Youtube and their "wraparound" adverts

There is an amazing amount of time and money being invested in User Generated Content (UGC) by both tech companies such as Google and advertisers and yet the value of this content is still up for debate. Both Google and News International clearly believe that UCG is the future and all those friends of mine out there on Facebook clearly agree (sorry but I just don’t get it as yet). However to justify the values placed on these businesses, advertising and PR on these sites is going to have to be worth its weight in gold. I’m just not convinced it is – at least not yet.

Google has apparently decided that they need to put adbreaks around video clips (see http://www.youtube.com/advertise#invideoads) to start clawing back some of the $1.65bn they spent on buying YouTube. My concern for them is that will users of youtube simply avoid this ads (as users of PVRs do – see some research from IBM on this here) or even more worrying, they go elsewhere with their 30 second MMS clips? The price that Google paid for YouTube equates to something like $29 for each unique user per month at current rates ($1.6bn / 55m). Assuming payback over five years, discount rates and strong growth in unique users – say 25% - I think they need to get each user to click through on about 4 ads a month to break even. If growth stalls then the price Google paid for YouTube will look painfully high. However since they paid in stock and not cash, maybe things aren’t that bad.

Anyway, where does that leave the advertisers themselves. Well UGC has some well documented issues and advertisers need to be careful about how they embrace it. There are some great examples out there of advertisers turning UGC to their advantage (e.g. Coke eventually) whilst some big brands have really struggled. UGC enables brands to join in converstaions with customers but ultimately the power stays with the consumer and not the brand. Advertisers and site owners need to remember this. Look at how quickly the “community” abandoned MySpace. Is there any reason why something else won’t come along and replace the current raft of network sites? Wasn’t Netscape replaced quite quickly. Didn’t Lycos and Yahoo look like the early winners of the Internet search engine crown.

Is user generated content overvalued?

The rise of websites such as youtube, Facebook, Flickr and MySpace has led to a raft of discussions in media land about how to best harness this phenomenon from an advertising perspective. Clearly the explosion in the number of people using such online sites has exceeded anything one could have imagined just five years ago.

Back then, we were all getting over the disappointment of WAP and other first generation web technologies - online marketing was in its infancy. Back then it was all banner ads and pop-ups until we all figured out that a) people were downloading lots and lots of ad blocker programs and b) the ads themselves were of negligible impact because the reach of the medium was quite poor. Five years on and the online digital experiment has changed quite a bit. Ad targeting has improved immeasurably and the range of measures for online campaigns is now so vast, many struggle to keep up with the latest trends.

In recent years, online advertisers have been able to rely on new targeting technologies (mainly cookie and / or content based) to help promote their ads across vast online networks. Google changed the game with their adwords program and now almost every business will be using some sort of online advertising and communication to promote their wares. These vast online advertising networks stretch far and wide across the web and one place they specialise in targeting are the User Generated Content (UGC) sites, forums, bulletin boards and chat rooms right around the world.

UCG attracts a multitude of users from around the world but very little advertising on these sites is “placed”. Most is brought as part of a package and the content against which you advertise is largely up to the site as opposed to the buyer. Of course the danger with throwing your online advertising out there without any say as to where it is being placed is now blindingly obvious yet until last week many UK brands didn’t understand this.

Last week, big brands such as Vodafone, T-Mobile, Virgin Media, Halifax, the AA, First Direct and even the UK Government were forced to pull advertising on Facebook after their ads were seen running against sites for the British National Party (a racist right wing organisation). Whilst Facebook are now offering UK advertisers an opt-out option for sites such as these (to be rolled out across other markets later on), this is the obvious risk that advertisers are taking when they have no clue on the type of content their ads will run next to. This incident in unlikely to be the only one of its type and many agencies are now going to be struggling to work out how they respond to this issue.

The great prize with UGC is that it supposedly offers much higher levels of engagement than other channels. An almost endless supply of fresh copy enables sites to grow quickly and capture hours of users online time at little cost – certainly no expensive journalists to worry about. However this also means is that there is little or no editorial control over what is being viewed, written about and discussed.

For advertisers, UCG is an interesting place to be although whether the benefits go beyond just getting another set of eyeballs is debatable. For UGC websites, these type of issues start to undermine the enormous values being placed on these companies. Google paid an amazing sum for youtube ($1.65bn - but much of this was paper money anyway i.e. a stock swap) whilst News International paid $580m (cash?) for MySpace. These valuations are almost exclusively based on potential and forecast ad revenues. Allegedly Facebook has not been sold because the valuation placed on the business is $8bn whilst organisations such as Microsoft only value the business at $6bn (see http://www.marketingweek.co.uk/item/57164/343/298/3). Such valuations are dependent on reliable revenue streams that will increase at a significant rate.

Whether these valuations take a knock after the Facebook débâcle remains to be seen. For my money, issues such as these reinforce the place of traditional media owners online. Groups like the FT, News International, Economist and Guardian have all embraced web 2.0 type interactivity but in each case, content may be vetted and advertisers are reasonably sure that their messages will reside in a suitable place. For those advertisers embracing UGC advertising, caution is recommended!