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April 17, 2009

[ugc3] Sustainable business models and long tails

Andres Hervas-Drane
Begins by noting the long tail in the market share of products. There’s empirical evidence that this is happening online. Why there? Standard answer: Supply side. But he wants to look at factors on the demand side that can affect this distribution.

He sets up a case where consumers have difference preferences and come to the market uninformed. In the offline world, search happens through word of mouth. They can search with evaluations or with recommendations. Recommendations come from consumers who searched with evaluations. Word of mouth results in a high concentration of sales.

Almost a third of Amazon’s sales are generated by recommendations. These are generated by users as meta-content, finding consumers who have similar preferences. This is taste-matching and it reduces sales concentration.

Then there are “artistic markets”: that increase the demand for niche producers and results in long term cultural variety.

Peyman Faratin talks about a case study of prediction markets. His main point: Scarcity is at play even in the UGC system. The new scarcity is of attention.

An incentive engineering problem is at foot in prediction markets. When you can’t bet real money, the incentives go down. The reward streams are delayed. You have to search for the market. There are significant transaction costs [which he goes over in some detail, but too hard to capture briefly…sorry]. That’s why prediction markets aren’t going very well; they’re lonely.

Solution: Reward the big hitters. Let them transfer their reputations. Give them content management rights. Rank markets and reputations. “Invisible hand of the algorithm: Recommendations.” Use widgets to let the market come to the user. [I missed the end of this. Sorry!]

Chris Derllarocas talksabout “Your Operations hvae become your New Marketing.” “Every customer is a potential brand ambassador or a lethal bran assassin.” E.g., in 2006, Comcast spent $100 M in advertising, wiped out by the youtube of a sleeping technician. UGC can make or break your business.

Most influential UGC occurs spontaneously and represents non-representative experiences. Companies need to take preventive measures. Consumers use UGC to decide if they should consume a product. Once they have, they decide what to report. Companies need to “Strategically re-engineer the consumption experience to spontaneously provoke the right mix of consumer content.”

Rules: Pay attention to extreme events. Move towards a culture that pays attention to outliers, positive and negative. “Redesign your monitoring practices and career incentives to accentuate the positive and eliminate the negative.” Also, “reasses yesterday’s yield management practices.” That is, make sure you do not systematically produce a small number of unhappy customers” (e.g., but routinely overbooking, or by routinely selling undesirable hotel rooms at very low rates). Also, get to know your power customers, i.e., the ones more likely to be vocal. They should receive “the special teratment that loyal big spenders used to receive ten years ago.” Also, not sock puppetry. Also, maybe have a Chief Perception Officer.

Q: You’re proposing an operational hit since we won’t be selling all the seats or rooms.
A: Yes. That’s the decision to be made. We need to make these decisions holistically. We don’t have the complete answer, There’s room for innovation.

Q: [me] This morning we heard that the population is not nearly as adept at using these tools as some of us (= me) would like to believe. This afternoon we hear about markets that are adept. How did you hear this morning’s research?
A: It varies by market. And consumers aren’t necessarily savvy. The UGC has effect even when they’re not savvy. You need to tier your efforts, taking account of the consumers’ Web savviness.

Q: How’s it work in other countries?
A: We haven’t done that research. Happy collaborate…

Q: How does this apply to B2B?
A: More limited.

Anindya Ghose will talk about combining textmining with econometrics. Firms want to know if there’s any economic value to social networks and UGC. How can they monetize UGC?

There’s economic value embedded in the content. E.g., product reviews, geo locations, online purchase behavior. His software mines the text and assesses the economic value of, say, a positive review and even more particular comments. E.g., “good packaging” lowers the value by $0.56 because customers expect superlatives. Particular keywords have particular monetary effects.

Hypothesis: The increasing availability of UGC is reflected in sponsored search metrics. And, yes, he found a correlation between the frequency with which key words are used in blogs and their cost-per-click on search sites. He’s researching whether there’s some sort of causal effect, but it’s not an easy problem. Hence, UGC can be monetized through sponsored search.

[Posted without re-reading. I have to prepare for my unprepared comments. I’m on a panel that’s supposed to be reflecting on the day.] [Tags: ]

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[ugc3] Scott McDonald

NOTE: Live-blogging. Getting things wrong. Missing points. Omitting key information. Introducing artificial choppiness. Over-emphasizing small matters. Paraphrasing badly. Not running a spellpchecker. Mangling other people’s ideas and words. You are warned, people.

Scott McDonald of Conde Nast gives the lunchtime talk. He reminds us of how big CN is: magazines, websites, events, digital apps.

His numbers show that lots of people are creating content.

