these types of properties, advertisers need a way to reach these users in a manner that is consistent with how people use these sites. So what’s the solution that provides UGC sites with more revenue, advertisers with better value for their ad spend and users with a enjoyable ad experience? It’s consumer generated media (CGM). While some might consider the difference solely semantic, there are differences between CGM and UGC in how the content is produced. Consumer generated media is created based on explicit and/or implicit sets of guidelines while user generated content has no such restrictions. These parameters enable producers of user generated content to create three types of consumer generated media.

  1. Participation. Self-promotion is a big reason why people upload their content creations to sites like YouTube. So what better way to help some of them realize their 15 minutes of fame than by having them participate in an ad campaign! YouTube_ContestThe typical model for participatory campaigns is to create a contest where users upload their videos or photos with explicit guidelines around what content qualifies, how winners are chosen and whether the prize is fame and/or fortune. Doritos was an early adopter of this model, leveraging fans to create Super Bowl ads on behalf of its brand, with the top 5 entries getting a monetary prize ($25,000) and a grand prize winner having their creation aired during the Super Bowl (in fact this year’s contest winner was also named the best ad by consumers, resulting in an additional $1 million prize!). According to Forrester Research, consumer generated video campaigns are are a popular way for a wide range of industries to drive brand loyalty. With the growing popularity of Twitter, even commenting-based campaigns are gaining traction as advertisers include a filtered set of publicly available tweets in widget-based ads. In both cases, you can see how leveraging the participatory nature of UGC sites can provide a quick and cost effective method for reaching and engaging with an audience, and in the process create ads that are more relevant to the intended audience.
  2. Endorsement. Out of those seeking fame and fortune online a few have actually achieve celebrity status. Due to the open, promotional nature of UGC sites, individuals such as Justine Ezarik (iJustin), Rhett McLaughlin and Link Neal (Rhett & Link) and Gary Vanyerchuck (Gary Vee), have been able to grow their popularity from within specific communities. As such there is a stronger perceived relationship and level of trust afforded to these individuals by their followers than you would find with more mainstream celebrities. This has also enabled these internet celebrities to leverage their success on one content platform to create devoted followers across other UGC sites (Facebook, Tumblr, Twitter, etc.). Thus, an endorsed campaign centered around one community’s platform offers an opportunity for the endorsement overflow into the individual’s other audiences as well. But because of the relationship these personalities have with their followers, advertisers interested in leveraging the endorsement model need to trust these internet celebrities to communicate the value of the advertiser’s brand in their own voice. Scripted endorsement could be construed as disingenuous and risk damaging both the celebrity’s and the advertiser’s brand. In putting together this type of program explicit guidelines should only be placed on the topic and context the online celebrity will be communicating to their audience, while implicit guidelines should be used around the content itself (the individuals’ thoughts, experience, etc. with the brand). Companies such as Carl’s Jr. and JetBlue have both recently experimented with this type of consumer generated media to promote their respective brands. For UGC properties, highlighting these celebrities or power users (if the former doesn’t exist) as potential brand advocates can yield high engagement- as long as the brand is willing to give up a certain level of control in the messaging. In addition to the monetization opportunity for both the web property and its endorsing personalities, this type of campaign can further strengthening the relationship of the site with its community as users see how the time and effort they put into the site can be rewarded.
  3. Mashup. Combining user generated content with elements of professionally produced media (user generated video that incorporates a popular song into the experience is an example of this) can create an unexpected branding and, more importantly, revenue opportunity if embraced by the copyrighted content owner. These UGC productions are traditionally taken down by the UGC site host at the request of the professional content owner before the mashup has a chance to gain any traction in most cases. But the viral success of the JK Wedding Entrance Dance (choreographed to Chris Brown’s ‘Forever’) shows what can happen if allowed to flourish with the appropriate technology capabilities and business relationship in place to identify and capitalize on the opportunity. The popularity of this video mashup resulted in increased music sales for Chris Brown and his record label in addition to providing YouTube with a new revenue opportunity. In fact, YouTube is encouraging future mashups by allowing producers of viral video hits to participate in the revenue generated from their creations. Imagine the creative mashups that would be produced if content from media companies and the like were readily made available to a site’s users to mashup on a consistent basis? A scenario could evolve where the professional content owner wouldn’t need to spend marketing dollars to promote their content as a site’s user would essentially be doing it on the company’s behalf. This could evolve into more of a participatory model, though with a focus on revenues versus branding. Because the mashup model is user-initiated, the only parameters a brand can place on the experience is implicitly around the content as the professional production can only be spliced or layered into UGC content but the quality cannot be altered. The key for UGC sites is to have identifying and tracking technologies in place to enable monetization (instead of inhibiting it as most copyrighted content owner seem to do) and the right business partnerships to execute and share in the revenues.

While the ability for advertisers to control the brand message and user experience decreases as they progress from the Participation to the Mashup model, the potential brand engagement value actually goes up as the ad unit becomes pull-oriented versus the typical push model (where a user proactively grabs the content ad to consume versus landing on a page where an ad is ad served) making the experience more engaging. The key for advertisers is to find their comfort zone with these guidelines and the right UGC web property to help plan, deliver and report on the appropriate model.

