Failing business models for user-generated content

With Adam Arvidsson, I have outlined on several occasions the Crisis of Value facing capitalism, because the exponential rise in use value production (value produced by ourselves, outside of a market setting), is outpacing the linear capability of monetizing them.

A special subcase of this concerns the proprietary platforms, only Google being an exceptional case of having managed a thriving business model based on its ability to micro-target our interests.

This model is not working for YouTube, Twitter and probably a host of other companies.

The article in Slate stresses the high cost of maintaining Youtube, which is losing half a billion dollars a year, the unwillingness of advertisers to be seen amongst low quality user-generated content.

An important question for the future is: if such business model failing turns out to be permanent, and corporations stop financing the platforms, what do we do?

The answer points to distributed infrastructures, where cost can be spread over vast numbers of people, and use the socialized infrastructure of the internet, i.e. what we are already paying to our ISP’s, ans means of financing such peer to peer infrastructures which can bypass proprietary platforms for distribution of user content via centralized platforms.

Thanks for letting me know how realistic such a scenario would be.

Here’s an excerpt from Farhad Manjoo’s article in Slate:

“According a recent report by analysts at the financial-services company Credit Suisse, Google will lose $470 million on the video-sharing site this year alone. To put it another way, the Boston Globe, which is on track to lose $85 million in 2009, is five times more profitable—or, rather, less unprofitable—than YouTube. All so you can watch this helium-voiced oddball whenever you want.

YouTube’s troubles are surprisingly similar to those faced by newspapers. Just like your local daily, the company is struggling to sell enough in advertising to cover the enormous costs of storing and distributing its content. Newspapers have to pay to publish and deliver dead trees; YouTube has to pay for a gargantuan Internet connection to send videos to your computer and the millions of others who are demanding the most recent Dramatic Chipmunk mash-up. Google doesn’t break out YouTube’s profits and losses on its earnings statements, and of course it’s possible that Credit Suisse’s estimates are off. But if the analysts are at all close, YouTube, which Google bought in 2006, is in big trouble. As Benjamin Wayne, the CEO of the rival video-streaming company Fliqz, pointed out in a recent article for Silicon Alley Insider, not even Google can long sustain a company that’s losing close to half a billion dollars a year.

But YouTube’s problems point to a larger difficulty for many Web startups: “User-generated content” is proving to be a financial albatross. Two years ago, Time magazine named “you” its Person of the Year for doing your small part in fueling the Web 2.0 revolution. The magazine argued that by collecting and distributing the creations of millions of individuals, the Web is upending the way we learn about what’s going on in the world around us. There’s no doubt this is true; you experienced the presidential inauguration through millions of pictures captured by ordinary people, and a lot of what you learn these days comes from articles put together by the anonymous hordes who power Wikipedia. Yet even though they’ve changed the way we live, sites that collect and share content produced by all of us haven’t done the one thing many tech evangelists said they’d do—make a ton of money. Or, in many cases, any money.”

1 Comment Failing business models for user-generated content

  1. Pingback: P2P Foundation » Blog Archive » Marco Fioretti: Is universal internet access really a good idea?

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