Top social media users getting paid; is the balance shifting?

September 10th, 2006 at 3:35 pm

Nice Article - Its amazing the amount of money put into YouTube Advertising and Promotion.

This article covers all the major points of why YouTube is so popular for advertisers
http://webiztoday.com/wordpress/?p=9

You guys should post something about YouTube Advertising and some of the companies that “specialize” in marketing on YouTube.

September 10th, 2006 at 3:48 pm

Why does there have to be a “model?” Social media is evolving in such diverse and rapid rates anyway that any model today will be road kill in 6 months. For crying out loud, how long has YouTube and Digg even been popular?
It’s wrongheaded to think the advances we are making with digital media will plateau like other forms of media (TV, radio, television) have and allow clear models to emerge. Payment for content is a relic from these older media forms and in my mind has nothing to do with social media.

If you need a model though look at SEO. These folks creatively leverage a nascent medium, user naiveté and technology everyday. Hmmm, kind of sounds like what CAA just brilliantly pulled off with Lonelygirl15.

September 10th, 2006 at 3:59 pm

ps - for all those that were about to write a smart ass remark to my “1/10000th of a cent” - I meant dollar

September 10th, 2006 at 4:05 pm

Nice post. Lots of ‘questioning’ stuff combined with external links. Are things a-changin’ at TechCrunch?

September 10th, 2006 at 5:08 pm

I think it is a pretty nice idea to pay users for their content. However, in the long run there may be a bidding war. Users will go to the site that pays them the most. Is it possible that in the long run, the bids for users go so high that it exceeds the revenue earned?

September 10th, 2006 at 5:23 pm

The larger sites are also marketing vehicles in front of a large aggregated audience for paid work elsewhere. A photographer may post pictures on Flickr to reach that audience and its desire for cute pet photos or wedding photos as an advertisement of his work. Network effects such as interestingness, tag surfing, or photo pools can amplify an artist’s exposure.

September 10th, 2006 at 5:53 pm

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:

- Users are starting to get hip to the fact that they’re building these businesses. The problems at Digg highlight this. When Kevin Rose becomes the BusinessWeek coverboy but his response to criticism angers some of his top users, it’s much easier for those users to make the decision to leave. “Why should I continue to make his company valuable? It’s my work that’s making them successful and they obviously don’t care about me.” In a sense, the users of these services are “employees” of the company because they develop the content. But they’re not compensated so unlike paid employees, if they become dissatisfied with their employer, there’s nothing keeping them from walking.

- Some companies recognize the power of rewarding users. There are lots of people who write blogs or produce their own videos for YouTube because they truly enjoy it. But when somebody comes up with a model that enables you to get compensated in some material way for your work, it’s pretty compelling. Jason Calacanis saw this and he’s apparently been fairly successful at getting some of Digg’s top users to leave. Revver has an interesting model, and while they haven’t killed YouTube, I like what they’re doing and if they can successfully market the fact that their users can make money, I think they will convert many people. Companies that reward users will make it much harder for companies that don’t. At the very least, they will get people thinking about the value of their content.

- 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. If you became a hit on YouTube and a Hollywood studio came along and offered you a deal, wouldn’t you take it? In a sense, services like YouTube make talent scouting and A&R easier and YouTube gets nothing for it. In fact, I think there’s a business opportunity here that YouTube is missing.

- Mainstream marketers are learning to adapt to this new market and leverage it for their own purposes. As noted, YouTube, MySpace, etc. are now being “infiltrated” by professional entities that are finding ways to create content that looks user-generated but that is really professionally produced. The Lonelygirl15 revelation highlights the fact that sophisticated, professional campaigns disguised as user-generated media can be very successful. The popularity of Lonelygirl15’s videos is no doubt tied to the fact that they were professional - there was a story line, actors, good editing, etc. But they packaged it in such a way that a lot of people believed it was “real.” How many other campaigns of similar nature haven’t been uncovered, and how difficult will it be to uncover them as the producers become more sophisticated?

