Let’s face it shall we – no one creates something and then gives it away for free, expecting no return…

I mean, as much as we’d like to do stuff and give it away for free, in the interests of making the world a better place, the unfortunate reality is that we all have to earn our crust somehow, and if we throw our eggs into the user generated content basket, then you have to ask what the hell your revenue model is going to be?

For the uninitiated, user generated content (UGC for short) is basically where instead of creating valuable content yourself and then letting people read/consume it, you rely on your users to create that content for you.

Two notable examples that have recently been acquired for absolutely stupendous amounts of money are MySpace and YouTube.

OK, so where do you start?

Adsense – let’s just throw this out the window straight away. You can’t start and build a business from advertising revenue that relies on people clicking little text based adverts on your website. At least, you would have to be insane to do that.

Advertising – sounds like a good option. But to make that work, you have to do advertising deals or have an advertising network at the ready that will provide you with contextual advertising that still gives you a good enough cut, and/or you have to have so much traffic that your advertisers would be stupid not to consider your channel for their ad spend (but of course the problem here is that you don’t get really good huge amounts of traffic overnight); and/or you have to have contacts that can give you an inside track to advertising spend where your growing number of users and traffic is worthy of someone’s attention.

Either way, advertising revenue as a viable sustainable business model only works when you scale to a large enough user base to make the revenue model work.

Build it and they will come – is where you assume that whatever you are doing will grow big enough and quickly enough to attract the attention of your friendliest 800 pound gorilla on the block, so that they will acquire you and make the founders / shareholders richer than they were the day before. Here you’re making some big bets – some might say stupid bets…

Find value to offer, and make it cheap enough to afford and easy enough to scale – is the attitude where your core offering is free, but if the users want a value added “widget”, then they have to pay for it. So, you’re not pushing people away ‘cos your offering is paid for, but you’re saying to them that you can have this little piece extra, and it will cost you a dollar a day/week/month (or whatever).

Most people probably won’t go for it, but chances are a smallish percentage of your user base will go for it. So your revenue model needs to be really conservative (not “if 10000000000000 people use this, we’ll be rich!!!”), where “relatively small number of users x low cost per widget” == “enough money to keep the lights on”.

The only problem is, what is that widget going to be?

So – where is the middle ground? How can you offer a service which is useful to your users, and still earn enough money to get it off the ground while not killing your credit rating and making enemies with your bank manager?

At the moment, I think it’s a mixture of advertising and widgets, probably with advertising dominating once you scale up to a large number of users. The question is how you grow initially to a large enough critical mass to make things work.

I don’t know the answers to this, but rest assured I’m going to ask my sub-conscious to think about what widgets make sense to users, and are easy enough to implement, while also trying to do some more reading on revenue models for user generated content.

For now, I have the following URL’s open in FireFox:
http://www.e-consultancy.com/news-blog/361871/jakob-nielsen-s-tips-on-increasing-community-participation.html
http://www.gertismedia.com/blog/category/ugc/
http://mrwavetheory.blogspot.com/2006/09/zecco-is-free-business-model.html
http://paulstamatiou.com/2006/08/04/wordpresscom-adds-pay-feature-custom-css/