Content sites have arguably been one of the big winners from COVID-19. With so many of us trapped inside by foreclosure measures, we’ve spent more time online than ever before. As a result, our thirst for new content to consume exploded, from streaming video to blog posts to infographics.
Although that fervor wears off as things gradually return to normal – or whatever past as usual now – the outlook for content sites is still positive. People want to be entertained and informed. It hasn’t changed and it won’t change either.
A successful content site is therefore probably a good investment. What about a site where the majority of content is user generated? Should you invest your money to acquire one, or would it be better to wait?
Types of user-generated content
User-generated content comes in several versions, but generally falls into one of the following categories:
- Reviews / testimonials
- Discussion threads
- Social media posts
- Blog posts
The power of user-generated content
For anyone who has spent even a little time in the marketing industry, user-generated content is one of the most valuable brand awareness tools in any business’s arsenal. This is because rather than being filtered through the prism of a faceless business, it is created by the audience of that business. This makes it instantly more accessible and has a high probability of generating conversation, interest and engagement.
- User-generated content is created for free by a brand’s audience. Paid promotions are usually influencer marketing.
- People are much more than willing to trust someone who hasn’t been paid by a brand in any way because they don’t. Gain nothing to talk about the brand.
- It’s easy to ignore paid advertising. You probably forgot several today on your own. However, it is much harder to ignore promotional content created by one of your peers.
Examples of user-driven content sites
The question remains whether it is possible to build an entire business on such content. Indeed, relying on your audience to build a content base is a great idea from a social marketing perspective. But can it be the basis of an effective business?
To answer that, let’s take a look at some of the more well-known user-focused content sites.
As the world’s largest video-sharing platform, YouTube derives most of its profits from advertising revenue. It also generates revenue from subscription services such as YouTube Red which allows a user to view the site without ads. The top YouTube influencers are known to earn seven-figure salaries.
Yelp is one of the leading online review platforms geared entirely towards local businesses. At the end of last year, the site hosted over 224 million Comments. Yelp’s has a three-tier monetization strategy:
Billing as the first page of the Internet, Reddit hosts discussion forums on virtually any topic you can think of (within reason). Most of the estimated $ 100 million in revenue comes from the company’s advertising sales. That said, as reported Quartz, CEO Steve Huffman is explore alternative monetization strategies, as a premium and ad-free version of the site and virtual currency.
If you have a question, Quora probably has an answer. The Q&A site is completely community driven, with a user base that includes thought leaders, celebrities, and influencers. Quora’s main source of revenue comes from paid advertising.
This is a relatively recent development, as the site was initially launched without any revenue model.
The characteristics of a profitable content site
The content sites listed above all have a few traits in common.
First, they all have a solid revenue model in place. User-generated content on its own isn’t really a solid business model. That’s why almost all user-driven sites augment themselves with premium add-ons / subscriptions, advertising, or both.
Second, they fill a valuable niche and do it good. Quora, for example, is far from the first question-and-answer platform on the web – the now defunct Yahoo! The answers come to mind. However, it has managed to gain prominence thanks to a combination of an intuitive interface, a dedicated user base, and well-designed suggestion algorithms.
Finally, each site focuses on a single type of content. You’re unlikely to see a plain text review on YouTube, or a question-and-answer thread on Yelp. The exception, of course, is Reddit, which has taken a kitchen sink approach and features everything from short stories to memes.
Should you buy a user-driven content site?
Now that we’ve established how a user-centric content site can be successful, let’s get back to our original question: should do you buy one?
The answer, as is often the case, is that it depends. Overall, websites that rely on entirely on user-generated content doesn’t tend to be particularly profitable in the long run. As always, however, there are exceptions, which is why, in addition to standard due diligence, you will want to answer the following questions before purchasing a user-driven business.
Does this site have a strong and reliable revenue model?
Ad revenue tends to be somewhat volatile, especially for small websites. Unless a site has a long history of keeping itself afloat solely on ads, you are considering a risky investment. And even if there is is proof of a successful ad revenue model, more revenue streams are always better.
Do I understand the users of the site?
By now you have heard about the colossal mess that Yahoo! buyout of Tumblr was. Acquired for $ 1.1 billion in 2013, ownership of the site finally passed to Verizon in 2017. That’s where it all started to fall apart.
Verizon has consistently alienated the majority of Tumblr users, making absolutely no effort to understand what made the site popular in the first place. The end result of this was that, by The Washington Post, the company was acquired by the founder of WordPress Automattic in 2019. The sale price ?
Three million dollars.
The lesson here is simple. If you buy a user-centric content site, you need to understand its audience. Otherwise, you might as well burn your money.
How competitive is the site’s niche?
You are not likely to acquire a site that can compete with YouTube or Reddit. But that doesn’t mean your acquisition can’t reach the top of its given niche. Make sure this is a realistic goal if growth is what you are aiming for.
Like any other online business, a user-driven content site can be a good investment if you play your cards right. But due to their nature, they inherently carry a higher risk than other similar businesses. It is important to keep this in mind.
About the Author
“Christopher Moore is the Marketing Director of Calm light, which specializes in helping clients sell their Internet-based businesses. Additionally, he founded Gadabout Media LLC to inspire, educate and unite others by creating visually stunning content for clients.