In many ways, there are aspects of Web 2.0 that remind me of the “new economy” arguments we heard during Bubble 1.0. One of the most prominent is “This is awesome! You don’t have to pay to produce content anymore - you can let your users do it!” This flies in the face of traditional economic theory, proven over thousands of years of history, in which products and services of value are created because people get paid for them in some form or another.

I predict that the ability to rely on users for fee quality content production will drop considerably and that we’re already seeing the early stages of the shift. Economics don’t change. People are getting clued in to the fact that if they produce good content, that content has value. And when people recognize their value, most want compensation. From Adam Smith’s The Wealth of Nations:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”

Am I saying that user-generated media is dead and that eventually everybody will become a paid professional? Of course not. Smart companies that rely on user-generated media will recognize that there are viable models that enable them to compensate the content producers but at a cost that is still lower than what they would pay if they had to hire professional editors, producers, etc. There will be fewer free dinners, however.

I also believe that we will see the development of some very innovative models where users are compensated in different ways. The model Calcanis is using is a bit crude and looks underhanded to a lot of people. Leave Digg, come to the Dark Side, submit 1,000 links per month and I pay you $1,000. But there are other models that we’ll see implemented. I work for a startup that is developing rewards for its users that aren’t cash-based (but that have tangible/cash value) and these rewards are actually subsidized by other companies, so the net-net is that the company can reward its users and actually gets paid to offer those rewards. Startups that understand their specific market can come up with interesting ways to make user-generated content work economically for all parties. Those that can successfully get away from this “free labor” mentality permeating the Web 2.0 space will have a much better chance at success over companies that believe there’s a “new economy” in which content production is now free.

Incidentally, by taking the time to write this comment, I am adding value to TechCrunch and I’m not getting paid for it. My last TC comment about Digg was called “brilliant” and partially reprinted in the September 8 Tech Chronicles section of the San Francisco Chronicle. So Michael, if you’re reading this, I’m not writing for free anymore. Email me and “show me the money!”

September 10th, 2006 at 6:21 pm

The digg controversy has heated up:

http://digg.com/tech_news/Top_.....port_of_p9

Many of the top diggers are removing their avatars and haven’t been contributing for 3 days now. I see 11 missing avatars in the top 20.

September 10th, 2006 at 6:53 pm

Will someone please show me the proof that pageviews are up massively at Netscape? I’m not seeing it in any of the services I use or subscribe to.

September 10th, 2006 at 7:23 pm

Thanks Mike, Looking forward to it!

(ps - for all those who actually think this is serious - it is not. I’m an Aussie, trying to get a tech start-up off the ground and its just our sense of humor )

September 10th, 2006 at 7:56 pm

Digg is going to implode soon with all the teething issues they’re facing. For the 2nd time in a few months they’ve reduced the power of top users, while Calacanis is offering recognition + cash.

It just doesn’t weigh up in Digg’s favour. They have loyalty, but that’s a fleeting emotion on the internet.

September 10th, 2006 at 8:31 pm

The people gaming the system are the social media equivalent of the US electoral college getting in the way of smaller and yet just as important votes.

And they are about as necessary as the US electoral college. And they shouldnt be paid.

September 10th, 2006 at 8:57 pm

Well, this had to happen. It was just time before people realized it.

September 10th, 2006 at 9:21 pm

Jonathan: I think you are failing to recognize the distinction between a good model and a bad model. Calling a model where people are compensated for their work unsustainable is ridiculous. This has been a feature of every successful society since civilization began. Every leading modern economy relies on the production of goods and services and the adequate payment of the workers that produce those goods and services. What we’re discussing here is the introduction of this type of system to the Web 2.0 space, where many people believe we’re in some sort of new economic paradigm where production costs are perpetually taken to $0 and you can still build successful businesses. What’s going on at Digg demonstrates that people are starting to perceive the monetary value of their content and that companies that have business models which enable them to compensate users are going to have distinct advantages.

Here’s how it breaks down:

- Successful businesses produce goods and services that generate profits. Those businesses pay employees who help produce those goods and services. It is in the interest of the business to pay those employees fairly so that they are invested in the success of the business (and so that they are capable of buying the goods and services they produce).

