A good case study of a business model based on user-generated content

by marycw on February 17, 2009

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BusinessWeek has an excellent article on ThisNext, a social network around shopping and style.  This is a good read for anybody looking for a short case study overview and example of a business model around user generated content.

(For more info on UCG and social media: there’s a good white paper here, with lots of examples of companies and business models — it’s from the Interactive Advertising Bureau.)

The BusinessWeek article is balanced and even-handed. It describes the “delicate line” that must be walked: these are for-profit companies that depend on volunteer labor.

Social networks  inhabit a new and interesting societal space that mixes up the traditional contexts for paid vs unpaid activity.  Volunteer work is associated with not-for-profit groups whose activities benefit society.  And people have different expectations of NFPs versus for-profit businesses.

Pine, Gilmore and Joseph talk about the different types of organizations and people’s expectations of each type in their book Authenticity: What Consumers Really Want. They observe that when an organization behaves against type, people see that as inauthentic,  suspicious, or even exploitative.  People who would cheerfully pick up trash in a public park for free would balk at doing the same for a corporate campus;  the same principle works in reverse when NFPs are seen as “too commercial” to be a genuine NFP.

Social networking companies are walking this line between business and NFP/volunteer space.  A good social network plays the role of host for an online party. Guests don’t begrudge the host the need to cover the costs of the party. But those guests who pitch in and help with party duties will feel deceived and ill-treated if they find out later that the host made “too much” financial gain (in part from their free work).

So “how much financial gain is too much” from the users’ perspective?   Social networks are still a new-ish model,  so people’s expectations of them are still evolving — which means companies need to tread lightly, listen carefully to their users, and expect to make mistakes and do course corrections.

One recent example:  Wikipedia Foundation received criticism around its fundraising – for asking users to contribute $$, while the Foundation paid salaries up to $300k+ and while the great majority of Wikipedia work was performed by volunteer labor.  Wikipedia had made a point of being NFP and not placing any advertising on their site.   Therefore in asking publicly for donations, Wikipedia continued to emphasize its NFP identity but left itself open to criticism that its salaries were “too high” for a NFP.  There was a sense among some users that “we’re already giving them our time, now they want our money, while they pay themselves corporate-type salaries.”

Another example: the Fanlib debacle.  This was designed as a for-profit community for fanfiction writers, but its ties to traditional media companies and (what were perceived as) overly commercial statements made by the company led to accusations from many users that Fanlib was attempting to profit in an unethical way from the volunteer efforts of fans.   Fanlib’s management responded poorly, resulting in more criticism, and eventually the site failed.    It’s an excellent case study, and Henry Jenkins did a great in-depth writeup of the issues — this should be required cautionary reading for any company going into user generated content.

Back to the BusinessWeek article. It touches on a several issues that are common for UGC / social networking sites:

1) the importance of seeding a new social network with initial content. People need to see content when they visit for the first time; empty spaces don’t attract users.  That initial content usually comes from the business actively encouraging people to create it, enlisting known creators in that field to participate, or incenting or otherwise paying people to generate initial content.

2) it’s a small minority of users that create most of the content. The numbers vary, but you’re generally looking at <5% of the user population creating the great majority of the content.   Other users may participate in less intensive ways (for example, by commenting or faving). And the majority of users tend to be readers/lurkers who don’t actively participate.

3) these “super creators” have to see benefit for themselves. Nobody dones things for free, even when they aren’t paid in cash currency;  people need psychic income, paid in a currency other than cash.  Companies need to understand what “currencies” are trading on their site –  hit counts, favs, traffic, etc.   The company needs to understand how its super creators perceive the benefits to themselves:  is it career building,  assisting a valued cause, making cool stuff for one’s friends, etc.

In my anecdotal experience, sites where users are or become significant friends (rather than just casual acquaintances) are stickier, and the super creators stay engaged longer, due to the friendship network.

4) the site should be designed to give creators the tools to monitor their success on the site. People need to see the impact of their work. This is related to the idea of using learnings from game design in architecting social networks. Companies need to build in ways to keep score: number of hits, favs, fans, followers, ranking in various areas, cities, special awards and recognitions, etc.

For UCG, success/rewards come in three main types : a) metrics related to traffic/hits on one’s thread, b) comments, favs or other actions of recognition from other users, and c) recognition from the host company (in the form of thank-yous, attention from “important people” / management, product samples, gift certificates, etc.)

5) There’s a life cycle to “super creators” that companies need to recognize and manage. Potential super creators find the site through some medium, begin to participate, and at some point decide to increase their output and become super creators.   They continue for some period of time, but eventually almost all super creators downshift and become regular low-participation users or leave the site altogether.  Companies should expect this and be aware of how users move through the cycle.

Sites need to monitor their users’ experience cycle: understand where their new users are coming from and what are the triggers or transition points that move users from lurker to participative user to creator to super creator status and then later through the downshift.