How do the User Generated Content sites do it? How can Flickr, YouTube and the like possibly make money through limited revenue options while simultaneously giving away absolutely massive piles of storage and bandwidth?
Economies of scale kick in big-time, and there’s still a lot of unused capacity out there, but you have to wonder how sustainable it is to allow users paying very little or nothing at all to dump the entire contents of their Flash memory cards onto Flickr every day. Not to mention the fact that uploading 13 nearly identical pictures of your cat onto Flickr rather than one pollutes the quality of the datastore for all users (I’ve never understood why Flickr doesn’t strongly limit the number of images that can be uploaded per day, forcing people to edit their collections).
Some discussion in TWiT episode 47 about Yahoo’s purchase of Flickr and how they’re now finding it an economic albatross. Photo printing from Flickr is an obvious revenue opportunity, but according to a TWiT insider, 10 million Flickr users generate about 80 print orders per week. News flash: People are there for the community, not for abstracted printing possibilities. But once you invite people to upload their lives into your service, you’re committed, no backing out.
Despite seemingly problematic revenue opps, Yahoo! is continuing their UGC/Web 2.0 purchasing spree: they apparently have an offer on the table to buy Digg. UGC is a critical aspect of Web 2.0, and they can’t afford to miss the boat.
The recent proliferation of free massive storage systems has changed user expectations for all hosting systems. Alex King, on user expectations at FeedLounge:
When I hear someone say “a service like this should be free”, it feels a little like they are saying “your time and investment are worth nothing”. I know it’s not personal, but to make a really great product, you have to invest yourself personally.
Birdhouse struggles with this too. For example, we simply can’t offer a webmail system as good as GMail’s (for any amount of money), and we sure as heck can’t offer 2GB of storage to anyone who comes by and asks. But due to the quality of modern webmail systems like Yahoo’s and Google’s, people just assume that all webmail will be of similar quality. Without truly massive investments and economies of scale, small and medium-sized hosts are stuck offering Web 1.0 technology in a world that already expects Web 2.0 quality and scale.
But it goes beyond webmail: Now that Google and Yahoo (and soon Microsoft) are making quick inroads into the web hosting business, the picture isn’t pretty for smaller hosts. What we can — and do — offer is excellent hand-holding and custom setups that the cookie-cutter monoliths can’t offer. And while the bandwidth and storage we provide may seem puny by comparison, I haven’t met a customer yet who actually felt cramped by our offerings – 500MBs is a huge web site… unless you’re throwing a ton of audio and video around.
I’ve been experimenting with UGC for nine years at the Archive of Misheard Lyrics, and have made money from it. Not big money, but some. But I’ve had the advantage of being able to do it on a high-impressions/low-bandwidth model – lyrics pages are tiny chunks of text in a database. And unlike free-for-alls like Flickr, I exert editorial control over the content, and don’t let just anything onto the site*. I know that UCG can be a workable revenue model, under the right conditions. But how this scales to unlimited free photo/video/audio hosting remains to be seen.
* Although in the past I’ve used volunteer editors, some of whom have let huge numbers of unfunny lyrics into the live pool; the current user voting system (which I guess is a bit Web 2.0 itself) will eventually correct for that.
See also Nick Cubrilovic: The Economics of Online Storage.
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