Submitted by Morgan Smith as part of our
Gone were the days when content driven platform would have to
hire full-time employees to do fill up contents on their site. Take
for example, Google (
) AdSense's business model. It is a free program that signs up
bloggers to earn from their advertising program. The bloggers
provide the content for Google and gets paid for it every time a
visitor clicks on the relevant Google display ads. For advertisers
who signed up for Google, the benefit is that it will have exposure
based on targeted audience's interests from valid clicks and
This has been profitable for the company for the last 10 years.
In fact, its advertising revenues accounted for more than 95% of
its total revenues albeit growth from the company's other revenues.
Specifically, this has been a profitable venture for the company.
It has generated revenues of more than $10 billion in 2011 with an
average growth of more than 20%. Over the last 3 quarters, it has
generated revenues of almost $3 billion per quarter.
Despite the outset of several advertising network such as
Chikita, Adbrite and others, it is indeed surprising to see double
digit gains from this set-up. The reason is that advertisers still
trust Google and content providers get paid handsomely. Even other
Google websites such as
count on content. Majority of Google's revenue comes from these
sites. For the last 2 years, Google websites generated more than
$20 billion in revenues. This also translates to growth of more
than 25% for the period. Given the profitability of a user-driven
advertising platform, Google's competitors are catching up in the
hope of chipping away some of Google's market share in the
advertising industry. Yahoo (
with Microsoft's (
) Bing and Media.net to launch a similar network with contextual
ads. The program also allows web publishers, including blogs,
online publications and similar sites to set up an Adsense-like
income on their websites.
Although Google will still be the dominant player in this space,
advertising with Bing and Yahoo could mean reaching out to new
consumers. Recall that Yahoo abandoned this model in 2010. Yahoo
CEO Marissa Mayer decided to give this business model another try
this year. Mayer targets to grow as fast as its competitors in
online search, display advertising, mobile applications and invest
in products. The strategy is to revitalize Yahoo's existing
business and focus on small acquisitions of less than $100 million.
I expect Mayer to follow the same lines as Google given her
exposure in the company's product division. In contrast, Microsoft
has been looking for partners and acquisitions to boost its search
engine. The result has been not that great so far. Microsoft CEO
Steve Ballmer has admitted that it has failed to catch up with
Google's advertising model. In fact, it has taken a $6.2 billion
write-off and expects that the business will not grow as expected.
In short, this so called crowdsourcing the content model works best
for search engine giants such as Google and Yahoo.
The idea of crowdsourcing is to tap into the collective
intelligence of the crowd to complete business transactions that a
company would normally either perform itself or outsource to third
party. The main attraction of the model is that it lowers its fixed
costs such as salaried employees but also broadens its talent pool.
This also gives the company insights into what customers really
This in turn will result to higher productivity for companies
and creativity while reducing labor and research expenses. In terms
of financials, this translates to higher operating margins.
Google's operating margins have been in the mid-30′s range,
significantly higher than any American company. I expect that this
will continue as it continues to carry significant competitive
advantage over its peers.
This model is not confined in the advertising space. As long as
there is a need for content, crowdsourcing will work perfectly
fine. For instance, crowdsourcing works well on exam content and
preparation. There is a site called TestDesigner.com, an online
resource that utilizes member generated content to assist
professors in developing quality exams and activities. The website
was launched in 2005. The good thing is that one can create his or
her own questions or just pick out good questions from other
members. The site has different categories divided into different
subjects such as Arts, Math, Science and Social Studies. One could
also search on a particular user who has created various questions
that matches one's need and preferences. The site has been gaining
traction over the last few months, which would result in more users
and quality exams questions.
This model has also been adopted in the financial industry as
more venture capitalists are
crowdsourcing raising capital
. As mentioned above, the community of users can improve the
process of trend research and moving away from the focus groups.
These customers will be key factors in the operational functions of
the company like marketing, branding and product development. Over
time, this will yield to better profitability for the company.
There have been money practitioners in the field already such as
istockphoto that lets both amateur and professional photographer to
contribute, Netflix (
) which uses algorithms to offer customer recommendation and
Threadless.com allowing online members to submit shirt designs and
vote on ones that should be produced.
A weaker argument for crowdsourcing is that crowds are not
employees. In short, the company's executives do not have control
over them. These users also demand intangible goods such as
satisfaction, recognition and freedom in lieu of cash and monetary
incentives. Also traditional companies would have hard time
adapting this kind of model given the centralized environment it
has. Despite these negatives, I believe that many new age companies
is expected to adopt this kind of business model as its positives
certainly outweighs the overall negatives.