Here’s to the evolution of consumer generated media!

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Ad-Supported Facebook Applications Are In For A Rude Awakening

Rude Awakening

Dear Facebook developer, if you’ve banked your livelihood on banner ad-supported applications get ready for a rude awakening. The deceptive advertising practices that have increasingly permeated Facebook applications, and driven effective CPMs on banner ad units to double-digit levels in some cases, are starting to get noticed outside of Facebook (Nick O’Neill of All Facebook has done a great job of covering this topic), which is leading to involved parties being shut down in the process. The longer-term ramifications of this put into question the business viability of many developers on Facebook’s platform.

How Did We Get Here. As recently as the 2nd half of last year Lookery, a Facebook ad network at the time, was guaranteeing developers a mere $0.15 CPM for their application inventory. The combination of inexpensive banner ad inventory and access to Facebook users’ friends (via the social graph) was all savvy direct marketers and ad networks needed to test converting Facebook users into unknowing subscribers of mobile services (among other things) costing upwards of $20 per week. These very well integrated ad experiences that imply your friends’ usage of certain applications and services (as in these examples) QuizCrushare converting well enough on a an impression basis to generate upwards of $10.00 effective CPM for many large Facebook developers. Several ad networks have beem more than happy to deliver these ads since they are in turn getting paid roughly $15 to $25 CPMs by the underlying advertisers. It’s rather amazing actually that in the midst of an overall global recession that has seen the broader U.S. market indices fall around 30%, the effective CPMs Facebook application developers have received has grown upwards of 6500% over the same timeframe!

What’s Going to Happen Next. Before getting to the ‘what’ we need to understand ‘why’, which is actually quite simple- Facebook wants to go public. For this to happen, Facebook needs to show potential Wall Street investors that it has a growing, sustainable business model (so the stock price will go up) and that it runs aclean operation (so as not to make the stock price go down).

From a business perspective, among other well publicized initiatives, Facebook needs to get traditional brand advertisers to spend some of their $550 billion in global ad dollars on its platform in an effort to fuel revenue growth and justify what is sure to be a high earnings multiple it will trade at. As long as there is a perceived risk of tarnishing a brand’s image by placing ads on the same website where deceptive offerings are being run, agencies won’t allocate brand ad dollars to Facebook. In terms of its operations, investors need to feel comfortable that Facebook can effectively monitor its platform and ecosystem to avoid any potential public relation embarrassments or legal issues (privacy concerns aside) that could adversely affect the company’s profitability and trading mutiple.

In terms of the ‘what’, Facebook will become increasingly active in policing ads, networks and advertisers in their ecosystem in an effort to eradicate any potential issues that could affect the ‘why’. A prime example of this was the recent banning of ad networks Social Hour and Social Reach from advertising on Facebook applications. Facebook might even consider launching its own ad network for developers, to ensure the quality of advertisers remains high, at the expense of other ad networks.

The result of these types of actions will be a significant decrease (over 50% in many cases) in revenues seen by developers as the remaining ad networks on Facebook will have to deal with an increase in application inventory in conjunction with a decrease in advertiser demand (as deceptive advertisers are removed from the site). While I am definitely not suggesting effective CPMs will crater back to Lookery guarantee levels, like the stock market, there will be a reversion to the mean for ad prices. Regardless of where CPM rates eventually settle, there will be a flight to quality from an advertiser, as well as user, perspective. Bad experiences with certain applications will drive ad dollars and users away from applications that continue these practices, creating a death-spiral scenario in some cases (the situation where fewer users lead developers to place more ads on their applications to make-up for the lost revenue, which in turn leads to a further decrease in users due to a worse user experience, and so on).

What to Do. If you’re a developer, here are your options:

  1. Stay the Course. Continue to accept these deceptive ads in an effort to make as much money as possible until these ad practices and/or networks are shut down by Facebook. If the user and/or platform backlash doesn’t kill your application business, then try one of the remaining options or follow these ads and networks to the next social platform for exploitation.
  2. Go Virtual. If it makes sense, incorporate virtual goods into your applications. Game developers like Zynga have built successful businesses around the selling of virtual items to their user base, which alleviates the need for, or at least reliance on, banner ads for revenues.
  3. Try Fremium. This option is more geared towards utility-based applications, but up-selling features and functions for your applications (especially if you can tether it to a service or experience outside of Facebook) makes a lot of sense since it establishes a recurring revenue stream.
  4. Get Professional. Build a great application experience that makes users want to use your applications over the long-term. Work with established, reputable ad networks that have broader web reach than just Facebook applications (like Rubicon Project), inventory rep firms (like Appssavvy) or gain access to individual engagement opportunities (through the like s of my company Clearspring) to build credibility with advertisers and increase the perceived value of your applications’ ad inventory. Once you have the user base and operational scale, consider building out your own sales team (like Watercooler) to get a larger percentage of campaign CPMs.

Let’s hope Facebook application developers take the high road on this one.

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