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Democratizing The Economics Of Content

Democratizing The Economics Of Content

Google was way ahead of MySpace, YouTube, and Facebook in disrupting the content business — Google acquired Blogger in early 2003 to accelerate the rise of “user-generated content,” otherwise known as people publishing content online with free, easy publishing software (as with “blog,” I use that phrase as an unfortunate consequence of wide adoption). But how would this explosion of online content benefit Google? Why own the platform? The answer arrived soon after with the launch of AdSense, which provided this legion of new publishers a way to monetize their content, thereby embedding Google in the exploding economics of online content.

Google’s approach was radical back then and, it seems, still now. Instead of monetizing Blogger sites by controlling the ad space themselves, Google put the monetization tools in the hands of the users, allowing them not only to share in but also optimize the monetization. Of course, Google had the advantage of tapping into its already wildly successful AdWords program, which funneled advertisers by the thousands into AdSense. The reason Google’s approach still seems radical today is that none of the other successful platforms has followed this lead — MySpace, YouTube, and Facebook all still control the ad space on the sites (with Google’s acquisition of YouTube, this may change, of course).

This difference has lead to much debate over the “exploitation” of user-generated content. In a recent post, Nick Carr argued:

What’s being concentrated, in other words, is not content but the economic value of content. MySpace, Facebook, and many other businesses have realized that they can give away the tools of production but maintain ownership over the resulting products. One of the fundamental economic characteristics of Web 2.0 is the distribution of production into the hands of the many and the concentration of the economic rewards into the hands of the few. It’s a sharecropping system, but the sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money, and, besides, the economic value of each of their individual contributions is trivial.

Mike Masnick at TechDirt pushed back:

What’s really going on is a recognition that not everything needs to be paid for in monetary terms (which isn’t a new concept). It’s not that the users are somehow being “exploited” by being tricked into giving up value in exchange for attention. They are making the choice and recognizing the benefit. The attention is a benefit to them. It is payment — not exploitation. This is the same mistake that others have made in claiming that Google is somehow exploiting sites by organizing and pointing people to those sites — while making money in the process. Once again, that’s a case where Google is providing some benefit (traffic, or if you must, attention) to those sites.

The missing element here is that, unlike most recipients of Google search traffic or bloggers running AdSense, most users of MySpace, for example, don’t have a means to convert the attention they receive into cash — and most probably aren’t interested in the relatively small amount of cash that their share of attention is worth. But — I think Mike is dead wrong when he argues that users are “making the choice and recognizing the benefit.” The vast majority of participants in the user-generated content economy are completely ignorant of their participation. Again, for most, that ignorance is bliss — Nick is right that “sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money.” But there is not yet a system in place to ensure that everyone who wants to participate in the cash economy around them is given that option and made clearly aware of it.

This issue has played out across the “social media” landscape, e.g. Revver (with its ad revenue sharing) vs. YouTube, Netscape (with its paid Navigators) vs. Digg. While I do believe there is an ethical right and wrong to this issue, that is tempered by Nick’s observation that the economic value of each individual contribution is “trivial.” Nonetheless, I think Mike put his finger on the key issue — CHOICE. I’d guess that many people using the YouTube platform aren’t aware that they can choose instead to use Revver and share in the ad revenue (although the management shakeup at Revver may be indirect evidence that there’s still not much money to be made yet). The majority of those people would likely stick with the social rewards of YouTube — or they are already “monetizing” their efforts by burnishing their reputations as video producers. But YouTube never explicitly says to its users, “Hey, thanks for all your contributions and your support of our ad revenue ambitions — if you want a piece of the action, unfortunately we’re not in the position to share at the moment. But we hope that you continue to enjoy the free service.” Again, this may change under Google ownership.

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The reality is that the economics of a service like MySpace are not so different from the economics of free web mail — users get a free service, and owners of the service get to serve ads.

The key issue in my mind is how the explosion of user-generated content will affects over the long term how the finite pie of media attention is allocated. If media consumers start to spend more time with user-generated content (i.e. content that is produced “for free” by users of open platforms) than they do with “professional” content (i.e. content that is expensive to produce — think Hollywood), then this issue of allowing users to choose to share in the cash economy will come to a head because the cash value of each user contribution will increase over time.

User generators of the world, unite and takeover.

