Understanding Key Success Factors for Social
Web Ventures




Andrew Chen
Joseph Dwyer
Lisa Nagatoshi
Marcin Pietrzak
Deepak Tiwari




Page 1 of 25Table of contents
Section Page
The dot-com bust and resurgence 3
Social web ventures 3
The User Participation Hierarchy 4
Four hierarchical roles 5
Social web disrupts the status quo ante 5
Rule #1: Focus on providing value to consumers 8
Rule #2: Encourage consumer movement up the hierarchy 10
Capturing the value created 11
Tools for applying the framework 12
Measuring value within social web ventures 12
The long tail of consumer value 13
Contributory factors 15
Expected value of contribution 16
Contributory factors 17
Applying the framework 18
Future 21
Integration of traditional media with social web ventures 21
Collaboration and competition among social web ventures 22
Vulnerability to earlier lifecycle startups 23
Conclusion 24
References 24

Page 2 of 25Understanding Key Success Factors for Social
Web Ventures
The dot-com bust and resurgence
In the early days of public internet during the 90s, investors poured billions of dollars
into startups. In turn, the startups invested tremendous sums into acquiring as many
1
users as possible . Revenue was a distant end-goal and was rarely discussed in the
early years. The well accepted strategy for these firms focused on gaining a first-
mover advantage and relied on positive network externalities to create user
³stickiness. In turn, these advantages would lead to presumed monetization
opportunities in the future. Furthermore, it is difficult to discount the effect of
mimetic isomorphism ± the human herd instinct. As early ventures received positive
feedback in the form of easy funding, high valuations, and public accolades, masses
of entrants flooded the internet landscape ± all seeking the IPO pot of gold.
The dot-com bubble burst in a spectacular fashion. By September 2002, NASDAQ
had lost over $4.4 trillion in market capitalization since its peak in March 2000.
More than 100,000 dot-com employees lost their jobs in the 10 months between
2
October 2000 and July 2001 . Many companies closed their doors. The survivors
retrenched, focusing anew on revenues and near-term profitability. Venture funding
largely dried up.
Despite financial and market challenges after the dot-com crash, some companies not
only survived, but flourished. Also many new internet sites emerged. Google hurtled
past incumbent search engines like Yahoo and AltaVista. EBay grew steadily, piling
up its cash reserves. Friendster and then MySpace appeared without warning. In
2005, YouTube began its meteoric rise. By 2007, we are witnessing a full-strength
resurgence of consumer internet sites.
Social web ventures
These sites, which have been successful in the period following the dot-com bubble
burst, all share one thing in common: they are to one extent or another social web
ventures. These ventures harness the social interests of their customers to create
value, enabled by an internet platform. This category includes obvious players such
as MySpace, YouTube, Flickr, Wikipedia, and Digg. A less obvious example is
eBay, a sort of social commerce site where reputation determined by other users
plays one of the key roles in the platforms suc cess.
Sites like Yahoo, AOL, and MSN are also social web ventures, but to a lesser extent.
They aggregate users, often grouped based on common interests. Social recognition,
polls, and comments bring some level of community to each of these sites.

1
http://www.strategy-business.com/press/article/07102?pg=1
2
http://www.strategy-business.com/press/article/07102?pg=4
Page 3 of 25Blogs often create de facto social web ventures. Users create online social identities,
and share their thoughts and viewpoints in the form of comments. The most
successful blogs focus on specific user communities that share an interest in a
common industry or topic.
Even Googles search enag soine is cial web venture. Its algorithms sort out implicit
votes for millions of web sites, as decided by the (admittedly loose) community of
webmasters across the world. Even this indirect collaboration was sufficient to
power Google past competitors such as AltaVista, which did not leverage consumer
contribution in indexing and ranking.
This emerging market offers substantial commercial opportunity, and yet most
investment and management decisions to date have been largely based on instinct
and vague notions of what the market wants. As a result, thousands of social web
sites have emerged, but only a few have been successful. The goal of this paper is to
create a framework that will identify the key factors that differentiate success from
failure among social web ventures.
Our user participation hierarchy concept provides a framework for evaluating
success in social web ventures. Understanding what differentiates successful social
web ventures provides an opportunity for entrepreneurs, managers and investors to
reduce risks and improve results. Moving forward, the framework serves as a
powerful tool to develop, evaluate, and execute strategies to be successful in the
social web space. Our tool incorporates both qualitative and quantitative measures to
evaluate and guide future ventures.
The User Participation Hierarchy
Traditionally, mainstream media content has been created by a few select entities.
Hollywood studios, big record labels, newspaper and television journalists are each
examples. These producers created small libraries of content and generated
significant value by attracting large audiences of unique consumers through limited
distribution channels like cinema chains, music stores, and television networks. This
top-down value creation model concentrated power in the hands of select creators
and distributors.
At the same time, consumers created content, like photos and written content, which
were shared primarily with their friends and family. The development of this user-
generated content contrasted sharply with the top-down value creation model of
traditional media as there were millions of creators and millions of content items.
The mass distribution of this user-generated content was limited by technological
constraints.
In recent years, these technological constraints have been removed due to the
emergence of the Internet. As broadband penetration has grown, the Internet has
become a disruptive channel for content distribution. At the same time, the
increasing comfort of consumers with online activity has changed the way that
content is consumed. Traditional media, like television shows and movies, are now
Page 4 of 25accessible online and can be viewed on demand anytime by consumers. At the same
time, user-generated content can now be shared with a mass audience, setting off an
explosion of new types of content like blogs, social imaging sites, wikis, and online
videos. This online phenomenon is changing the rules of media creation and creating
a new hierarchy of participants - creators, distributors, collaborators, and consumers.
It is also rapidly blurring the divide between the consumers and the creators as
consumers move up the hierarchy through collaboration, distribution, and creation.
The social nature of these ventures encourages and incentivizes interaction and
contribution.
Four hierarchical roles
Our user participation hierarchy describes four hierarchical roles users can play in
social web ventures. The roles are arranged (from bottom to top) in order of
increasing participation. The base role involves passive consumption of value, and
comprises the most common user role. As users recognize value and the social
incentives to participate, they may begin participating as collaborators by tagging,
reviewing, rating, commenting, and responding to the original content on the site.
The site itself is the primary distributor in the hierarchy, although users and other
sites can also act as distributors by participating in presenting the content elsewhere
on the web, for example on MySpace pages. Finally, the peak comprises creators,
who actually generate original content for the site.
As we would expect, the number of participants decreases as we climb up the
hierarchy. Even for relatively mature social ventures the fraction of people
collaborating and creating is fairy small. However, the level of participation at
different levels in the hierarchy is one of the distinguishing factors of the successful
ventures.
The schema below gives a graphical representation of the hierarchy and defines
various roles in detail.


