Making It Pay

A little dive into the business models of user-generated content sites shows that many are still in start-up mode, using venture capital and investor money to fund operations. Several have been bought by tech companies. Most are chasing the advertising model.

Or they’re non-profits surviving on donations and grants.

They’d like us to think that it’s still early days and things will come around. In fact, there are not a lot of new ideas and the scale will inevitably be smaller than traditional media.

Huffington Post. Still operating on venture capital but going more aggressively into ad sales.

According to Newsweek:

• Ariana Huffington and a partner, media executive Kenneth Lerer, raised $4 million to start the site and have raised $33 million more from venture-capital firms since.

• Revenue is expected to be $30 million in 2010, not a lot compared to “old media” but much better than other digital outlets.
• Generates just over $1 per reader as opposed to cable networks and print newspapers, which collect hundreds of dollars per year from each subscriber as well as hundreds of millions from advertising.
• CEO Eric Hippeau says the site charges well above the average for ads by “creating a better-than-average experience for its audience.”
• Has 6,000 unpaid bloggers. “Cheap content, however, begets cheaper ad rates.”

According to the Observer:

• In May 2010, Huffington Post said it was ready to make a profit.
• Chief Revenue Officer Greg Cole has hired 18 ad sales people.

• Doubling revenue this year from $15 million to $30 million will transition the site out of what CEO Eric Hippeau called “investment mode” to turn a profit for the first time, according to Mediaweek.
• “We’ve hardly touched our last round of investment,” Huffington said. That would be the $25 million from Oak Investment Partners in December 2008.

Wikipedia. A nonprofit funded by donations.

According to the Wall Street Journal:

• The Wikimedia Foundation, owner of Wikipedia, received a donation of $2 million from Google in February 2010.
• Founder Jimmy Wales tweeted that Google’s donation would help Wikipedia handle increasing bandwidth and multimedia needs.
• A January fund-raiser brought in more than $8 million, three-fourths of its revenue target for the fiscal year.

Erik Qualman, author of Socialnomics posted late last year that:

• Wikipedia is operated mostly by volunteer editors but budgets $9.4 million in expenses and an annual operating reserve of $1.2 million for a total of $10.6 million.
• Donations come from individuals but also benefactors such as the Alan Bauer of The Hellman Family Foundation.

Yelp. Sells “subtle advertising” but is still working on other financial options.

Money reported:

• Max Levchin, co-founder of PayPal, Yelp’s former owner, provided $1 million in seed money.
• In 2005, co-founders Jeremy Stoppelman (CEO) and Russel Simmons (CTO) “raised $5 million from Bessemer Ventures, and another $10 million from Benchmark Capital.

• Yelp offers a window sticker to companies that have collected a good number of reviews and then tries to sell them an ad. Ads and sponsorship packages range from $200 to $2,000 a month.
• Stoppelman says the company is generating revenue but won’t say how much. “Someday we’ll make money,” he says.
• Matt McGee, Assignment Editor for Search Engine Land and the Editor of Sphinn wrote that:
• Companies can pay to show up above regular search results for category/city combinations.
• Companies pay to keep a competitor’s ad off a business profile page.
• “Yelp advertisers can also add extra content to their business profiles, such as a photo slideshow and an extra content spot to post alerts or discounts.”

Craigslist. A non-profit.

• Sells classified job and for-rent ads in certain cities: $25 in major cities to post a job ad; $75 in San Francisco.

In December 2006:

• President and CEO Jim Buckmaster said that maximizing profit is “not a part of the equation.”
• “Craigslist runs almost entirely on open-source software.” Other expenses include running and housing its servers, covering the monthly electric bill and paying for bandwidth. Payroll for two dozen employees is the company’s single largest expense.

According to Buzzle:

• Craigslist has more than 20 billion page views a month, easily enough to attract advertisers but the founders want to run the company as a non-profit. “They can easily earn a lot of money through advertising and equity investment, but that’s simply not their model.” According to Buckmaster, Craigslist tries “to be as philanthropic in our core business as we can be and leave all the money out there in the hands of users.”

Flickr. Generates some revenue through advertising, some through e-commerce but most from premium services. Owned by Yahoo!.

The CEO of Zitz Solutions, a Bangalore, India-based web company, wrote that:

• Ludicorp launched Flickr as a tool for the online game Game Neverending.
• Flickr Pro memberships sell for $24.95 a year. E-commerce service partners—photocards, posters, frames and calendars—pay as well.
• “A hypothetical estimation for 10% of its 44 million unique users should generate revenue between $60 million and $120 million.  Plus another $10 million from its e-commerce venture.”

LastFM. Premium services bring in a quarter of its revenue. Earns other income through advertising and offering artists advanced promotional features.

• Offers different advertising formats including leaderboard and banners as well as targeted ad placements. Advertisers can also target campaigns by profile.

• The site is free to musicians to promote their music.

According to several sources:

• “Our plan is to be profitable in 2010,” says Fred McIntyre, VP of CBS Interactive Music Group. “We’re very bullish on the subscription service.”
• McIntyre claims that Last.fm has paying subscribers in the “high tens of thousands.”

The Hype Machine. Sells advertising and products on iTunes and Amazon.

The site sells:

• “Site takeovers” or “skins” allow advertisers to customize the prominent parts of a song’s website.

YouTube.  Advertising supported. Some branded merchandise sales. Owned by Google.

Broadsight’s co-founder Alan Patrick wrote that:

• 3%-4% of videos carry no advertising at all and have low CPMs, “around $10, if that.”
• Has struck numerous partnership deals with content providers such as CBS, BBC, Universal Music Group, Sony Music Group, Warner Music Group, NBA, The Sundance Channel.
• Advertisers run video advertising, such as InVideo Ads or YouTube video ads in videos.
• Can offer targeted ads
• Offers Interest-Based Advertising by identifying common interest groups among users.
• Video Verticals create groups of videos “sharing a common focus, so [the advertiser] can target more granularly, using over 100 different video verticals.”
• Buzz Videos groups videos with the most comments, ratings and views and sells ads.