July 20th, 2006

Web 2.0 Puts Users in Control of Everything Except Profits


I’ve been following an interesting trend of power grabs by Web 2.0 companies, from MySpace to YouTube to Google — Web 2.0 is supposed to be all about the “user,” but when it comes to profit making the user is getting shut out:


Musicians don’t get paid for music played on MySpace (via Umair):

The most popular web site in the United States owes its phenomenal success to a canny exploitation of music. But while sound recordings command a performance royalty – the rules are optional in the exciting world of new media. So while composers get rewarded when music is played in hotel lobbies, clothes shops and pubs, they don’t get a penny from it being played, and endlessly replayed, over MySpace’s network.

It’s all very much in keeping with the new feudal economics of “Web 2.0″: the serfs must be grateful for the hospitality of the proprietor. As PlayLouder’s Paul Sanders noted last week, plenty of people appear to be profiting from digital music – except the people who create it.

Musicians like Billy Bragg have taken notice and have walked away from MySpace rather than grant the “non-exclusive, fully-paid and royalty-free, worldwide license.”


The deal for video sharers on YouTube is just as raw, according to new terms of service (via Boing Boing, via Listening Posts):

“…by submitting the User Submissions to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the User Submissions in connection with the YouTube Website and YouTube’s (and its successor’s) business… in any media formats and through any media channels.”


The new AdWords landing page quality score policy is clearly intended to wrestle away control of affiliate marketing from savvy AdWords users like Graywolf by artificially inflating minimum bids, with “user experience” being used as a smokescreen:

So what happened? Well I increased my bid, my thinking was with less competition I might get more conversions and afford to be able to pay more (Although tripling the price overnight is clearly excessive). In an effort to regain my lower price I made some changes to increase the “user experience” the customers now started meandering all over the site without purpose, they lost the plot. To make an analogy I paid triple price for my farm animals and threw open the fence and let them wander off into the sunset. Gee thanks Google, I have to say improving the user experience pretty much sucked!

I have yet to hear of anyone who requested a re-review have their prices lowered and adjusted down. So stop hoping for a miracle and stop the hemorrhaging. Move on and try something different, you may learn something if you don’t think like an engineer …

I think there’s more than a bit of coincidence in this trend of users getting screwed — Web 2.0 wants users to THINK they are in control, but then these companies use heavy-handed 1.0 tactics to maintain control of the profits.

I’ve written before about the 2.0 exploitation of users, and the argument I always hear in return is that users don’t really care about making money — they are just doing it for attention or out of the goodness of their hearts.

Jason Calacanis called this bluff with his offer to pay Digg users to work their magic for Netscape. Based on the reaction of the users over at Digg commenting on my Digg vs. Netscape post, I don’t know that he’ll get any takers in this round. But Nick Carr made the key observation here:

I think that what Calacanis is getting at is that the reason “social media” has existed outside the price system up until now is simply that a market hadn’t yet emerged for this new kind of labor. We weren’t yet able to assign a value – in monetary terms – to what these workers were doing; we weren’t even able to draw distinctions between what they were contributing. We couldn’t see the talent for the crowd. Now, though, the amateurs are being sorted according to their individual skills, calculations as to the monetary value of those skills are starting to be made, and a market appears to be taking shape. As buyers and sellers come into this market, we’ll see whether large-scale social media can in fact survive outside the price system, or whether it’s fated to be subsumed into professional media.

The ideology of 2.0 is supposed to be about ceding control — and MySpace, YouTube, Google, etc. are all for that — as long as they still control the profits.

I think most 2.0 users are smarter than that — and 2.0 companies that don’t share the wealth will find themselves in control of empty platforms and applications.


More news today of MySpace hostility towards users.

From Tiara.org:

“MySpace now transparently adds ‘allowNetworking=”internal”‘ to all Flash Player instanced placed in its pages, effectively disabling any buttons which link anywhere.”

So: stuff like Slide.com, RockYou.com, and YouTube’s Flash video wrappers will no longer be able to link back to the sites if the user is using Flash 9. Generally adoption for Flash isn’t that quick — but since all users with Flash 8 currently have broken MySpace video/audio players, you can expect that to have somewhat of an effect on the adoption rate (i.e.: skyrocket).

MySpace can say all they want about wanting to protect users, but really this is about them protecting their advertising dollars. The barnacle-like secondary market sites will have to find increasingly creative techniques to launch Flash-based content within the site if they want it to spread virally.

From TechCrunch:

That’s a major blow against the viral spread of services like YouTube, RockYou and countless emerging others. I’ve been talking to a lot of widget vendors lately, and “it works in MySpace” is a now a primary selling point. Companies are investing large amounts of money in widgetizing content from one site onto another and MySpace is huge. This move, in the name of security, will likely do serious damage to the cottage industry of flash widgets in MySpace. In as much as users love their widgets, that means this will do serious damage to MySpace as well.

