Sharing the Wealth

I’m somewhat embarrassed to admit that lately, when someone asks me for advice on building up their community-centric media project, my answer often includes the following question: “What are you doing to drive financial value back to your users?” I say embarrassed because this question invokes tragicomic memories of failed dot-com startups; you know, the websites that paid you money for websurfing (“make pennies per day!”) Or, for that matter, more recent sites that prove the classic pyramid scheme is alive and well.

Past failures and frauds aside, there’s clear evidence that creating economic opportunities for users can result in big bucks for businesses. This has long been obvious outside the entertainment industry — eBay, Google (adSense), and Amazon (Marketplace) all make a ton of money by riding the efforts of users. But in entertainment, many people remain fundamentally opposed to sharing the wealth. Why bother, they ask, when users aren’t demanding it? (see MySpace, YouTube, etc.)

Not Yet Is Not Never

Users aren’t demanding it yet. But then, they haven’t had many high-quality choices. And the choices that they do have are hobbled by network effects — specifically, the powerful network effects of competing giants like YouTube, for example. It’s very difficult for a startup to make headway against an established community site in the short-term. But positive network effects are not a permanent guarantee of dominance; competing platforms with new and improved features can eventually build critical mass. (Skype, anyone?)

Lottery, Anyone?

And users don’t need a community that promises riches to all. In fact, a system that delivers just a little to everyone may be worse than a system that creates a few notable winners. It’s kind of like the lottery: as long as one in a million customers get rich, the rest of us keep hoping against hope. Second Life is like that. Most users, even most users who make the effort, don’t ever earn much real money. But it doesn’t matter, because Ansche Chung (the first “Second Life millionaire”) is on the cover of Newsweek… a golden beacon to capitalistic users everywhere.

The way I see it (at least in the USA), it’s part of our cultural genetic makeup to desire financial rewards for our efforts. There’s nothing more American than an entrepreneurial drive for cold hard cash. Sorry, mom. Sorry, apple pie.

I’m Not Forgetting Self-Expression or Social Forces

I’m not discounting the importance of reputation and self-expression. These are powerful social forces that help drive successful online communities, and that will never change. I’m just wondering what the next generation of online juggernauts will look like, and what they’ll do to steal marketshare away from Web 2.0′s victors. I’d be willing to bet that at least some of the future winners will learn to share the wealth.

PS. Given my occupation, I should note that while this all clearly applies to the latest generation of “game portals” that purport to aggregate user-generated games, it doesn’t apply quite so clearly to games in general. There’s a big difference between inviting users to a blank slate (i.e. MySpace) and inviting users to generate maps or art for a full-featured video game (i.e. Gears of War.) That said, I can even imagine a scenario in which, for example, revenue from dynamic ads is shared with the creators of multiplayer maps. But that’s a topic for another day.

PPS. I notice that my friend Sam just wrote a similar post (about a specific site called Metacafe). Check it out.

20 Responses to Sharing the Wealth

  1. A friend of mine is working on a “YouTube of games” project that seems to take into account recombinant content, and thereby reputational and self-expressive factors. It also has an implicit financial incentive built in, that I don’t think my friend is aware of, and that is that content creators can distinguish themselves and learn important lessons about game development by participating, and therefore get head start on a game career. There’s also a more explicit incentive in paying artists for seed content, but thats not build into the process (though a nessecary part of the catalysis of that process).

  2. There are a number of youtube competitors (www.revver.com is the best example) that have the same model but share revenue.

    That being said, I’d caution that to assume that money is what motivates your audience is to (a) make a big and perhaps insulting assumption about your audience, and (b) may dictate/limit teh audience you end up getting.

  3. Kim — there’s a difference between “assuming money is what motivates your audience” and using rev share as one of several motivators.

  4. David,
    as you know, our strategy to share the wealth is our primary focus at this moment…we’ve seen some interested publishers/developers/content providers that have been looking for a way to get a slice of the used video game market pie and this hopefully will become a sustainable advantage for us…

    there are some hurdles, however. From a startup perspective we have to work extra hard to sell the notion that in the long-run this can create a strong and viable revenue stream for an established firm/brand. Another is the business model skeptic who just won’t move from the status quo. Also, there is sometimes an initial “I can do more for you than you can for me,” type of attitude that can create an imbalance of negotiated terms for the startup. But that’s all part of the fun and excitement.

  5. Maybe a better way of putting it than “share the wealth” is “creating a platform”. What it’s really all about is that someone is going to make a business off of making your game/site/thing better and more compelling. And you don’t have to pay them, see them, or negotiate with them in any way other than a standard EULA. Nor do they have any startup costs, they typically get a distribution network for free, and a readymade user base equipped with the necessary technology.

    This is apparently a major component of Linden Lab’s strategy.

  6. I should add that “creating a platform” doesn’t mean that you have to be the broker. If there are peripheral business opportunities, people will take them. Anshe Chung’s business is partially brokered by Linden Lab, in that they have to make the tools that allow her to manage land that is rented by tenants. However, the entire industry of developers is hardly brokered by Linden at all, since they get paid real US dollars and then go in to Second Life and make things for their clients.

    Metacafe’s challenges seem to stem from its being the broker, and thus responsible for managing clickfraud and the like. Not that they don’t have the right idea, but what they could have done is create an API that allowed third parties to view traffic metrics, place ads, and share revenue with users.

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