Dusan Writer thinks a lot about the business of virtual worlds and, specifically, Second Life.
He recently wrote a very thoughtful and interesting blog post titled “SECOND LIFE NEXT: 2011.“
In my comment on his post, I said the following:
You also talked about how “user generated content is not a business model.” I’m not sure I fully agree with you on that. The bottom line is, if you’re using a service and not paying for it, you’re not a customer. You’re part of the product. At least that’s how all successful businesses see it.
I’d like to expand a bit on what I said in bold. Because, if done right, I think it’s a very good thing both for businesses and customers.
When I say “Dole,” what do you think of?
Businesses exist to make a profit. That’s the bottom line. I remember many years ago hearing a quote by the CEO of the company Dole. I don’t remember the exact quote, but he basically said that Dole is not about bananas. It stuck in my mind simply because I don’t think there’s anyone on the planet who doesn’t immediately associate the name “Dole” with a banana.
The same goes for any company. It doesn’t really matter to the board what the company is selling. All that matters is that they have a good product, and they are selling it well. Profit is the lifeblood.
So it’s critical to remember this simple fact when you’re thinking about any particular business and what motivates companies.
Which brings us to user generated content. The net is awash with it. Facebook, Twitter, Flickr, Second Life, you name it. Collectively, we generate a ton of user generated content. And we seldom pay anything to do so.
But at the end of the day, all these companies providing platforms for user generated content have to think about how to make a profit. Which leads to an unspoken and fundamental epiphany in the boardroom. The people using our service who aren’t paying for it are not our customers. They are part of our product. And we need to figure out how to make a great product and sell lots of it.
This first epiphany is not a bad thing. It’s just a cold hard fact. But real success is all about how a company acts on that fact.
The best thing a company can do is have a second epiphany.
If you’re developing a revenue model that relies on people freely generating content, and you have ways to monetize things around that content (be it advertisements or licensing or hosting or whatever), then the most important part of your product is the community of people creating the user generated content.
Which means the people who are part of your product are the most important part of your business.
So you should support the heck out of these people. You should cherish and respect them. And you need to make sure they know this not with your words, but with your actions. Listen to them. Give them tools that delight them and allow their creativity to soar.
So that’s why being “part of the product” doesn’t have to be as evil sounding as it may first seem.
Unfortunately, many companies never have this second epiphany. They do so at their own peril. Because, if done right, being “part of the product” can be the best possible thing. For paying customers. For non-paying people generating content. For businesses.
Cherish the people who aren’t paying you a dime. In the end, everyone can win and be happy and make a living.
That’s what a having a successful business strategy is all about.
-John “Pathfinder” Lester