Scott Karp writes about the convergence of media and technology at Publishing 2.0.

View Comments (15)
  • Dead wrong, eh? We’ll see about that…

    I think you may have misunderstood what I meant. I agree that users may be “ignorant” of what their participation means to the various sites, but that doesn’t mean they don’t get value out of using them. That’s why they’re using them… and there’s nothing stopping them from leaving.

    If it really is monetization that they’re after than alternatives will spring up (witness things like Netscape and Revver). However, so far, it seems that neither has really caught on that much, despite the hype. That’s because the value to users is still in the attention they get from the much larger audiences at the other ones.

    I have nothing against cash compensation coming into this world. I’m just saying that it’s silly to think that these users are being exploited in any way.

  • The trouble with the word “exploitation” is that it has a chequered history of use against anyone smart enough to succeed in just about anything.

    If someone offers a fee service and others choose to use it on the terms offered, why should they expect a paycheck too? In any field there are 5pc who succeed, while the rest play around and come and go. If we question the rewards of the 5pc, there’ll be nothing left to play around with.

  • Excellent piece, Scott, thank you. Ethics aside, what are the copyright ramifications for the users? Say if one particular item became a gigantic success for the company creating the platform, and the user was compensated nothing. As with all these things, the laws are behind the times, especially in the EU, but if past cases were to dictate- the creator of the content would always retain copyright, and consequently the financial rewards. Do you see trouble in this area- ahead?

  • Mike,

    I think we’re in agreement that most people are not seeking monetization and derive fair and sufficient value from “creating content” on the services that they use (Nick also conceded that). We’re also in agreement that services like Revver that offer the monetization option haven’t really taken off yet.

    Given that, the notion of exploitation may be more nascent than actual — it becomes actual when the value of the content people are producing through their use of services becomes sufficiently high that they would be interested in the cash compensation — which doesn’t mean they lose interest in the attention and social value. Even then, the risk of exploitation is probably limited to a much more narrow slice of people who have might have an interest in professionalizing what they’ve been doing casually.

    All said, it’s all still (rapidly) evolving — 2007 may determine whether this is really an issue in the near term.


    2007 may be the year when the law starts having to catch up with reality — I think the scenario you describe will inevitably happen, which is what will start to wake people up to this issue. The first instances may or may not land in court, but it seems unavoidable that one will eventually.

  • Mark,

    Presumably in that case, the revenues would come from advertising controlled by the provider. Since it wouldn’t be direct income from the item of content, it would be hard to separate that out from the use of the total facilities and probably protected by clauses in the agreement.

    In other words, although the creator retains copyright, s/he can only benefit from direct income, which would only accrue if the creator owned the platform. So, when a content creator gets professional, they will move to their own domains. Otherwise courts will rightly regard them as amateurs.

    I can’t see how anyone signing up to a free service can lay claim to a share in the revenues.

  • In Web 2 panel discussion at a Tel-Aviv economic conference, a prominent Google management representative said the following: “all business models for content distribution over the web are viable except for one: payment for content”. Must be convenient for Google to come forward with such a self-fulfilling prophecy and make their profits on it. No copyrights, no professional fees, no investment.

    As professional producers of content for the internet ( we certainly are aware of the difficulties of getting people to pay for content over the web, even when they tried it for free and liked it.

    But how else does one provide real production value?

  • Good point John- about the free service…, but the burden is on the commercial “professional” to make users aware of the exact nature of the transaction, i.e: what they are giving up is not really “nothing for something” as it’s often made to seem. People may then begin to value their content a great deal more.

  • ” this issue of allowing users to choose to share in the cash economy will come to a head because the cash value of each user contribution will increase over time.”

    It seems unlikely that the value of each user contribution will ever increase to the point that it creates a critical mass which threatens the “user-generated” model. Sites like YouTube thrive on the long tail and that will only continue to grow. The tail may get longer but it will never get fatter… there will always be an abundance of content that for a variety of reasons never commands any cash at all and is only valuable when aggregated with other content like it.

    If something reaches a level of popularity that it can draw enough attention to make cash and has monetary value in and of itself, then it no longer needs the support of the “YouTube” model… it (or more precisely its creator) can stand on its own two feet. At that point it becomes feasible to start pulling traffic off the UGC site and on to a site that is more closely controlled.

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