Alan Medvin is VP of Operations & Strategy for Magnify.net
Several years ago, when I first started working in the online space, it seemed to be conventional wisdom that the “long tail” of user generated content was the next frontier of online advertising, and online video in particular. The theory went that because it was vast and consisted of a seemingly endless number of narrowly definable vertical markets, it was going to yield micro-publishers (people who ran small websites/blogs as hobbies) and ad networks great riches.
The long tail as the mecca theory of online advertising was predicated on the idea that the intelligence gleaned from a users interest in a particular video on a very specific topic, let’s say Hacky Sack Tricks, translated into a monetizable advertising opportunity. It would seem logical that let say a Hacky Sack manufacturer would in fact be interested in running ads against this particular video, as they could be assured that the viewer was interested in Hacky Sacks.
So far, this all seems plausible, so what went wrong? First, the truth is that most video online, user generated in particular, does not really indicate any type of product affinity. As an example of this, of the top videos on YouTube, almost none of them exhibit a behavior that can be tied to a particular product or service affinity. In fact, most of the top videos on YouTube are either simply just funny, or are newsworthy/controversial, and will never be monetizable because no advertiser would want there product or brand associated with them. It’s not to say that they will not ever generate any ad revenue (they will) or that this won’t be a real business (it will be, but bandwidth costs need to fall more first), rather my point is that the relative difference between video on the long tail and “premium” content will never narrow, as many (myself included) had expected that it would.
So, if the long tail is in fact much longer than expected, and a large percentage of the videos out there don’t monetize well because they don’t exhibit a product or a service affinity that would allow ads to be sold against them to interested advertisers, what about the videos that do allow advertisers to reach a target audience? The other truth about the portion of videos that are monetizable is actually a basic economics lesson. One of the often missed lessons of the web, that makes it different from all the media types that came before it, is the ease with which content can be created. Fundamentally, the price of online advertising is governed by supply and demand, and though there may in fact be some demand for advertising on the long tail, the supply of that advertising is increasing exponentially faster than that demand. Economics 101 will tell you that a virtually unlimited supply matched with limited demand, leads to ever weakening prices, which is exactly what we are seeing in the UGC world.
Alan –
Nice first blog first. I definitely concur that it is the professional content that will win out on monetization. A colleague, Mugs Buckley, wrote a study clearly finding that about 4% of revenue would eminate from UGC.
I’ll enjoy reading your future posts.
One of the problems with advertising on the net is the lack of frequency for a particular message. If you see a message just once, the call to action may not get through. I think messages that are directly tied to net searches make more sense then those tied to random surfing. You write well. It must be in the genes.
I think that the other economic truth in here is also a numbers truth. Just for illustration, let’s say that the site owner gets a penny per unit of action (click view, etc.) So they need 100 units to get their dollar. They need 250.00 dollars/day top pay their costs and pay themselves something (e.g. a living wage). So 250 x 100 = 25000 action units/day.
Now my scale may be off a bit, but in my experience, there are not too many “Long Tail” sites or videos that yield that much traffic consistently. If the site does get that much traffic it is not likely to be the classic one person, hobbyist, or enthusiast.
I have no hard numbers (I wish I did), but I’ll bet that here in the USA there are less than 1,000 sites (porn doesn’t count) that make enough money off of web traffic viewing/clicking ads near/from online video to yield a significant income for the site owner.
Is there a study out there that yields a number? It is a big country after all and I by no means am claiming anything absolute.
My overall point is one of agreement with the author. Long Tail is dead especially as a source of income for a specialty or niche content provider. Chris Anderson put a pox upon us when he first uttered that phrase and got so many people excited about it
He’s one of the few that made any money from it and that was from his book!
The problem is that online video advertising companies tell a different story, which I can understand. Of course the market for this industry is growing rapidly but over all for example in Germany we are still talking about approx. 250 Mio. Euros, which is nothing compared to Advertising revenues on satellite or cable TV. But beeing a video platform or a publisher it is hardly possible to have your efforts refinanced through online video ads.