Figure 1 The User Participation Hierarchy
Page 5 of 25Creators: Person(s) who define and create the original content. These people seed
the original idea and occupy the top tier of the user participation hierarchy. Based
on the frequency distribution there are mainly two types of creative activities:
commercial and non-commercial. The commercial (typically mass media)
creators occupy a narrow high traffic band. Non-commercial users (typically
individual and purpose specific creators) create the majority of the content and
occupy the long tail.
Distributors: Person(s) who provide outlets and utilize channels for consumption
of content. These people are credited with cross-fertilization of the content which
they take from original channel and inject into other channels. In some sense they
work as filters by cross-planting content that is high quality and provides value.
Distributors use word of mouth to spread ventures, ideas, websites, and content.
Collaborators: Person(s) who add secondary value to the content (e.g. reviews,
tags, or comments). The value added is highly dependent upon the level or service
and options provided by the social ventures. An ideal website would make it
easier for consumers to become collaborators. Collaborators could themselves be
subdivided based on level of involvement ± tagging, rating, commenting,
reviewing, and responding.
Consumers: Person(s) who passively consume content without adding any value
to the content itself. But we would point out that consumers in fact do passively
add value to the creators by spending time on the content. Thus each view
constitutes a value activity for the content and the website. The consumption
activities are also mainly of two types based on frequency distribution: a narrow
band where high frequency of unique consumers occurs and the long tail where
most of the consumption takes place.
Social web disrupts the status quo ante
Social web sites introduce the means for a much broader group to participate in
creation, distribution, and collaboration. As users move up the user participation
hierarchy, their participation expands to include additional roles. In traditional
media, creators, distributors, and collaborators comprise a minority of the market,
and a relatively small percentage of the user population falls into those categories.
The social web dramatically increases the scope of involvement, bringing a broader
array of perspectives, interests, and skills to the creation of original content. This
evolution of the content creation model creates a substantial increase in consumer
utility through greater variety and volume of content.
The chart below demonstrates the approximate relative volumes of the individuals
who comprise the traditional movie and film industry versus the similar distribution
on YouTube.
Page 6 of 25Figure 2 Shift in breakdown of players in media ecosystem
Note: Actual sizes of particular groups differ by type of social web site.
On YouTube creators and distributors comprise approximately 1% of the population
with original content on the order of 10 million videos as of 2007. In traditional
media this percentage is relatively miniscule even if we assume that hundreds of
thousand of people are employed in creative roles.
As traditionally passive consumers take on a more active role through collaboration,
distribution, and creation they add further value through each activity. The value
provided also increases as we climb up the ladder. This significantly increases the
content value and is the beginning of a positive value creation loop. Better content
leads to increased consumer satisfaction, which in turn leads to an increase in the
number of consumers and more consumption per consumer. More consumers and
higher consumption in turn increase the social value of contribution, which induces
further contribution up the value hierarchy. This cycle is the life-blood of successful
Page 7 of 25