- Businesses that don’t generate enough profits from the sales of goods and services are unable to sustain themselves (and to pay employees) so they fail.

- Businesses that generate revenues and profits, but don’t pay their employees fairly are unable to retain top talent and eventually fail because that talent goes elsewhere.

I don’t know much about Fandom.com. If they didn’t succeed, it was because they didn’t have a viable business model. Any company that lacks a viable business model is going to fail. It sounds like they thought compensating users was going to solve their problems. This is not the case. Compensation gets you content, but you need to know what to do with it. You should not compensate your users if you don’t know how to monetize the content. If you fall into this category, you don’t have a business. It’s that simple.

Fandom.com does not invalidate the concept that compensating your users is viable, it simply highlights the fact that they had a business model which left them unable to monetize the content produced by their users. This is the problem Digg has. They apparently are only generating $3 million in revenues and not breaking even. They desperately need to develop a model for monetizing their service. Obviously, they are in a Catch 22. They are competing against a company (Netscape) that has the financial resources to pay users. Digg can’t do this. If Digg was to pay $1,000/month to its top users, it would probably hasten their failure, but they will fail anyway because of their lack of a viable business model. So again, the problem isn’t the compensation issue. It’s the fact that these companies have no strategy for monetizing their services.

As I noted, there are ways you can compensate users without cash, and there are even markets where you can realistically have user compensation subsidized by other businesses. So it all comes down to knowing your market and having a real business model.

Your comment that “Payment for content is a relic from these older media forms and in my mind has nothing to do with social media” is an example of the “new economy” thinking prevalent in Bubbles 1.0 and 2.0 where people believe that we’ve entered some new business paradigm where long-standing economic theories become invalid. It caused a recession in the first bubble and it will cause a lot of disappointment here, but maybe I’m just wrong. I sincerely doubt that Web 2.0 has ushered in a new age of altruism where people are willing to produce for nothing, and that entities offering them compensation will be shunned. If only Karl Marx could be alive for Web 2.0.

Consumer Reports is not an apples to apples comparison of user-generated content and with all due respect, it’s clear you don’t know what you’re talking about. First, Consumer Reports is a non-profit corporation, which changes the dynamic slightly. Second, Consumer Reports employs professional editors, “100 testing experts…in seven major technical departments” and “more than 25 research experts…in three departments.” In all, according to their website, Consumer Reports has a staff of over 450 people. They also have 50 state-of-the-art testing labs and pay outside firms to assist them with some of their research projects. They do have a network of “more than 150″ volunteer shoppers, but these volunteers are NOT producing the content. They are contributing to the development of reports, the bulk of which are put together by professional PAID teams. Do you think they would have more than 4 million subscribers paying $26/year for their magazine (and more than 2 million people paying for online access) if they didn’t have anybody being paid to produce quality content? Their investment in hiring a professional staff of editors, experts, etc. is precisely why they are successful. And the subscriptions give them the money they need to pay their employees for the fine work they do (so they have a viable business model that in turn makes compensation viable). If you truly believe that payment for content is a “relic,” I invite you to try to duplicate what Consumer Reports has done relying solely on user-generated content that is not paid for. Good luck!

September 10th, 2006 at 11:14 pm

One of the most empowering things about creating community software, I think, is the assumption that most people do things for at least somewhat self-serving reasons. Harnessing that intent is how you can create amazing community effects. Del.icio.us and Flickr both started as ways for you to organize your own bookmarks/photos with tags, and the net effect is an incredible taxonomy for everyone. With social media sites like Digg or Netscape, the reasons for participating can be for notoriety, for feeling like you are identifying unique and cool information for everyone, or at least in Netscape’s case, simply $$. But let’s not forget that people just digg content “cuz it’s cool” or at least not most of them. That gets old after a while.

When you think about user-generated content building a site, you have to go back to eBay which is an amazing aggregation of user-generated information - and everyone is incented for participating. The network effect here was very strong. For web 2.0 commerce, you can look at CafePress and Zazzle as the leading examples of this where it’s easier than eBay in that you just need to submit a design. But in those cases, one of the key self-serving reasons to participate is that you can earn $$.

