Back to Gartner for Marketers Blog

Will Economics Kill the UGC Star?

By Andrew Frank | November 13, 2008 | 3 Comments

The vibe was strange at Ad:tech in New York last week: on the one hand, the election instilled a state of delirious euphoria on the crowd (and left no doubt as to where new media stood); on the other hand, economy-induced fear could not be suppressed, and for many was clearly triggering flash-backs to the beginning of the decade. As a result, many reassuring words could be heard, like “at least this time we’re not at the epicenter,” and “although we’ve revised our projections, we’re still forecasting double-digit growth for online advertising in 2009” (this from Geoff Ramsey, CEO of eMarketer, whose free white paper well captures the zeitgeist of hope and fear).

A few things are clear:

  • A cold wind’s begun to blow on web 2.0 startups, especially those whose business models run along the lines of building a large and loyal audience and then monetizing it with advertising. (Sound familiar?)
  • The Web giants that survived the first downturn and became public companies are experiencing their lowest valuations in years – in many cases, since the downturn. Naturally this is related to the stock market as a whole, but one of the consequences is that virtually all of the incentive stock options issued to web company employees in the last three years have underwater strike prices.
  • This means it’s time for social media to show its hand. We’ve reached the river. Let’s see what you’ve got.

Some examples: Google’s announcement it will sell ad placement on YouTube search results pages, in an attempt to replicate its most successful revenue strategy to-date on the difficult-to-monetize video site. This is part of an overall strategy to make the site more attractive to professional content owners, such as MGM and CBS which recently agreed to license some of its catalog material to the site. Then there’s Fox’s MySpace, which has taken a number of recent steps to shore up revenue by featuring more professional content, including featuring Hulu videos on its Primetime lineup, and working with MTV networks and Warner Bros. on a new monetization scheme (see our Gartner first take).

Still, there are some hold-outs. At the Web 2.0 summit in San Francisco, executives from Twitter and Facebook both insisted they were focused on growth and that money would come later. How much later? They didn’t say.

Meanwhile, mainstream media has troubles of its own. Viacom, for example, just saw its Q3 earnings decline 37 percent, and they, along with Time Warner, Disney, and other conglomerates (especially the ones that own newspapers) are also looking at their lowest valuations in years. The question now is, can old media and new media put their cards together and, between them, come up with a winning hand?

Comments are closed


  • John Berard says:

    It has been by rote memorization that founders of social networking sites have answered the business model question with on word: advertising. But none seem to have come to grips with the essential contradiction. The supporting collaboration that draws and binds a social community is counter to the monologue of advertising.

    That is the nut which needs to be cracked. Can social networks make advertising relevant to the individual, transparent in its message, supportive of the group and meaningful at the moment? We have a lot of examples of attempts gone awry (e.g., Beacon), but few to balance the ledger.

    Advertising can’t be bolted on a social network. It has to arise from the interests of the members. And, rather than continue to deploy increasingly intrusive monitoring technologies (BT, anyone?), it may be time to revert to what has always worked best: just ask.

    My personal and commercial two cents.

  • New revenue model, please! @John Berard’s two cents is worth more.

  • juan says:

    UGC should evolutionate from “funny home videos” or TV shows upload to be monetize with advertisment, to real personal UGC to be used publicly or privately (as personal multimedia diary) on subscription basis. (with affordable cost and provinding the technology to do that seamlessly, from laptop webcam or mobile). This may apply not only to video content, also to audio content..