User-Gen Space Poised for Growth

NEW YORK User-generated content on the Web is set to rapidly shift from a budding consumer trend to a serious business over the next five years.

Ad spending on Web sites that have built their traffic on user-gen staples like social networking, photo sharing and amateur video is expected to soar to $4.3 billion in 2011, according to a new report issued by eMarketer. That’s a whopping increase of 330 percent versus the $1 billion expected to be spent in the space this year—which is itself more than double the $450 million in ad revenue tracked by eMarketer in 2006.

Despite the ongoing challenges facing UGC sites to find a business model that works, and despite continued hesitancy among some major brands to even go near the explosive space, eMarketer predicts that category leaders such as YouTube, MySpace, Facebook and Photobucket will lead the charge in terms of legitimizing the medium over the next five years. “The nearly tenfold increase in user-generated content advertising spending in the U.S. reflects optimism in the ability of companies like YouTube, MySpace and Facebook to continue to build and retain vast audiences,” says the report.

Plus, users have shown no indication that creating their own Web content for others to consume is a passing fad, found eMarketer. By 2011, the researcher estimates there will be 95 million Web users creating content online, up from 64 million last year.

Among the various segments that have exhibited hefty growth over the last several years, eMarketer believes that social networking sites will command the biggest slice of the UGC ad pie—perhaps due to how much further ahead sites like News Corp.’s MySpace as well as Facebook are at monetizing their content than Google’s YouTube. Spending on social networking sites should balloon to $3.6 billion in 2011, up from the mere $445 million spent last year. By 2011, ad spending on these sites should account for nearly 7 percent of online advertising, says the report.

Yet UGC video is likely to enjoy a burst of new ad dollars as well. While online video spending in general should grow exponentially over the next five years to $4.1 billion (up from a measly $410 million last year), dollars allocated to user-generated video should approach a $1 billion over the same time period, according to research compiled by Screen Digest, said eMarketer. By that time, users will be streaming close to 50 million video clips a year, up from 12.4 billion in 2006, according to the report.