UGC issues for “traditional” [the quotes are on Scott’s slide] media: Brand compatitiblity (vs. “snark/coarsening”. Commoditization of content (all gets treated the same). Value as “listening post” (media can hear their readers). DRM when everyone is an aggregator. Monetization.

Advertisers are reluctant to jump in, Scott says. They worry about brand. UGC video is cheap and plentifu. but it’s not selling. The CPMs are deeply discounted. Ad revenues are not going to UGC and marketing execs are pessimistic about this; only 22% think UGC is a “high-growth opportunity.” 73% of advertisers say they definitely will not run ads on UGC.

So, what are the other models? You can incorporate UGC on a site as a “retention device.” [CNN’s turn-the-channel “iReports”?] Authentication fees on microblogging sites? E.g., Twitter charges DominosPizza to assure that it in fact represents Dominos Pizza. How about sponsorships on crowdsourcing sites such as Digg? E.g., at Reddit, maybe a sponsor could be an “amplifier” that announces that each thumbs up counts 5x. [Wha??? Wouldn’t that destroy Reddit’s credibility?] Finally, there’s cross-platform marketing. Only 10% of visitors to a mag’s site are subscribers. So, cannibalization isn’t a worry. But how do you make money on the web site? Ads only work for very big sites. But,” online subscriptions sales are sweet.” People who subscribe that way have higher value than subscribers through other means: They’ve sought out the mag, they pay with a credit card, they are more likely to take an automatic renewal contract, they get added to the email list, etc.

He points to Conde Nast examples of UGC. Contests for designs, NYer caption contest, GQ tips on good grooming. [These are as much UGC as a man-in-the-street interview.]

He points to Reddit, a CN site. He acknowledges the bad language on the page. It produces no subscription revenues. They’re starting to have sponsored posts that still can be voted up or down.

Q: Are people dropping subscriptions because they can get the content for free online?
Scott: In general, no. The conditions for reading mags are special, e.g., reading one on the subway to create zone of privacy. [A good e-reader will destroy this.] For news mags, that’s more of an issue.

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[ugc3] The Evolution of UGC

Dan Hunter of NY Law School begins with an informal talk called “UGC: From Threat He disagrees with Eli Noam that the end game will be commercialization. [Ah, the exceptionalist battle is joined!] He thinks about UGC as amateur media, focusing on the motivation of the users. His question: Is there a role for commercial providers, outside of providing the infrastructure? The content will increasingly be provided by people whose motivations are non-commercial. (He shows Wolf Loves Pork at Very cool.)

It’s important to not think this is about traditional media forms, he says. It includes virtual worlds, collaborative games. People are living out their lives in these environments. UGC is not something separate from our lives. It is our environment.

Amateur work is crowding out the commercial, he says. E.g., YouTube, music, user reviews at Amazon etc. Most of the money is in the infrastructure, not the content: Blizzard providing World of Warcraft, Google, etc.

Q: Google lost $500M this year on YouTube.
Dan: If you’re suggesting there’s no money in infrastructure…We can’t yet know if that’s a blip, a market indicator, etc.

Q: Two examples that support your case: 1. Orpheus Orchestra has no conductor. 2. YouTube orchestra is collaborative.
Dan: Sites like Wikipedia can be quite bureaucratic. There’s a range of examples, some totally spontaneous.

Q: Wolf Eats Pig actually ends the other way around, which is a bad moral and is very worrisome for Japanese society.

Next, David Card of Forrester Research presents research. [I’m not going to try to capture the numbers.]

Social networking is becoming ubiquitous, but the “creative stuff” is still a minority behavior and is not growing at the same pace as social networking, watching videos, or writing reviews. Budgets for social marketing are still pretty low because the value of it is unproven. [His data actually show that few people can prove profitability from social marketing but a majority think it is valuable]

Social network business models: It will be like air (cf. Charline Li). Or it’s a walled garden. Or it’s a media model. The portal model faces threates from Google and social networking sites. AT SNS’s people view photos and videos, keep up with friends, etc. They’re not consuming much professional content there. Marketers should “tap entertainment media, then build out social marketing promise.” Facebook’s “Beacon” idea was powerful but ineptly handled. [Beacon: When buy something, it asks if you want to share that news with your FB friends.] Money is more likely to come from the audience than from authors; the real social marketing potential is untapped.

Q: Opportunity: Harvesting social networking data for customer relationship management. [Doc Searls: This one’s for you! :)]
David: Lots of people do this. P&G. Fox. They bring in the audience to get feedback. “If you get them into real product development, that’s a nirvana.” Although you have to be careful that you’re not handing design to a niche market of your most enthusiastic customers.
Q: Keeping track of the metadata about the types of info makes this huge market of info usable.
David: Do you mean Amazon ought to make its customer available to others?
Q: No.

Q: The virtual is piercing the physical, ending up in offline retail.
A: Interesting.

