NEW YORK — It seems clear enough that the phenomenon of user-generated content (UGC) on the Internet has built enough momentum that it can no longer be thought of as a fad.
Yet the matter of how to make money from the galaxy of blogs, images and videos that people create and share in online communities is far from resolved.
And it grows all the more urgent to find an answer, as ever-larger mountains of venture capital are poured into startups built around the social and self-authoring features now widespread on the Web.
Not surprisingly, hearing entrepreneurs, investors and marketers grope for an answer to “What’s your business model?” many industry watchers are beginning to wonder whether the giddy wellspring of UGC plays is setting up the tech world for another spectacular collapse.
“UGC has prompted an investment gold rush to rival that of the dot-com explosion of the mid-1990s,” said media attorney Jeff Liebenson during a panel discussion here at New York’s Harvard Club, where executives from various corners of the interactive media world debated the issue.
But the question remains: “What is the value of UGC? How do you monetize something you do not control?” asked Liebenson, the panel moderator, who also heads up the music, media and digital entertainment group at the New York law firm Herrick Feinstein.
In trying to pin down the UGC economy, panelists here agreed on an important distinction of terms. Private UGC sites, such as Flickr Pro, have already staked their claim around subscriptions, a model where consumers pay directly.
The more nebulous area concerns public UGC sites, famously led by Facebook, MySpace and YouTube, but also numbering an untold and fast-growing multitude of smaller UGC sites.
Advertising is the standard answer, though for a growing chorus of skeptics, that runs thin. Many advertisers have already demonstrated their reluctance to place ads alongside content that can vary widely in quality and decency.
Last year, Facebook, of which Microsoft (NASDAQ: YHOO) owns a small stake, got its own advertising program off to a rocky start with a sluggish response to the irritation expressed by a chorus of its users. Google has recently been talking up its plans to monetize its YouTube video property, but the panelists agreed that no one has yet stumbled on the winning model.
The continued migration of professionally produced content to channels such as YouTube and MySpace can offer advertisers some assurance that their messages will appear alongside something that matches their brand. Nevertheless, the great majority of content on those sites is still supplied by their users of no professional affiliation — so the advertising prospects remain a mixed bag.
Having agreed that the consumer-pay model is best suited for the private UGC sites, the debate turned on where the real value of the public sites lies.
[cob:Special_Report]MySpace, YouTube and others may have huge audiences, but to some, they are still just vehicles for self-expression, a modern take on writing a letter to the editor of a newspaper.
“I hate to be the bearer of bad news; you ain’t going to make millions on this,” said Lydia Loizides, governor of the New York chapter of the National Academy of Television Arts and Sciences.
“The content itself is really of little value — the network is what is of value,” she said, drawing an analogy to television, where she said that shows hold little intrinsic value but become attractive to advertisers because of their distribution platform.
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While the content within the UGC sites can engage an audience, Loizides added that the “value really lies in the infrastructure and the technology.”
Mark Walker, Yahoo’s vice president of business affairs, agreed.
“There’s very little brand equity in UGC,” Walker said.
Just as in radio and TV, the ad-supported model will prevail, he said. But like those media, UGC sites will need to demonstrate to advertisers that they can deliver their messages to clearly defined and desirable market segments.
Others were more skeptical. John Rose, a senior partner and managing director at the Boston Consulting Group, saw the question of monetizing UGC is simply the latest in a series of discussions about a new technology that emerges.
While each technological breakthrough seems to carry limitless potential, “no one’s really figured out how to monetize it,” Rose said.
“This conversation is not a lot different than the conversation we were having in the 90s about how you can make money moving books over the Internet,” he said. “There just can’t be any money in it. What’s the business model?” Rose said, implicitly leaving it to the audience to consider the e-commerce empire that Amazon has built.
“The thing that I’m sure of is that none of us understands what the fundamental business models are,” he added. “I’ll disagree that the value’s in the network. There clearly is a lot of value in the network, but there’s got to be a ton of value in the content, otherwise people wouldn’t be coming to the networks in the first place.”
Loizides shot back that Amazon and eBay became the successes that they did because they pioneered new methods of distribution, effectively removing the middleman from the value chain.
But they were processing or facilitating real transactions, not like the spongy “impressions” someone receives from posting a video on YouTube, she said, adding that equating the two is like comparing apples to oranges.
Rose was undeterred.
“User-generated content is the next in what has been a long line of interactive innovations that finds its way into the marketplace but isn’t predetermined,” he said. “The visionaries who succeed are those that very quickly morph their models on short notice.”
“We’ll all look back on this in five years and say, ‘I should have really seen it.’ And it will be completely obvious in retrospect,” he added.