User generated content sites are building huge communities

Web based companies have changed the way we do business and consumer habits. We have read stories of how Monster.com and craigslist have impacted employment recruiters and newspapers. But, it never really sunk in until I read the New York Times story about Knight-Ridder selling the San Jose Mercury News. The Merc's classified advertising revenues went from $118M to $18M. Read this snippet from the NYT article;

At its peak in 2000, The Mercury News had a Sunday circulation of 326,839 subscribers, according to the newspaper. Last September, the company counted 278,470 Sunday subscribers, a drop of about 15 percent. Revenue from the company's help-wanted ads fell to $18 million a year from more than $118 million, according to the paper. The newsroom was whittled to 280 people from 404, a 30 percent decline.

Certainly craigslist and Monster.com are not directly responsible for all of this decline, but there is no doubt they had a significant impact.  There is nothing wrong with that. Business is all about competition and value for the consumer. I was just amazed at the real impact.

This Newsweek article "The New Wisdom of the Web" details how two young people came out of no where to create MySpace the hottest site of the web today, and a young married couple who created Flickr, the wildly popular photo sharing site. Last year MySpace was acquired for $580M by News Corp., and Flickr was acquired by Yahoo. The article also mentions this year's sensation, YouTube;

YouTube, a year-old start-up whose 25 employees work in offices above a San Mateo, Calif., pizzeria, is competing toe to toe with giant media conglomerates by having its millions of users supply it with the 35,000 videos added to the site each day; visitors to the site view 30 million videos a day. The big guys have noticed—Google Video now lets users upload videos and even sell them, and Microsoft has a project code named Warhol that will ask users to send it videos beginning this summer.

User Generated Content (UGC) is the common thread in craigslist, MySpace, Flickr, YouTube, and many other hot Web 2.0 companies. These sites are not just content...they are a community. This is exactly what the web is good at...bringing people together to form a community. Communities create an ecosystem for business and advertisers that support the community.

Many industry veterans have sneered that this has all been done before. YouTube is simply a new version of Broadcast.com, and MySpace is a teen version of GeoCities. Yahoo acquired Broadcast.com and GeoCities back in the Internet bubble boom/bust.  Yahoo recently acquired Flickr.

Years later, against a well financed competitor like Yahoo, UGC sites like MySpace and YouTube are building huge communities and large audiences.

Another proof point that The Next Big Thing could be the old thing done in a new way.

Comments

[philippegendreau]

Great article. Would you go one step further ? You are right that most of these ventures are mainly revisiting existing niches with a new approach. That leads me to the question: Is there any way to built a real sustainable company there, or is this sector doomed to be limited to fashionable hit and run projects ?

If this is the case, at the end of the day, Microsoft, Newscorp and the likes just have nothing to do but wait for the next guy to launch the new big fashionable thing. 500 million bucks is a hefty price but a reasonable expense every five years for yahoo to keep its dominant position in the advertising market. And in such a context, Microsoft initiative would not look so positive.

These projects are very good for their founders and their VCs but I would expect better. Tech revolutions can create giants: Microsoft, vodaphone, Cisco, Google to name a few. I do not see the next ones in your post. The Internet 2.0 is the kind of thing that deserves more than 500 M$ market caps.

[Don Dodge]

Yes there can be sustainable web 2.0 companies built on UGC (User Generated Content). MySpace and FaceBook have been wildly successful in building a community. They were cashflow positive almost immediately and didn't need to take VC money.

That said, there are likely to be a few winners in each space, most of which will be acquired by Google, Yahoo, Microsoft, or AOL. The rest will barely limp along, or cater to a very narrow niche audience and do reasonably well.

Craigslist is a good example of a UGC company that has remained independent and profitable. There could be others.

I consider any company that can command a market cap of $500M to be a big thing. Many public software companies don't reach sales of more than $50M or a market cap of more than $100M.