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March 17, 2007

Making a business of user-contributed content

Just how important is it to manage the incentive-centered design problems for a user-contributed content web site? If you want to make a business out of it, crucial. There is not a lot of advertising revenue to be made (yet) by most online services: to succeed, you need to keep your costs very low and your page views high. ICD is critical to both.

Dan Mitchell today wrote in the New York Times about the economics of advertising-supported web sites. He reports on a study by venture capitalist Jeremy Liew, "Three ways to build an online media business to $50m in revenue", plus a followup. Liew argues that to make $50 million in revenues, you need to get to Top 10, 25 or 125 levels of US website traffic (depending on the demographic of your viewers, which affects what advertising you can deliver). The basic implication: few sites will make major revenues from advertising, and to do so is very hard.

And, so, the payoff to terrific ICD; actually the two payoffs: higher quality (more traffic) at lower cost. To get significant advertising revenues you'll need consistent high quality to attract visitors and keep them returning. That means getting good stuff in, and keeping bad stuff out. And, given the modest advertising revenues that are available (much less than $50 million is going to be possible for most sites), you'll want to keep costs down, which means getting most of your labor for free (user-contributed content) without a lot of expensive editorial staff or other interventions.

As an example of the possibility of keeping down the cost side, the Wikimedia Foundation (which owns Wikipedia) currently has less than ten full-time employees.


Posted by jmm at March 17, 2007 08:47 AM