T raditional US movie and film busines s
Creators - producers, actors, etc.
Distributors - cinemas, networks, etc.
Collaborators - critics, commentators
Consumers
Y ou T ub e
Creators
Distributors
Collaborators
Consumersventures. It is even more critical in the early phases of the venture when creators and
distributors need to seed the venture with content to encourage the positive value
creation loop.
Since the dot-com crash, a number of web ventures have sprung up to take advantage
of this growing trend of social media. Although these companies covered the
spectrum of possible media ± video, photography, blogs, social networks ± the
successful ventures consistently followed two rules. These fundamental rules are:
1. Focus on providing value to consumers
2. Encourage and facilitate consumer movement up the hierarchy
Rule #1: Focus on providing value to consumers
Social web ecosystems include at least four user roles, and most also include a
commercial partner (e.g. advertisers). Which group deserves the most attention when
making value creation decisions? Should sites cater to creators because they create
the content that drives the site? Our research suggests that the most effective focus
on value creation centers on the consumer role.
During the first wave of internet enthusiasm, site operators considered the web an
extension of traditional modes of business, albeit with significant centralization
benefits. For example, Webvan raised hundreds of millions of venture capital dollars
3
based on the promise to revolutionize the grocery industry . Yet a quote from a user
suggests that the value provided did not meet consumer expectations:
"In the time that elapsed since I placed the order, I could
have crawled on all fours to my neighborhood supermarket,
which is three blocks away, spent less money for the exact
items I wanted, crawled back home, prepared and eaten my
own meatloaf, followed by ice cream and coffee, washed
the dishes, had a good night's sleep and clocked in a full
4
day at work."
Clearly, Webvan had failed to provide value to their consumers. Not surprisingly,
Webvan declared bankruptcy in 2001, only two years after its initial public offering.
Consumer attention is the currency of the web. Providing consumer attention is a
certain way to provide value to creators, distributors, and collaborators. Transactions
on social web sites typically involve consumer attention in return for advertising
dollars.
Consumers pay attention when sites provide them with value. But what is the best
way to provide value to consumers? For a social web company that has no initial
content to start with, it is hard to provide value. It is for this reason some believe

3
http://www.strategy-business.com/press/article/07102?pg=2
4
³Drugstores, WebVan and Dot-Com Failure´, Monday Memo,
http://www.mondaymemo.net/000724feature.htm
Page 8 of 25social websites should cater to its content creators, assuming that the trickle-down
value to consumers will be sufficient. However, history has demonstrated that social
web ventures which focus on incentivizing its creators over its consumers end up
losing. Metacafe, Google Video, and Google Answers are all examples of social
products that lost to competitors because they focused too much on compensating
their creators (see Appendix for additional information). Because consumers drive
the magnitude of value generated by a site, it is more efficient to maximize consumer
value and share some part of that value with creators, typically in the form of social
recognition.
Creating core content is often required to provide consumer value. Therefore, it
remains sensible for sites to spend considerable effort early in their growth cycle in
encouraging creators, distributors, and collaborators. However, the focus should
remain on consumer value as the end goal.
Ebay is an example of a site that began with an emphasis on providing value to
(auction) creators. However, eBay recognized the importance of providing value to
the consumers. By implementing social feedback r´, eaBtiay provngs ided
information that substantially increased consumer value, at some expense to the
auctioneers. However, the net increase in consumer value in turn provided more
creator value because increased consumers confidence led to more sales. Today,
eBay¶s competitive advantage aconsurisemers s, becfrom ause without them eBays
sellers would quickly evaporate. Meanwhile, if most of eBay¶s sellers left, the inertia
of the consumers would simply lead to replacement by other sellers from within the
ranks of the consumers. It is this relatively easy movement up the content hierarchy
that drives the importance of consumer satisfaction.
This pattern repeats itself in the offline world as well. For example, stores and
restaurants appear where people are, not the other way around. One might argue that
without stores and restaurants, people are less likely to relocate to an area. However,
consumers derive value from a broader array of sources, and most recognize that
amenities follow population growth. Therefore, while peoples relocation choices are
influenced by amenities, commercial interests are entirely dictated by consumer
actions. Similar to the social web, it is the people themselves who often open small
businesses in booming areas, crossing the line from consumer to distributor or
creator.
Although in social sites there is a blurring of the lines between the roles of users, as
in traditional media, consumers are the most important players in the user
participation hierarchy. They are the largest category of users and most revenue
models of social web companies are dependent on them. Consumers are therefore the
yardstick for measuring corporate value. Furthermore, they provide the true value to
creators, distributors, and collaborators.
Rule #2: Encourage consumer movement up the hierarchy
Successful social web players recognize that some consumer needs play a far more
powerful role on the web than they would in traditional business. Maslows
Page 9 of 25Hierarchy of Needs suggests that humans fulfill base needs first, and only move up
the hierarchy as core needs are met. As the internet has become a social activity,
consumers are increasingly using the web to address their hierarchy of needs.
Collaborating with other creators, sharing (distributing) content with friends, and
creating original content represent fundamentally appealing activities for consumers.
Successful social web sites encourage and facilitate user movement up the user
participation hierarchy.
The result of movement up the user participation hierarchy is additional value
creation, which increases positive network externalities. Every day, YouTube users
upload and share over 70,000 new videos, leave several hundred thousand
comments, and publish playlists of favorite video content. The result is a hugely
satisfying experience to consumers, which in turn encourages further movement up
the hierarchy.
Many internet pioneers assumed that positive network externalities arose solely from
the number of users a site accumulated. However, the most powerful positive
network effects on the web arise from social community; numbers alone do not
create stickinessWhen user. s can participate in a community, earn recognition,
and ultimately have a chance to achieve self-realization, the result is a powerful
³stickinessEBay. was an early success in creating positive network externalities
through social means. Their users communicated with each other, and consumers
quickly became creators (sellers) enabling them to build a social and commercial
reputation. The result is a social network that provides substantial value to
consumers, and encourages movement up the user participation hierarchy.
In the end, successful business is about creating and capturing value. It is therefore
critical for social web ventures to facilitate consumer evolution to collaborator and
creator. Successful social sites include features that encourage participation with
minimal input. For example YouTube users can easily collaborate through rating,
tagging, flagging, marking favorites, and commenting; these features were
introduced on the site earlier than competitors and were more prominently displayed
and more easily used when compared to its competitors. Collaboration increases the
amount of value created, and more effectively shares what is created.
Capturing the value created
One of the greatest criticisms of many Web 1.0 companies was their lack of revenue
model. Similarly many of today¶s mosWeb 2.0 sit succtes stiessfulll have no
credible short-term path to profitability. However, unlike their predecessors, todays
successful sites are creating substantial consumer value and positive network
externalities. Most Web 1.0 companies relied on content to drive traffic; Web 2.0
companies on the other hand typically provide social platforms, and users create and
collaborate on the content. In addition, technology and business solutions such as
Google Adwords provide revenue opportunities with relatively little delay and
investment. Finally, consumer-driven content creation, viral marketing, and open-
source software have substantially reduced development and deployment costs.
Page 10 of 25Metcalfes Law suggests that the value of a network grows as the square of the
5
number of users . Given the nature of social community and value creation, it seems
likely that consumer value does rise exponentially rather than linearly. YouTube, for
example, has successfully maintained its position despite increasing pressure from
many video sites. Its closest competitor is MySpace Video, which benefits from a
huge existing community. We observe that the collaborator to consumer ratio is
slightly higher on MySpace but of the same order. Meanwhile, both YouTube and
MySpace are better by at least an order of magnitude over the competitors. This
mirrors the relative market share differences between the two leaders and their
closest competitor [Table 1].
Most revenue models, such as advertising or charging fees for services, reduce
consumer value. This is evident on Metacafe where ads are placed directly above the
comment area, presenting an effective barrier to collaboration. Metacafe, which
launched nearly two years before YouTube, continues to trail far behind the market
leaders, in part due to a lack of focus on consumer value.
To maximize corporate value, we recommend waiting until the point of diminishing
growth prior to incorporating revenue generation that reduces consumer value or
movement up the customer value hierarchy. By doing so, sites maximize enterprise
value by creating as much consumer value as possible. After reaching an appropriate
inflection point, sites can begin to capture value with much lower risk of losing
customers, because the total net value is higher than it would be for a smaller
network.
In turn, this suggests that the larger the potential market for a site, the longer the
company should wait to grow its user base before establishing a revenue stream.
Given an assumption of exponential growth, the basis for revenue implementation
decisions should be an exponential curve (see figure 3). Note that it is important to
wait till the critical mass is reached and the actual length of time would depend on
the rate of growth. Thus once the goal is determined the venture must implement
tactics to increase the rate of viral growth. Once the critical mass is achieved and
revenue model is implemented the network effects would help sustain the traffic. Yet
the venture must continue to innovate and add value in order to maintain market
position.

