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How to Get More Revenue From A UGC Business

Introduction

The advent of user-generated content (UGC) has marked a new era in the growth hacking techniques used by companies to increase their user base. Everybody knows YouTube and Reddit, recently acquired Twitch as well as emerging Coub. With the common adoption of the ‘Like’ (Follow), ‘Share’ (Recommend), ‘@Mention’ and the notorious ‘Comment’ social actions, businesses behind UGC communities are able to significantly more effectively build out their engaged audience.
Behind the scenes, the online advertising industry has been on the hunt to build close-to-reality user profiles with the ultimate goal of being able to serve the right ad to the right person. Most ordinary people and even a large portion of the IT-educated Internet users are not aware how much data on their online behavior is stored and processed by the ad tech companies, and how it is leveraged to provide better targeting options for advertisers.
This article provides an insight into which types of users there are on a UGC-centric website, how the types can be matched to different advertising products, and how a UGC-centric business can make most of its user data by monetizing content creators, contributors, and consumers.

The 1:9:90 Rule of User-Generated Content

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According to this Wikipedia article, 1% of the users actively create content, 9% contribute to it, and 90% passively consume it. Wikipedia states that ratio applies to the Internet as a whole as well as to the individual websites. The same story is with the UGC sites.

In a UGC community one can isolate the following user groups:

1. Creators: the core of the community; actively create new content and contribute to the content created by others. This is the driving force.
2. Contributors: the engaged audience; participate in the content created by others by performing social actions (follow, share, comment and, if the website supports that – edit). These users increase engagement.
3. Consumers: most often these are anonymous Internet users who discover the content via the external sources (such as social networks or search) and consume it. These users can drive growth.

The understanding of your audience types may lead you to interesting conclusions that might affect your business model. For example, say you are building a website where users publish their selfies and can tag brands of their clothes (yeah, there already are a couple startups doing that!). Let’s do a mind exercise and describe what data we can associate with website’s user base types and how it can be .

1. Creators: we can attribute creators to brands. Consequently, the website can run campaigns for brands targeted at brands’ loyal customers. For example, if the website knows Angela has a shirt and trousers by Zara, she may likely purchase a cap to complement the outfit.
2. Contributors: we can attribute contributors to potential new clients for brands based on their ‘like’ social action. As a result, brands can make special offers for this audience segment to attract them.
3. Consumers: 90% of the users will just silently browse the photos. That is, we can to a certain extent extrapolate that this group is interested in fashion. While the website may not be in position to directly monetize them as well, it can still benefit from this type of traffic – read on.

User Metadata

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Now let’s look at the audience types from the metadata perspective. Starting with the definition, metadata is data about data, and more precisely it is data about individual instances of application data, i.e. the data content.

The fundamental principle here is the user profile. If you think of that in a traditional fashion, the user profile is about full name, age, sex, location, etc. However, as the user engages with the content, you can collect additional data on her behavior on your website, and enrich the associated profile.

Let’s continue using the above brand-tagging example. In order to be able to understand which content users engage with, we need to categorize content. For the sake of clarity, we isolate the following characteristics of a content item:

1. Brand
2. Type

– Headwear
– Body-wear (jacket, T-shirt, pullover, etc)
– Leg-wear (trousers, skirt, shorts, etc)
– Shoes
– Accessories

3. Cost

So our user posts a posh selfie with an Armani outfit that gets tagged by user’s friends. The website then can enrich the user profile with the following information:

Armani customer
Can spend X on clothing
Has spent Y on clothing since DD/MM/YYYY
Has a shirt and skirt by Armani
Made the photo in a specific location
Moreover, we can also attribute the following characteristics to the user friends who contribute to the post by performing specific actions (i.e. tagging) as well as social actions like commenting, liking, and sharing the content with their network:

Into fashion
Knows Armani items
So now let’s talk about what opportunities are here for the brand-tagging business owner.

Premium Advertising Opportunity

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Based on the amount and quality of metadata associated with a user profile, the business owner can have 2 distinguished advertising products:

1. Premium Product
2. Long Tail Product

Premium Product encompasses advertising to the audience about whom the business has first party data. As the title suggests, this offering is premium for brands because the company can guarantee that the intended target audience for brand’s campaign can effectively be met by the website user base. Moreover, the amount and nature of the collected metadata can provide precise targeting for the advertiser. Consequently, premium means more expensive, and it’s important!

Online advertising is a demand-driven niche. The demand for advertising dollars is huge, there are a lot of publishers who are actively looking to sell out their inventory. Naturally, we have an ecosystem in which publishers compete for ads resulting in decreasing revenue. This has led to the emergence of real-time bidding (RTB) platforms that connect media buyers and sellers and take their cut by helping the latter sell out their ad slots at a minimal cost to the former.

So in this article, I try to apply an out-of-the-box thinking to the ad-based audience monetization. If you can describe your users and their engagement with the content in terms of metadata that can be leveraged to provide very specific targeting options for advertising, you are among the first in the line for the advertising budgets.

The Long Tail

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On a closing note, let’s talk about the long tail. Premium campaigns provide good margins, but they are short term. In order to have a sustainable business, company owners are also very interested in having passive income coming from their digital assets. So here’s where the RTB ecosystem can be leveraged.

In a nutshell, an RTB platform is an auction conducted in real-time while the page is loading. An ad slot on the page is offered to the bidding parties called DSPs. The DSPs utilize pretty sophisticated algorithms to evaluate the ad slot based on the metadata they know about the user who’s waiting for the page to come up, and tell the RTB platform how much they are willing to pay for this slot.

Once the premium campaigns have been conducted and highest margins have been generated, why not sell the ad space to the low-margin but high volume platforms? That’s the long tail a UGC-centric business can benefit from, too.

Takeaways

– Always account for the three audience types;

– Express the user engagement with the content in a declarative fashion;

– Utilize direct sales to have highest margins coming from the premium advertising product;

– Remember the long tail and let it generate steady passive revenue coming from your assets.

Sergey

Sergey Lobko-Lobanovsky

Chief Executive Officer

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