Making profit from user-generated content

There are many websites that make a profit from content generated by others, particularly their users — examples being MySpace, Facebook, Flickr, and YouTube. But this practise is not without controversy; in a thoughtful article, Larry Sanger asks:

I mean, really, why should we (Internet volunteers) let the owners of for-profit corporations, which are not directly answerable to us, get rich from our contributions, and without compensating us? Does that make the slightest bit of sense?

This is a question of practical interest to me, since I am planning an inclusionist fork of Wikipedia. I plan to fund the site through ads, because (i) web hosting is expensive, (ii) I am not independently wealthy, and (iii) I’d like to make some money.

In one way, the answer to the second question is “yes”, at least for many people. Millions put content up on MySpace, Flickr, YouTube, Facebook, etc, in the knowledge that these websites are for-profit concerns. Clearly, it makes sense to them; and who am I to question other peoples desires and motivations?

(One thing I do dislike, however, is the way some of these websites don’t allow user-generated content to be re-used by others. For example you can’t just download the file containing a YouTube clip, something I find annoying, particularly when my net connection is slow and the video becomes jerky. And book reviews on Amazon can’t be ported to other websites, which is why I won’t write one there — user-generated content should be available under an open content license).

There is merit in content creators getting some tangible benefit if the site is successful. The best way to achieve this would depend on the site itself.

On websites where content creation isn’t collaborative, such as YouTube, and Google’s planned Knol (where each entry has a singlre author), it would be quite easy to calculate how much ad revenue accrues to each web page, and pay the content author proportionately.

But on a wiki encyclopedia, a page typically has multiple authors, and that approach won’t work. Another approach that would probably fail is if the website made a legally-binding commitment to give money to editors who commit a certain number of edits, as there would probably be a big influx of people who would game the system. What might work instead is a vague understanding that good editors and administrators would be rewarded, perhaps at IPO-time. This “vague understanding” would probably have to be not legally binding, in order to defeat any attempts to game the system.

Sanger also asks:

Explain to me, if you can, why YouTube’s founders deserved $1.5 billion. They set up some software on some servers and then managed the database as volunteers fed content onto the servers. The vast bulk of the value of their business is owing to those volunteers. For that reason and that reason alone, I submit that YouTube’s founders didn’t deserve their personal windfall.

To answer this question, I’ll start by noting that there are in general two ways that firms can make profits: by making something people want, or by rent-seeking. The former is usually beneficial: it increases the sum of human happiness and welfare. The latter is usually harmful.

(Incidently, a society can be seen as a mechanism for incentivising things that benefit people and disincentivising things that harm people; and the success of a society is largely determined by how well its rules achieve this. It follows that if the rules of a society allow a firm to make profits without making something people want — for example a firm whose only business is patent litigation — then those rules are probably harming that society and should be changed.)

So, did YouTube make something people wanted? Of course they did; according to Alexa their website is the 3rd most popular on the net. Does this mean its founders “deserve” $1.5 billion? Well, if we want a successful society, then those who MSPW will need to be rewarded, and those who make something lots of people want (which is easier than ever before, thanks to the Internet) will typically get rewarded a lot. Though I suspect YouTube’s founders would have been just as incentivised if their reward was less, say “only ” $1 bn or $0.5 bn.

This entry was posted in computers, copyright, digital rights, society, technology. Bookmark the permalink.

2 Responses to Making profit from user-generated content

  1. Pingback: Should Blair get half a million? « Amused Cynicism

  2. Pingback: T-mobile can’t compete, so bans competition « Amused Cynicism

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