5
³The Big, the Bad, and the Beautiful, by mT Liaseter, Martha Turner, and Ron Wilcox, s+b, Winter
2003

Page 11 of 25Figure 3: A hypothetical revenue inflection point
Notably, some potential revenue streams such as virtual goods may actually enhance
user value. As a result, implementation of these offerings should likely occur far
earlier in the site lifecycle.
Tools for applying the framework
Measuring value within social web ventures
The transaction on social web sites is unique in that visitors create and extract value
at the same time. Consumers trade their time and attention in return for value
provided by the content. Creators produce content in return for the social value
created by consumers and collaborators using the site. This creates a positive value
cycle. The web is a fluid medium, and users can leave at will. Therefore, it stands to
reason that users leave a site when it ceases to provide a minimum level of value to
them. Therefore, a useful proxy for measuring the value provided is the time spent
on a website by consumers. Sites can capture this value through advertising, virtual
goods, and even strategic sale. Googles valuation of Y, foouTuber example, was
driven largely by the volume of consumer use.
Therefore, we propose an objective measure of the value provided by a site to its
consumers based on the time consumers spend on the site:
Value created = Number of Visits Average time spent per visit
Overall, this measure of ³value is more robust than ee xisting metrics of onlin
activity like number of page views, visitors, and visits. The emergence of new
technologies like Flash and AJAX has reduced the relevance of page views as users
can now access content without refreshing web pages. Meanwhile, other metrics like
Page 12 of 25

unumber of visitors and visits continue to provide useful information in regards to size
of user base and frequency of activity; however, it is important to understand users
level of engagement given the shift to social online activity. Sites that engage their
users for long periods of time clearly deliver significant value.
Derivative calculations can provide further analytical data. For example, metrics can
be established to estimate the value per user and per piece of content. Average
measures provide useful benchmarks in terms of understanding the overall level of
engagement of users as well as the concentration of time spent across a websites
catalog of content.
Average value per user = Value created / Unique users

Average value per content item = Value created / Number of content items

These metrics illustrate the value provided through broad network effects and an
extensive library of content. Specifically, the measure Average value per content
items serves as the foundation for the Lonegr V Taaillue of Consum It e´.ssentially
tells us the expected social value that an average content will get or create.
The long tail of consumer value
The internet has enabled the growth of the so-called long tail of less mainstream
products and services. Amazon has leveraged the interests of consumers in niche
catalog items while capitalizing on the limited physical shelf-space of traditional
book retailers. In a similar fashion, the rise of blogs has created literally millions of
niche publications serving ardent readers.
Therefore, an important dynamic of the value provided by a site involves the nature
of the long-tail it offers. We can observe the long-tail of consumer value by rank
ordering the contents by value created. The figure below illustrates this phenomenon.

