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Living in the Era of Web 2.0
[Analysis] User-generated content is here to stay, but what about the business model?
Jeremy Jacquot (jjacquot)     Print Article 
Published 2006-11-27 15:45 (KST)   
At a conference held in San Francisco a few weeks ago, Terry Semel, Yahoo's CEO, made the following remark: "We think the big change on the Internet is not just about getting more and more unique users, but, as we go forward, it's all about deeper engagement." While having users dictate the content of their media consumption has become a well-established norm, the notion of having users create their own content is a new phenomenon that has only recently been embraced by mainstream media corporations.

This notion was certainly not lost on the participants of the Web 2.0 Summit, currently in its third iteration, which has sought to bring together many of the world's leading Internet intelligentsia and corporate cognoscente, including the likes of Marissa Mayer, Mark Zuckerberg, Jeff Bezos and John Battelle, to discuss emerging trends and business models that use the Internet as a platform to drive innovation.

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Web 2.0 is a term that was originally coined by O'Reilly Media in 2004 to allude to the second generation of Web-based services, such as social networking sites and wikis, which encouraged user engagement and sharing. It has now become the phrase du jour among industry circles to refer to the newest wave of Web-based companies, with YouTube and MySpace at the forefront, that have marked a sea change in the traditional media establishment by shifting the emphasis from corporate and studio-driven content to user-driven content.

Some commentators and news outlets, including most prominently The New York Times, have jumped the gun and begun talking about the coming of Web 3.0, an effort spearheaded by researchers to instill a level of artificial intelligence in computers that would allow them to think rationally by changing the Internet into a guide instead of merely a catalogue of information and data.

The latest startup to capitalize on this trend was YouTube, a company that was only founded a year ago by three former Paypal employees and has yet to make any profits, which sold itself to Google for the whopping sum of US$1.65 billion. Even though it lacked a clear business model, YouTube saw itself grow from a niche site offering silly videos of animals into a massive Internet behemoth offering millions of viewing options for discerning audiences and numerous opportunities for budding filmmakers to gain fame (or notoriety).

Several videos recently uploaded to the site, including the now infamous lonelygirl15 clips, which chronicled the (fictitious) trials and tribulations of a young woman living in her parents' basement, and the movies showing two artists mixing Diet Coke and Mentos candy to hilarious effect, received national attention after building a steady stream of buzz among its numerous users.

YouTube has even become a significant factor in politics, allowing users to capture the gaffes and misstatements of prominent politicians that normally would've gone unnoticed and then post them on the site (see George Allen's campaign-losing "macaca" incident) for posterity. And while it hasn't yet caught on widely, YouTube has become an effective tool for candidates to use to disseminate short campaign videos and movies showing them in a more relaxed, everyday setting.

However, now that it has been acquired by Google, YouTube stands at a cross point in its development: will it choose to continue taking a mostly hands-off approach to the site and allow it to remain a portal for user-generated content or will it now enter into more (lucrative) partnerships with traditional media providers and begin cracking down more severely on copyrighted material?

On one hand, if it is ever to generate profits, YouTube's management will need to seriously consider forming alliances with other firms or at least arrange advertising deals that would see revenue begin to pick up. However, if it decides to partially abandon its "cool" factor by giving in to capitalistic forces, YouTube risks alienating a volatile audience that could flock to several of the site's smaller competitors, such as Revver, Break and Metacafe.

MySpace, a site that helped put user-generated content on the map and proved its growing appeal, has seen its enormous popularity slightly subside in recent weeks as some, reacting aversely to its shifts in management and direction since its acquisition by News Corporation, have chosen to move to other social networking sites, which have arguably formed the largest share of new web startups. Despite this setback, Rupert Murdoch, News Corporation's chairman, recently boasted that his company would be able to sell MySpace for $5-6 billion within the next few years based on its rate of growth in advertising revenue and new users.

As Adam Lashinsky notes in his recent Fortune column, the only true Web 2.0 firm to have achieved financial success is Google, which was founded in 1998 before the end of the first dot-com era. Granted, Google has surpassed all expectations in firmly establishing itself as a world-beating corporate competitor, now estimated to sit on a market valuation of $150 billion with its share price recently surpassing $500.

The fact remains, however, that all other Web 2.0 successes have either been bought out (see YouTube and MySpace), are on the verge of being bought out (see Facebook) or have simply faded into obscurity (see Friendster).

It is clear now that user-generated content is here to stay, at least for the foreseeable future. Only time will tell, however, whether it will eventually provide the basis for a lasting, profitable business model for Internet startups to use.
This article is scheduled to appear in the Nov. 29 edition of the UCSF Synapse.
©2006 OhmyNews
Other articles by reporter Jeremy Jacquot

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