Posted via web from YABOYA’s Posterous

Pic: TeeJe

Traditional business advice suggests that in order to make money from a venture, you must see a market where money is being traded and then provide a service/product that can take advantage of this market.

Today, we hear that business plans suck and that it is better to judge the value of your proposition using metrics and conversions.  One such business model may involve gaining users through good experience and referral. And the last part should be eventually making money by turning these users into profitable revenue.

This is not the same as seeing a market and entering it somehow.  And the result may be that you have a massive audience without any intention of exchanging money.  You just have to look at MySpace and Facebook‘s current situation where the size of their userbase does not result in the revenue that you would expect from traditional business’s user/revenue ratios.  Facebook currently earns about $300 million a year despite being one of the busiest sites in the world with 140 million active users.  As a contrast, Google made over $20 billion in 2008.

There is money to be made from the 0.01% CTR’s that are common on community sites if the number of users is very high.

But to consider your community site a real business, it is important to take a step back from your current perspective and start thinking in a more traditional sense.  In your niche, where do you see money changing hands?  If you cannot see money, broaden your search until you do.  When you see something, perhaps this is where you should be aiming for in your business model.  Or at least, this is where you should see the real value for your business and you should align this with a good experience for your users/customers.

Otherwise you can create a market for your community after it has grown substantially.  You don’t see money trading hands?  Then, give them a reason to part with their money – by providing excellent premium features that they need, fun stuff that they enjoy doing or why not learn more about retail and start a shop?

User Generated Content (UGC) is an expression used to describe the pieces of content, e.g., video, writing, pictures, that are supplied by the user of a website herself – rather than by the creator of the website.

This immediately does not seem sustainable – that the life of a website should rely on the users themselves, and not by what the website creator feeds it. It at least does not seem likely to work, and perhaps too good to be true for any website creator. It reminds me of a perpetual energy machine. The fact that there is money to be made from it is even more unlikely to consider.

However, take a look at YouTube, Digg, or on a smaller scale our very own Diddlyi. All these websites reply on the contributions of their users. On a large scale YouTube and Digg are absolutely chugging along. Their state of perpetual energy is well and truly in motion and their popularity continues to grow.

On a smaller scale, Diddlyi features UGC, but wants more. So how do you reach a point when, as a website creator, you can forget about content and start focusing your efforts on other things – like marketing, infrastructure etc.

Unfortunately there never will come a time when you can forget about content altogether. There are more and more sites that are powered by the contributions of their users surfacing every day. And each of these are competing for the attention of you, the user. In fact, there is a whole branch of thinking about the power of this attention for the user. I won’t go into this now, but you should read about it here.

However, you can reach a point when UGC does drive your website, albeit with a little help along. To do this you must set up two streams of content creation –

1) Original/Aggregated Content

2) Facilitated UGC

These two streams feed one another – Users are more likely to contribute when they see others or you contributing, and the content that you source or find will be influenced by what the users of the website have generated.

1) Original/Aggregated Content

After you have created your beautiful website, and you want to kickstart some UGC, you must set some standards of content that you are willing to feature, and most of all, provide content of interest for your first visitors. You will not reach a point of perpetual energy until you have reached a critical mass of visitors – an amount of users that officially makes it a thriving community.

At the start Content is King (Aggregation is also fighting for that title). If you have created a worthy website that should have a chance of surviving, you will have a defined purpose and a good idea of what you want to have featured there. This knowledge should help you to decide what content you need to put up there now. Do not wait around for someone to put up that video of a concert that you think would be great there – go do it yourself. For one thing, you will now have some good content up there, but more importantly you will have put yourself in the shoes of your user. This is invaluable for weeding out poor experiences in your site and perhaps identifying new opportunities.

2) Facilitated UGC

Now how do you create a system that publishes original content even when you are not around? I have read ‘Rich Dad, Poor Dad’ and the author explains that you have truly created a sustainable business when you do not have to be around for it to operate and grow.

Let’s say that you were keen on featuring recordings of live concerts on your website (and forgetting the probable rights problems that you would run into). In the traditional media world, the only way to do this would be to go out with your friends, record these concerts and then upload them to your website. On a grander scale, big media companies would set aside a big budget to do deals with entertainment companies to provide recordings of concerts to use as content. This method is very much sustainable and some would argue that it produces better content than you would expect from the users of your website.

However, the Web 2.0 world has allowed us to more easily share, contribute and publish our own content. And to encourage this activity on your website you must flip your thinking a little. After you have decided that you want live concert recordings, start thinking about how you can encourage, help or facilitate your users in creating this content.

So instead of planning how and what concerts I am going to record, I am going to help the community of my website to go out and do that themselves. And to do this you will need:

1) The proper technical infrastructure that allows your community to contribute and share.
Users must easily be able to upload the content they have and be able to share this content with fellow members of the community or others through other means, e.g., email, text, tagging.

2) An honest and open community where your intentions are completely clear.
The flipside of knowing and relying on your users for content is that they have to know and rely on you for the future of their community. If you plan on making money from your website as a result of UGC, you must be clear about this. On one hand, they might respect you for being honest – you deserve it after giving them a great place to hang out. On the other hand, especially if your website deals with more serious, professional issues, you may have to convince your community in other ways to accept that you are profiting from their contributions.

3) A real reason for a user to contribute.
The best situation here is you have a community that appreciates and encourages one another to contribute. In this case you could use the promise of being featured prominently on the website, or you could have a system of non-monetary awards (badges, merchandise). However if you have a truly passionate community that you can relate to – your users will no doubt have the same desire to post recordings of live concerts as you do.

4) A successful, already existing system of UGC.
Of course this has to be started by you. You are a user too, and must kickstart the process.