Figure 4 - The Long Tail Phenomenon in New Media
Traditional media offers a narrow catalog of content designed to be of value to broad
audience segments. The relatively high budgets and experienced creators of movies,
national newspapers, and authors result in high consumer value in the left side of the
graph. Meanwhile, traditional media results in virtually no long-tail, as the variety of
content is limited by budgets and broad targeting requirements. High cost to produce
the content acts as barrier to entry for a newcomer.
Page 13 of 25

T raditiona l New Social
Media Media Media
V alu e V alu e V alu e
Provided Provided Provided
total total total
value value value
provided provided provided
Catalog of content Catalog of content Catalog of contentIn contrast, content generated by consumers is limitless. Before the emergence of
social web ventures, this user-generated content was viewed only by small number of
people who were typically part of a creator includes netw weorb 1.0 k. Examples
digital photo sites like Ofoto and Shutterfly that enabled the sharing of online photo
albums along friends and family. Although photos could be shared, consumers were
limited to viewing and could not interact further with this content. As a result, most
web 1.0 ventures had a long, flat curve of value provided by their content.
Social media has changed the equation substantially. Individual creators can now
not only share their content with a mass audience but also involve them by
encouraging them to create ratings, reviews, and comments. As consumers move up
the user participation hierarchy to create their own content, the catalog of material
grows dramatically in terms of size and variety. This user-generated content
differentiates social web sites from traditional media by creating a long-tail of
content that generates significant user value.
Nevertheless, we believe that an ideal social web venture should offer highly popular
content as well as a long tail to generate significant value. Therefore, value for
social web ventures should be measured by the area under the curve. This
measurement accounts for traffic on popular content as well as the long tail. It is
relatively easy to estimate the value of popular content as it constitutes a very small
fraction of the total number of contents. It is relatively difficult to estimate the tail
factor. We define the area within the long tail and propose two metrics: Tail Factor
and Monthly Value of Tail
Long tail = Area to the right of the top 1% of content items
Tail factor = 1 ± [Total value created by top 1% of content items /
Total value created by the website]
Tail value = Tail factor * Value created
An important metric for the success of a social web venture is the size of its tail. The
longer and thicker the tail, the more unique and targeted value the site is providing to
its users. The tail value captures this value. Our findings suggest that the value in the
long tail outweighs the value of the popular content; the area under the curve in the
6
long tail portion is more than the area under the curve in the high frequency range .
Based on our definition of the tail factor we see that roughly 60% of the value lies in
the long tail. This is a conservative assumption and as ventures evolve this value is
likely to increase.
Contributory factors
Social web sites are commonly valued based on their unique visitors. The first
implication of our analysis is that valuation should instead be based on value created
with further refinements based on the tail value. This in turn better tracks the
presumed value capture opportunities in the future, particularly as time-based
advertising metrics become more common.
Page 14 of 25Underlying the objective measurement are a number of qualitative factors that
contribute to enhancing consumer value, thus leading to more usage. The
quantifiable result of improving these factors can be evaluated using the calculated
value to each user.
We distinguish between two types of qualitative factors contributing to consumer
value: direct value contributions, and reduced barriers to use. Direct value
contributions concern the core value proposition of the site, typically the content
itself. Reduced barriers to use involve usability and access issues that enable low-
effort consumer capture of the direct value contributions.
The net value proposition to consumers is:
Net value to user = Value created * Utility of the value ± Effort required
It is hard to quantify utility and effort as it is unique to each individual but the
essence is that users are driven by benefit which is directly proportional to the Value
created and hence the focus should be placed on factors that encourage value
creation. The main factors have been enumerated below.
Direct value contributions:
· Content volume
6
· Content variety
· Content quality
· Community interactions
Reduced barriers to use:
· Ease-of-use
· Speed and responsiveness
· Reliability
· Easy to find desired content
· Minimal extraneous intrusion (e.g. advertising)
· Free
· Easy to share / embed
Therefore, sites can improve results by working to improve value provided while
minimizing consumer effort, leading to maximum net consumer value.
Unfortunately, many social web sites have little leverage over direct value
contributions. One method available to some sites is to contract with outside sources