Q: What guidance for employees active in these spaces, so they feel free to express their ideas but also potentially censorship?
David: Forrester analysts have personal blogs as well as company blogs. Neither are reviewed. We have policies that say you should think about what you’re saying. But if it’s too heavy handed so that employees look like shills, they won’t get a very big audience. You have to play by the rules of the medium — uncensored, rapid response (e.g., WholeFoods responds instantly, even if it’s an intern in a closet sometwhere) — authenticity, etc. It’s a delicate line.

Robert Cohen talks about business adoption of virtual worlds. He points to the broad use of interactive sites by children 7-12, suggesting that we’re seeing a deep change. There are over 100M subscribers to the Barbi site and 100s of millions of Habbo users. This may portend a generational change.

He points to three waves: Content-centric, Surface [he’s using a Microsoft chart], and immersive. He’s interviewed 50 vendors about how virtual worlds will be used. It has the potential to affect the way business operates (he says). First, it enhances training and teamwork. Then, more interactive corporations. Over the next tend years we’ll see collaborative corporations (among suppliers and product developers) and “modern guild system firms” (“highly technologically competent firms that come together to collaborate on projects”). He points to oil companies using virtual worlds to model environments for training, exploration.

Q: The press is reporting that SecondLife has stumbled in growth and development. And how can we get from Barbi style product focus to a platform approach?
Bob: There’s controversy about this. BTW, Mitch Kapor is working on putting your photo on your avatar and making the movement more realistic. SecondLife also has bought a company that does business operations. But IBM has shown a way to connect virtual worlds through a firewall. But SecondLife is trying. There’s a lot going on i n Europe.

[Posting without rereading so I can go to the break. Sorry.] [Tags: ]

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[ugc3] W. Russell Neuman

Russ Neuman begins with a Firesign ref: Everything you know is wrong. If you project from current media to its future, you’ll be wrong. We always have been (he says). E.g., our early vision of the telephone viewed it as a broadcast medium that would lend itself to demagoguery. [NOTE: Live-blogging. Typing too fast. Believe nothing that you read. Thank you.]

He shows an attempted typology of UGC with 24 categories. It will probably make the same mistakes as our early understanding of the phone. Western Union, which declined to buy the patents, didn’t understand it as a long-distance device.

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[ugc3] Eli Noam – intro

I’m at Columbia U’s conference/seminar on “UGC 3.0” (user-generated content). It’s a mix of academics and businesspeople, which I find appealing. (I don’t find the phrase or slant of “ugc” appealing, however. It often focuses on the stuff rather than on the social participation.) There are about 60 100 people here, sitting in a long conference room. [NOTE: Live blogging. Getting things wrong. Missing stuff. Not doing sepll checking.]

My guess/prediction is that throughout the day, the businesspeople will express enthusiasm for UGC while the academics will tend to splash cold data on it.

Eli Noam begins by wondering if UGC’s importance is going to persist. He points to the fading of other grassroots technologiess that started out with a lot of hype and promise: ham radio, CB radio, homebrew microcomputers. This happens (he says) because as the network size increases and fixed costs drop, and average benefit increase (due to Metcalfe’s law). The point is how you get to the self-sustaining cross-over point when you start at 0. You can regulate the price down, or have a business subsidize it, or you can use a community approach that increases the benefit and lowers the cost. [I’m not capturing his increasingly complex diagram. Sorry.] This tends to make commercialization profitability. So we cycle from community to complementary companies, then competition and then “oligopoly that in the next generation brings back community.”

So where will fiber take this spiral, he asks. First, it will widen choices. Long-tail content. UGC. Richer experience. Historically, the price per bit delivered to the consumer has dropped logarithmically (books to Net), and the richness of the experience (bits per second) has increased logarithmically. Media have gotten more visual because of this. But creating interactive, immersive content requires lots of capital for programmers, equipment, etc. [Yet it also incidentally creates lower-end user possibilities, e.g., machima.] That means, says Eli, that this gives large media companies the edge.

How does UGC fit into this? Mashups. But is it possible to create works of art collaboratively, he asks. [It’s certainly possible to create folk art.] Eli points out that schools of art have been somewhat collaborative; people at least influence one another. But art generally seems to need a hierarchy. The closest he can find to a collaborative model are ssome string quartets and rock bands, but even rock bands are dominated by one person (he says). The main examples he can think of are folk art. [aha.] Folk art isn’t leading edge. It’s quaint. So, is UGC just priming the pump for commercial entries, which is the model of the past. To predict otherwise, one would need a model, an historic analysis, data.

UGC will be prevalent in the low end, he says, and an explorer in the high end. But it will be difficult for UGC to remain in the lead. Commercial entities will (Eli says). To say otherwise is to engage in religious thinking.

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