The tension between Web 2.0 “openness” and the need to control corporate profits is likely to accelerate and, sooner than many players expect, will start to separate winners from losers.

  • gideonmarken

    Hi Scott, I run a social music site called ArtistServer.com with 16,000+ registered users and nearly 6,000 songs hosted. Just last week (July 25th) I announced that all Artists with upgraded accounts on can earn 100% of the revenue from the ads on their pages using their own AdSense client ID. http://www.gideonmarken.com/index.cfm/a/9/blog/811/. The next upgrade to the tool will allow the use of other ad networks - most likely AdBrite, and again, the artists would make 100% of the revenue from those ads.

    Is this the kind of empowerment of the user you were thinking about? :)

    How will the site survive? This feature is only available to upgraded accounts, which is an annual subscription model, plus the site does display ads in the common areas and freeware accounts.

  • Site like Squidoo.com lets you make some money through you lens, but to be honest. How much it that going to be?

    BTW IMHO Web 2.0 is about sharing of info and collaboration but not sharing of wealth. As they say "somebody got to pay". Those who pay are mostly the users.

    p.s Scott, I agree, we are still very much in a cash economy.

  • I love the comparison to serfdom in Joseph's response. I work with many national brands (many major cable networks) in their addressing online marketing. They are very aware of the shift to UGC which I contend may eventually stand for User Generated Cable.

    I started my company Meople about two years ago and even then we knew that users should be getting a piece of that pie. That's what we still believe and this is just the tip of the iceberg. Independent agents working collectively are far more effective at developing our collective knowledge than corporate agendas.

    Let's think about the offline implications of individualized compensation from online wisdom and interest. When that day arrives, then I think we can expect thinkers to surpass capitslists. Attention economy here we come. It's closer than you may suspect.

  • Joseph

    I contend that the day is rapidly coming when social networking sites will not only have to compensate their members for their content but will actually be put into the position of having to COMPETE to keep them on the site. In some instances, I think you could even see bidding wars of a sort.

    I believe that the day is coming when user generated content will become more and more like the programming that appears on TV. Social networks will become more like the TV networks and be forced to pay up for the best and most influential content creators both individually and in the aggregate.

    I believe this because I think a day is not far away when there will be tools to analyze the quality of user generated content (all the way from blogs to individual profiles) along with the type and quality of the audience it attracts, aggregate that data, and offer a way to make this content palatable to advertisers. This would give a site like MySpace, or any social network, the ability to monetize a large part of the user generated content on its site. But the downside for them though would be that once a content creator discovers this can be done they will either demand a sizeable cut of the revenues or they will take their content elsewhere.

    Now you may say that much of the content on social networking sites like MySpace is simply crap and I would tend to agree. But, in the aggregate, even that "crap" probably attracts a large enough audience that is of value to some advertisers that it would be worth it to them to advertise directly on those profiles IF suitable metrics can be developed.

    Imagine for a moment a world in which the advertisers that were putting ads on your site over on Blogburst came to you directly? They might come to you directly through a new type of media agency representing advertisers that would allow you to share in the same revenue percentages that Google currently offers for Adsense. And YOU, as the content producer, would be in charge of how much advertising you allowed and what advertisers. And these would not be text ads like AdSense currently offers. They would fall more into the category of brand advertising because with these new metrics suddenly advertisers would finally have a way to feel they had some control over UGC and content creators would have a new profit incentive to not go overboard with their content or they might scare away the new revenue stream they stood to get from advertisers.

    As Jeff Jarvis alluded to in an article he wrote a while back, if you wanted to introduce a new "teen idol" into the market what better way to do it than on the individual blogs and profiles of teen girls, provided the right metrics were available. This also gets back to Robert Young's idea about "micro-celebrities".

    If you get perhaps 20,000 people a day coming to your site that are really enthusiastic about your content and that fit into a demographic category that an advertiser wants to reach, and they are perhaps willing to pay a $20 CPM, then that is $400 a day in revenues. Maybe you get to keep 50-80% of that which would be anywhere from $200 to $320 a day...not a sum to build an empire with but a good chunk. But even if you only had 2000 people a day that is still not a bad sum of money for what is, for many, little more than a hobby. And I would suggest that with the right kinds of metrics and aggregated data it could even be done for sites with traffic as small as 200 people a day, even less.

    I would suggest that in the not too distant future the "serfs" will be storming the social networking and web 2.0 company "castles" and introducing a very interesting paradox into the profit making picture....the more revenue you are willing to share the more you are likely to gain...or the prospect of "empty platforms and applications", as you so eloquently put it, will become a reality.

  • Sam


    Thanks for that response to James. I read this blog frequently. This was one of my favorite posts. I'm excited and hopeful about the future clarification (and subsequent monetization) of digital rights management as it applies to 2.0 sites and user generated content.


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