6
"The Long Tail" by Chris Anderson, Wired, Oct. 2004
Page 15 of 25for particularly high quality content. YouTube, for example, has been working to
build relationships with major media companies to host their content.
Meanwhile, sites have significant control over barriers to contribution. Still, many
sites fail to take fundamental measures to reduce barriers. Google Video, for
example, required the use of a downloaded client application in order to upload
videos up until May of 2006 ± almost a year after s launYouTcubeh. Goo¶ gle Video
also to this day lacks fundamental community features such as user pages, forming a
complete bar to certain aspects of direct value contribution.
Expected value of contribution
Our second rule involves encouraging and facilitating movement up the value
creation hierarchy. Given the unique value proposition of the long-tail content, user-
generated content is critical to achieve the variety and volume of content necessary
for success.
Consumers move up the user participation hierarchy due to perceived return value
for their contribution. The most fundamental perceived value is positive social
feedback, as described in Maslows Hierarchy of Need. When a YouTube user
uploads a video and embeds it on her web page, she hopes to communicate and share
with others. Her measure of the success of her efforts is the manifestations of interest
by the online community. These manifestations include views of her video, and
comments on it.
Therefore, it seems likely that consumers engage in an implicit evaluation of the
expected value to them of contributing to a site. The more views and comments a
user expects, the higher the expected value of contribution. The expected value for a
contribution is equal to the views or comments associated with the median content
contribution. Therefore, the expected value to an individual assuming median
response is:
Expected value = Value of median catalog item
The tail value is a proxy for calculating the aggregate value to site contributors. The
longer the tail, the more likely a users contribution will achieve some measure of
recognition. The greater the magnitude of use for a given distribution (e.g. tail), the
more value associated with the contribution.
When a user evaluates contributing to a site, she also takes into consideration the
effort required to do so:
Net expected value = Expected value ± Effort required
Contributory factors
Again we distinguish between two types of qualitative factors leading to movement
up the hierarchy: increased expected value, and reduced contribution effort.
Increase expected value
· No editorial filter
Page 16 of 25· Easy to find consumer generated content
· Easy embedding / sharing options
· Social recognition features (identity, badges, etc.)
· Instant gratification
· Compensation / revenue sharing
Reduce creator effort
· Transparency of recognition (view counter, etc.)
· Direct contribution through web (no downloads)
· Speed and reliability
· Ease-of-use
Applying the framework
We can now apply these quantitative and qualitative tools to analyze social web
ventures. Overall, we found a consistent pattern of user behavior that clearly
differentiates social web ventures from traditional media. More importantly, this
analysis can be applied to evaluate the success of players within various segments of
the social web.
We found that content when ranked based on value (time spent, views, comments,
responses, etc.) roughly follows a power distribution and is inversely proportional to
a power of the rank on the frequency plot:

where A and B are constants for a particular website
Factors discussed earlier contribute to the magnitude of the two constants and give a
measure of the success of a venture. Specifically, the value of A depends on the total
traffic to the website; therefore, a higher value of A is favorable. The value of B
determines the size of the long tail; a lower value of B (or a higher exponent) creates
a fatter long tail for a given value of A.
In order to show the utility of this measure, we will apply our framework to the
online video segment. The value for online videos is measured in terms of number
of views per video and can be roughly projected as:

It is important to note that the power law is an approximation as the number of
videos is not infinite. Total views and tail length should be taken into account in
addition to the power curve.
Page 17 of 25

-B
=* RankAValue

-0.8
= * RankAValueTable 1: Metrics for Social video sites*


* Numbers gathered from the public data available (retrieved April 2007) on the sites
as well as secondary research from published articles and reports (hitwise, Nielsen
7
media research)

[ continued on next page ]

7
YouTube U.S. Web Traffic Grows 17 Percent Week Over Week, According to Nielsen//Netratings
(English) (Press Release). Netratings, Inc.. Nielsen Media Research (2006-07-21).
Page 18 of 25

‡Relative rank ‡1 ‡2 ‡3
‡Daily views (in million) ‡100 ‡50 ‡15
‡Average stay (in minutes) ‡16 ‡11 ‡7
‡ Collaborators per 1000 ‡1 ‡2 ‡0.01
views
‡Power law section ‡High ‡Low ‡Medium
7 7 7
±Vue of Aal ‡4 * e ‡2 * e ‡2 * e
±Vue of Bal ‡0.78 ‡0.80 ‡0.82
‡Length of tail (estimated ‡2x ‡x ‡x/2
number of content)
‡Value of the top 1% of ‡36% ‡40% ‡44%
content
‡Tal factori ‡0.64 ‡0.60 ‡0.56
‡Expected value (number ‡198 ‡60 ‡84
of views)Figure 5: Value Distribution for Top Online Video Sites

7 -0.78
Social value for YouTube = 4*e * Rank
7 -0. 8
Social value for MySpace = 2* e * Rank
7 -0.82
Social value for Metacafe = 2* e * Rank
The social value distributions for the top players within online video confirm the
dominance of YouTube over MySpace Video and Metacafe. YouTube succeeds by
hosting videos that attract a high volume of users (higher value of A) as well as
hosting user-generated videos that create user value by establishing a long-tail of
content (lower value of B). The large size of YouTubes long tail illustrates that
YouTube has been successful in moving its users up the User Participation
Hierarchy, from consumers to creators. An evaluation of qualitative tools across the
three online video players show that YouTube offers the most robust features to
effectively facilitate greater engagement from its users.
Page 19 of 25

14 YouTube
Metacafe
Myspace
12
10
8
6
4
Social value (in million views)
2
0
0 100 002 300 400 500 600 700 800 900 1000
Rank (by number of views)Table 2: Evaluation of Qualitative Tools for Users of Online Video Sites