September 11th, 2006 at 12:16 am

@Paul: I can understand your anger mate, but quite frankly its a solid business model and it has already proven to be effective on http://www.weblogsinc.com/ - they called Calacanis crazy for this - until of course he was pulling more than $1 million a year or roughly $3K a day in ads.

I think its the way that web is moving - top users should be paid for their content. If you were a top user on Digg and Netscape said to you we will pay you $1,000 a month to post 15 stories - would you do it?

$12K a year for what 180 stories ? You bet I would and I think netscape is terrible compared to digg.

Either way - I definately think its a plausible model.

September 11th, 2006 at 4:22 am

Would like to applaud Drama 2.0 for his unpaid and but soon to be solicited and rewarded effort. Why keep giving to any society that doesn’t reward it members. As I look at any model that failed to reward its citizens, workers, contributors you are watcing a system that is on its way to failure. I had an interesting experience as a former teacher to literally strattle these two competing theories (capitalism v. communism) instantaneously once. In Berlin I stood exactly where the Berlin wall had been built and looked east into East Berlin and west into West Berlin. Anyone standing in that spot who can’t see the difference of rewarding workers in the direct proportion of their contributions just doesn’t get it. It is a grade school lesson that should not be repeated again. Only a few countries now practice true communism and those models are truly going through death throes.

If you wish to relearn this lesson again in the Web 2.0 world just stop paying your providers and watch them flee to a site that does. Watching Cubans fleeing in every possible floatable inner tube for the good old USA where perhaps they have a chance for a better life is as good an analogy as I can come up with. It isn’t just freedom that is creating this exodus, it is $$$. Joining them in this migration toward a better economic system is lets see 12,000,000 undocumented workers from everywhere not just south of the border. The wisdom of the crowd is pretty compelling evidence and anyone who does not believe in rewarding the crowd in some way is going to lose the crowd.

Best,

Toothy

September 11th, 2006 at 5:26 am

Marshall

This is a good post !!

I think one blog which is user/commnity generated is “cuteoverload.com” . LAst year, this site never existed, and today its in the T’rati top 50(?). However, nobody gets paid.. so I think payment byitself may not be a driver behind a business model !!

September 11th, 2006 at 6:02 am

Drama, you miss my point about Consumer Reports. They succeed not because they pay their workers. They succeed because they are indeed as they say “expert, independent, unbiased.” They are only able to make that claim (and it is extremely effective marketing too) because it is the very community of readers that supports the magazine. You are right that CR is not a form of UGC however it is what I would describe as an early form of Social Media. Without a community of like-minded individuals behind it, CR is just another biased media entity beholden to advertisers that are ultimately the ones funding the production of content.

To your other points there are lots of sites have great UGC that is not paid for. Trip Advisor is one that comes to mind immediately. CNET is another. This is the most important reason these sites are successful.

Payment in the social media space is the very antithesis of everything that has driven its growth. I believe inseminating payments into the user dynamic changes what we now define as social media makes it something else. Something more akin to the traditional media models that advances in technology have already shattered.

September 11th, 2006 at 6:36 am

Just what is a “top Digg user”? When I go there I just look at the top 20 or so articles that have been dugg, and from what I understand that ranking is decided by how many other people liked the story. I’m not sure what makes someone a “top” user in this case.

Also the comments I’ve seen on digg have been even more childish than slashdot. Is there something I’m missing?

September 11th, 2006 at 7:13 am

Great conversation every one, thanks a lot for you comments.

September 11th, 2006 at 8:18 am

The title says “getting paid” but I don’t see any numbers.

September 11th, 2006 at 8:45 am

Sorry the link I posted requires registration to the bootstrap wiki. For context, Bootstrap is a community of entreprenuers building business w/o venture capital.

Here is the general content I was trying to refer to:

In Hoover’s Vision, Gary Hoover reveals “the answer is almost never where you expect it to be or where you are looking for it.” (p. 57) S