@andrewchen

Get the newsletter · 2018 essays (PDF) · Featured · Recent

WSJ article describing the difficulty of monetizing UGC

The leader in online advertising tries to monetize social network inventory
Great article from the WSJ on the issues Google has faced monetizing user-generated content. Here’s a couple excerpts:

Then, when Google tried putting ads on the site, it ran into trouble.
Critics in Brazil released a report showing advertisements on Orkut
alongside pictures of naked children and abused animals. Google
immediately suspended the ads, but the Mountain View, Calif., company
is still grappling with the fallout from critics’ Orkut campaign.

And of course, for brand advertisers this is even more embarrassing because just one ad can cause a lot damage, versus direct response guys who just lose out on reduced ROI:

Liquor maker Diageo PLC of London says it stopped advertising on all of
Google’s properties after learning that its ads ran alongside
pornographic images on the site. Spokesman Stuart Kirby says Diageo
didn’t realize that ads for its Johnnie Walker brand had appeared on
Orkut, where many users are below legal drinking age.

… and more:

On Aug. 17, Mr. Tavares sent an 18-page complaint to Brazil’s
advertising watchdog, known as CONAR, documenting cases of embarrassing
juxtapositions: advertisements for Diageo’s Johnnie Walker whiskey next
to pornographic images; a pet store pitch on a community dedicated to
stabbing animals with knives. In the report, Mr. Tavares alleged that
Google’s "flagrant illegalities" had resulted in ads appearing next to
"barbaric" content.

Key obstacles for UGC + brand advertising
The intersection of issues that cause this come down to three key points:

  1. UGC content means some percentage leakage of inappropriate content
  2. Blind ad networks mean that advertisers don’t know where they are buying
  3. Brand damage can happen via one single false negative – it’s not about % of leakage

This, in addition to users not being in a buying mindset is what causes social networks to be so hard to monetize via brand advertising. The only way to solve this is to use a direct ad sales team that is selling a very transparent ad unit on a page with no UGC content (editorial pages, section homepages, etc.). Of course, this means that all the profile views end up being managed via remnant ad networks, which is no good either.

Of course, this also means that anyone who can figure out how to make this inventory safe is sitting on a billion dollar+ business.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.