Source: own analysis
Looking beyond online video, we can apply our framework to other areas of social
web ventures including social networking and online photo sites. Unlike online
video, both online photos and social networking generally lack individual pieces of
content that attract large volumes of users (smaller values of A compared to online
video). Nevertheless, these sites attract high levels of user-generated content, leading
to larger long-tails within consumer value distribution curves (smaller values of B
compared to online video).
Theoretically, pure social web ventures that are comprised entirely of user-generated
content would have extremely flat consumer value distribution curves (value of B =
0). Nevertheless, we believe that it is important to have a few content items that
attract large audiences in order to build a strong base of users throughout the user
participation hierarchy. Online video illustrates the successful use of traditional,
mainstream content to generate high levels of user-generated content.
Beyond online video, MySpace is the only player within social networking which
has successfully applied this strategy. MySpace established its dominance by
initially focusing on building a core community around musicians and their fans,
leading to profiles that gained enormous audiences (high value of A). Eventually,
these fans moved up the user participation hierarchy to create their own profiles as
Page 20 of 25

High
Medium
Low
‡Content volume
‡Content variety
‡Service
±Qulitya
±Ebedm 9 9 9
±Tingagg 9
±Ratngi 9 9 9
±Comments 9 9 9
±Response 9
±Favorite 9 9
±Blog 9 9
‡Community interaction
‡Search capabilities
‡Free 9 9 9
‡Advertising
‡Controlwell as attract additional users to MySpace, creating strong network effects. This
large and involved user base led to the development of an enormous long-tail within
the consumer value distribution (lower value of B). MySpace continues to attract
and engage users through profiles that are a mix of celebrities and individual users.
The prototypical curves for three of the primary social web categories are shown
below. Online video demonstrates a characteristic high peak with a relatively smooth
decline over a long tail. This demonstrates a number of highly popular videos, and a
relatively strong field of mid-popularity content. We hypothesize a relatively lower
peak for online photo, with a more rapid decline to a relatively stable long tail. This
is based on the relatively small universe of truly exceptional photos contrasted with
the mass of more traditional family, event, and affinity photographs on sites such as
Flickr. Social networking has an even flatter curve based on the wide variety of
content, e.g. people. Even more than photo, there are few standouts with relatively
little differential from the mainstream members, resulting in a nearly flat curve.

Future
Integration of traditional media with social web ventures
Successful examples of social video and social bookmarking sites prove that the best
value for consumers is a mix of user generated content and traditional media. For
YouTube, traditional media clips continue to be some of the most important drivers
of traffic. In terms of news media, selected leading newspapers (e.g. The New York
Times) unveiled a service that allows readers to quickly post stories that they find on
the newspapers¶ Web sites to leading social bookmarking sites. Such mixes of
content allow the traditional media distribution graph to overlay the longer-tailed
new media graph. This combination provides greater total value to social media
companies.
As is expected, social media and traditional media companies have started to join
forces. Social web ventures benefit from increased traffic and consumer value by
integrating traditional media. Traditional media benefits from substantial incremental
traffic for their content.
A likely model for the future is cooperation of established social web sites with
traditional media providers. Such an outcome will allow social web sites to gradually
overtake the function of media content providers. However traditional media
companies are also considering alternative options to partnering with established
Page 21 of 25

Prototypical online video curve Prototypical online photo curve Prototypical social networking curve
V alue V alue V alue
Provided Provided Provided
total total total
value value value
provided provided provided
Catalog of content Catalog of content Catalog of contentsites. They can try to provide distribution of their content on their own or partner
with new market players. An example is an announcement of a group of internet
8
portals and media giants, which plan to compete with YouTube . AOL, MSN and
Yahoo, three of the Web's largest Internet portals, announced that they will distribute
video content for a new online joint venture of media conglomerates NBC Universal
and News Corp. The new provider intends to charge for movies that will be made
available for download to own, as well as incorporating user-submitted content.
Very important to the future of the social web space will be the outcs ome of Viacom
recent lawsuit against YouTube. In March 2007 Viacom sued Google and YouTube
9
for more than $1 billion , accusing them of ³massive intentional copyright
infringement. f otherI traditional media companies follow Viacom and support
smaller rivals in the market, YouTube could lose its position as moss the Wt eb
popular video site. Their value creation cycle could be severely disrupted with the
loss of high-consumption content.
As these partnerships between social and traditional media companies increase, there
will be an increasing convergence and blurring of the lines between these companies.
The digital media distribution companies such as Apple, Amazon, Walmart, TiVo,
and Sling Media will likely gravitate towards the user generated content space.
These companies will allow social media companies to deliver their content
ubiquitously and enhance the value to consumers. It does not take much imagination
to envision Apple, with its iTunes media platform, delivering the best user generated
content onto peoples media deMeanwhile, viceos. nline retailers, such as Amazon
and Walmart may have difficulty moving into this space because they lack control of
the entire platform. An interesting player, however, may be the company that
controls the home media hub. As user generated content moves mainstream,
companies such as TiVo and Sling Media have the capability to extend social
medias distribution beyond PC and devices andom. in to the living ro
Collaboration and competition among social web ventures
As certain social sites have established themselves as premier destination sites on the
web, numerous new ventures have focused on adding or extracting some value as
partners (both official and unofficial) of these premier sites. YouTube and
Photobucket are examples of initial success stories of this strategy by unofficially
partnering with MySpace. It makes sense, though, that YouTube, Photobucket, and
MySpace all benefited from these relationships because the end result was enhanced
consumer value for all of their users leading to increased traffic. Through such
mutual cooperation sites can focus on their core activities and allow their users to
benefit from services provided by other specialized sites.

