We’re working towards our second draft on our report to Ofcom, and have done a lot of thinking about the “value” of UGC to the UK. Of course, value is both subjective and variously defined, so for our purposes, we’ve divided it into economic, social/political and cultural value, with “cultural” meant in the sense of the so-called “cultural industries”. We’ll look at each area in three separate posts. This first looks at economic value, and essentially looks at some of the potential economic opportunities UGC offers us.
There is no question that the advent of UGC and its rapid spread in the last five years has led to the creation of new businesses and jobs in the UK. The Centre for London counted 3,200 “digital economy” companies with over 48,000 employees in the Tech City area of East London in June 2012, a significant number of whom are creating services or technology for some part of the UGC value chain, including Unruly Media, Soundcloud, Last.fm, We Are Social, Editd, Conversocial, Apps For Good and Makie Lab.
Of course some of these new companies and jobs have displaced “old economy” jobs at incumbent firms whose business models have been adversely affected by digital disruption, part of the process of creative destruction if you like, although it is very difficult to quantify this.
Below we discuss the main areas of UGC activity that derive economic value and identify some of the beneficiaries.
This is almost certainly the largest area of financial impact in UGC activity. The truth about the “long tail” is that to build a truly successful long tail company you need to own if not all of it then at the very least a good chunk of it. This is of course obvious in the case of the major content distributors: Amazon, iTunes, Netflix, Spotify… but it goes for UGC aggregators, too. There are thousands of bespoke UGC-hosting services, many of them highly innovative. And in aggregate those companies create significant economic value, but the tendency on the internet of one or two dominant players to emerge applies here.
The big hitters in the area are almost all US companies, of course: YouTube/Google, Foursquare, Vimeo, Facebook, Pinterest, twitter, tumblr and most of the major blogging platforms (WordPress, Typepad and so on). A significant exception here is SoundCloud, a German company headquartered in Berlin. It’s fair to say that while there is some great innovation happening in UGC aggregation in the UK (see our case study on MixCloud), no single UK UGC aggregator has yet emerged. However, the major players, including YouTube and SoundCloud recognise the UK as a major market (and for US companies a potential launchpad into Europe) and therefore maintain significant sales and marketing teams in the UK.
Furthermore, the London-headquartered Last.fm famously sold for nearly $300 million to CBS in 2007 and remains based in London with over 50 employees and an annual turnover of £8 million. Although not a pure UGC play company, its core recommendations service is driven by the background “scrobbling” of music plays by users, it is home to a vibrant community and also allows the uploading of content by independent music makers. Nonetheless it’s worth remarking that Last’s sale and subsequent big expansion happened over six years ago, the service arguably remains a niche one, and it remains, no pun intended, the last significant UK player to emerge in the area.
Third party services
All UGC services by definition need to build an ecosystem – of technologies and users – to be meaningful. Furthermore, they tend to work best when they sit “inside” a larger ecosystem. Even an utterly dominant force like a Facebook or a twitter succeeds precisely because it is embedded everywhere (think of effectively ubiquitous Facebook “like” or “tweet this” buttons). The spread of these ecosystems has created a rich seam for third party services piggy-backing on the giants.
The UK poster child in this area was TweetDeck, originally a desktop-based client that later spawned mobile and tablet apps. Arguably, for many users, TweetDeck was the thing which first “made sense” of the twittersphere, or at any rate made it more navigable, and certainly more useful, with a multi-column functionality that allowed users to tweet from multiple accounts and sort the twitter “stream” into themes and groups. Additionally it allowed updating of Facebook statuses, thereby conjoining two massive elements of the social media ecosystem.
TweetDeck was founded by UK-based developer, Iain Dodsworth, in 2008. Initially a tool known only by the twitter hardcore, it was bought by twitter itself for a reputed £25 million in 2011. While this remains an edge case for UK developers, it’s hardly an outlier internationally, with the infamous sale of Instagram to Facebook for $1 billion unquestionably the most extreme example of a titan buying up a piggy-backer. Furthermore, even the most innovative large companies can become sclerotic at times, or at least “miss a trick”.
Finally, it’s worth highlighting those services that join up other services in some part of the UGC ecosystem. Bandcamp Scrobbler for instance, does “exactly what it says on the tin”, enabling users to “scrobble” plays from Bandcamp to their Last.fm profile, significantly allowing user-generated or amateur music-makers to appear among their professional counterparts. This is, admittedly, just a question of smart development around published APIs, but it can be hugely valuable for both users and UGC practitioners. It can also drive development within the “host” service, too; both Spotify and Mixcloud only developed scrobbling functionality after third party developers had done so (and after a lot of lobbying on their message boards – as discussed elsewhere here).
There is, then, a huge economic opportunity for third party development across the UGC spectrum
Filtering, recommendation, navigation
We observe elsewhere in this paper that one of the negative consequences of the spread of UGC is a serious ramping up of “noise”. But there’s a real opportunity in here, too. Once again, as with the professional content arena, services which offer meaningful and reliable recommendation services around UGC, especially those which offer a degree of serendipity – hence ‘filtering out the noise’ – could prove to be really successful businesses. The most successful UGC aggregators of course offer targetted recommendations already, but these tend to use an existing array of methods based on a combination of algorithms, community/user base and some paid-for promotion (think YouTube or Vimeo).
It’s often noted that the UK has an arguably world-leading position in gate-keeping in the creative industries, through strong traditions in various kinds of cultural and political in a variety of media, especially print, radio and television. UGC has allowed new gatekeepers to come to the fore – most obviously with the advent the blog and later twitter – but it’s also created the need for yet more gate-keeping, albeit of a radically new kind. The harnessing of the UK’s vital critical tradition with the explosion of UGC activity surely offers a huge creative and financial opportunity.
Innovation and new business models
We discussed emerging business models at some length in the previous section, so won’t rehearse those arguments and observations here except to say there is no question that the advent of UGC is driving innovation in existing businesses, perhaps especially in the traditional content industries. Indeed, it may be that this innovation happens as businesses face massive disruption, even existential threat. In these extreme (but not necessarily rare) cases, innovation around UGC and its attendant business models may prove essential.