8
³NBC, News Corp. push new Web rival to YouTube´, by Dawn Kawamoto and Greg Sandoval, ZDNet
News, 03/22/2007, http://news.zdnet.com/2100-9588_22-6169651.html?tag=nl.e589
9
³Viacom slaps Google with $1 billion lawsuit, 03/13/2007, CNN.com,
http://www.cnn.com/2007/TECH/biztech/03/13/viacom.youtube.ap/index.html
Page 22 of 25Yet one must note the danger in relying too heavily on a growth strategy that is
dependent on partners. rMeyceSnt blpacoces kage of Photobucket videos and
10
slideshows indicate that cooperation can only be taken to a certain point.
The most vulnerable companies to this danger are the ones that are entirely
dependent on partner sites. These hyper-aggregators of social network connections,
videos, or photos inherently create little internal value. In addition, as they inevitably
try to create internal content (e.g. user generated videos or photos), their partners
may move to a defensive position, ending any partnerships. As a result, their
inherent value as hyper-aggregators may be lost.
Vulnerability to earlier lifecycle startups
Social web companies are vulnerable to new competition. Due to low switching costs
and a high rate of value commoditization, the social web is a space where first mover
advantages are not as strong as in traditional industries. In order to remain
successful, established social web companies must continue to provide superior
value to consumers, and encourage consumer movement up the hierarchy.
Because of the nature of the web, switching costs are relatively low between most
websites. Social websites have elevated switching costs by encouraging users to
establish social credibility within their communities. Yet even this hurdle can be
11
overcome as we have seen users shift in large numbers from Friendster to MySpace
12
and Flickr to Photobucket . It seems that once a competitor demonstrates a greater
amount of value to its users, even an established website is likely to lose its user
base.
Features that are innovative today will most likely become commonplace within a
year. Therefore a company that focuses on providing value to its consumer cannot
depend on existing popular features to create substantial consumer value for very
long. Every new feature a competitor releases shifts users expectations and
perceptions of value. So established social web companies must consistently adapt
and innovate to remain value leaders, if they want to remain market leaders.
One thing to note, however, is the strength of network externalities. These forces
have become stronger and stronger as social websites have moved mainstream. The
effort that was needed to convert 2 million Friendster users to MySpace users was
substantial, but attainable. Beyond a list of friends and profile information, there was
little to keep users on Friendster. However, the effort needed to convert 100 million
MySpace users ± with their integrated Photobucket photos, YouTube videos, and
blog postings ± to somewhere else is magnitudes greater. These network externalities
will begin to play a more important role for social web companies that establish a

10
³MySpace lob cks Photobucket videos and slide shows by Caroline McCarthy, and Greg Sandoval,
04/11/2007, http://news.com.com/MySpace+blocks+Photobucket+videos+and+slide+shows/2100-1026_3-
6175272.html
11
³News Corp.'s Place in MySpace by Steve Rosenbush, Buskin Oesnlinse, W 0ee7/19/2005,
http://www.businessweek.com/technology/content/jul2005/tc20050719_5427_tc119.htm
12
³Photobucket Rules its Market by JuaPnC WCarorldlo, 0s4 /0P7er/ 2ez007,,
http://www.pcworld.com/article/id,130488-c,onlineentertainment/article.html
Page 23 of 25dependent ecosystem around them. Therefore, most successful new startups in this
space will serve niche groups. By focusing their user base, these companies can
demonstrate substantially higher value for a set of customers by providing unique,
tailored features.
Conclusion
Our research demonstrates that social web ventures share many similarities,
particularly within segments. By evaluating historical performance and analyzing
underlying trends and drivers, we propose two fundamental rules of the social web,
and a number of quantitative tools to evaluate performance.
First, focus on providing consumer value. Second, facilitate movement up the value
creation hierarchy. Analysis of the long-tail of consumer value provides useful
insight into the value provided to consumers, which in turn affects enterprise value.
We have proposed objective measurements that can be useful in setting strategies,
and evaluating progress. By utilizing these measurements and our consumer value
framework, investors, analysts, and entrepreneurs can measure the success of an
individual company, a market segment, or an entire industry.
Social web ventures leverage innate human social needs to offer superior value to
consumers. The most successful sites focus on providing value to consumers,
recognizing that other constituencies such as creators will thereby benefit. To
maximize positive network externalities, successful sites facilitate movement of the
user participation hierarchy, leading to a positive growth loop. The result is
exponential growth in enterprise value, and substantial positive network externalities
resulting in a sustainable competitive advantage.
References
1. ³67 Foreign Language Social Bookmarking Sites Revealed´, Jason Bartholmes
SEO Blog, http://www.jasonbartholme.com/2007/02/22/67-foreign-language-
social-bookmarking-sites-revealed/
2. ³Drugstores, WebVan and Dot-Com Failure´, Monday Memo,
http://www.mondaymemo.net/000724feature.htm
3. ³MySpace blocks Photobucket videos and slide shows by Caroline McCarthy,
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http://news.com.com/MySpace+blocks+Photobucket+videos+and+slide+shows/2
100-1026_3-6175272.html
4. ³News Corp.'s Place in MySpace´ by Steve Rosenbush, Business Week Online,
07/19/2005,
http://www.businessweek.com/technology/content/jul2005/tc20050719_5427_tc1
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