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Companies increasingly turn to consumer-generated videos to push products – but only with grea

From Dave — another one to put in the file as we (re)build

Companies increasingly turn to consumer-generated videos to push products – but only with great care. January 29, 2007 Issue

By Wendy Tanaka

An amateur video of Diet Coke and Mentos candies mixed together to produce shooting fountains of soda was one of the most-watched videos on the web last year; it also proved to be invaluable free advertising for Coca-Cola. To capitalize even more on the advertising windfall, the Atlanta-based beverage company hired the video makers—a professional juggler and a lawyer—to create another video of the soft drink and candy, and star in a 30-second Coke ad at the end.

Coca-Cola is far from alone in embracing the advertising and marketing potential of consumer-generated videos, which exploded in popularity last year after video-hosting site YouTube became a cultural phenomenon. Videos uploaded to YouTube were viewed 100 million times daily in 2006. In recent months, hundreds of brands have been furiously trying to use the medium in hopes of reaching more customers, especially the coveted 18- to 34-year-old set, which is skeptical of slick, corporate advertising. “If you’re a brand, and you’re not experimenting with consumer-generated advertising at some level, marketers scratch their heads,” says Gartner analyst Andrew Frank.

The trend is another example of how corporations are shifting advertising online, away from traditional print, radio, and television campaigns. Although online advertising generated just 6 percent of total U.S. ad revenues in 2005, it is expected to grow faster than traditional advertising in the coming years and make up nearly 9 percent of all U.S. ad dollars in 2011, according to JupiterResearch. In raw dollars, the research firm predicts total U.S. online ad revenues will double from $13 billion in 2005 to $26 billion in 2011. Revenues just from the fledgling video advertising sector—which includes both professionally produced and consumer-generated videos—are expected to soar five-fold in the United States from $251 million in 2005 to $1.3 billion in 2011.

The new consumer-generated medium has helped spawn the creation of startups like UGENmedia and ViTrue that aim to help companies capitalize on consumer-generated content by providing technologies that let them host video, photo, and text submissions from consumers. Roger Jehenson, president of New York City-based UGENmedia, sums it up this way: “Last year was the year of user-generated content. This is the year of user-generated marketing. People aren’t passive spectators anymore.”

To exploit the user-generated trend—which kicked into high gear last fall when Google put its stamp of approval on the space with its $1.65-billion acquisition of San Bruno, California-based YouTube—many companies are sponsoring contests in which ordinary people create video ads for their products. A few brands, such as Doritos, are airing their contest winners at the upcoming Super Bowl, the most-watched U.S. television event of the year—and the priciest for advertisers. Many brands pay upwards of $2 million to air a 30-second ad spot during the game.

In its “Crash The Super Bowl” ad contest, Doritos asked people to make videos that expressed their love for the triangular corn chips. The winning video will be announced and broadcast during the game on February 4. Doritos spokesman Jared Dougherty says the brand, which is owned by Purchase, New York-based PepsiCo, received 1,080 user-generated videos and selected five that were uploaded to the site, where consumers vote for the winner. The five finalists received $10,000 each, and Doritos will fly the winner to Miami, the location of this year’s Super Bowl.

Mr. Dougherty notes that some consumers went to great lengths to make their Doritos video. “We’ve seen people post casting calls on Craig’s List for their video,” he says. “We’ve seen MySpace pages of grassroots campaigns to get people to vote for their ad.”

Mr. Dougherty wouldn’t disclose how much Doritos spent to host the contest or how much it paid for an ad at the Super Bowl, but he says the snack maker definitely got its money’s worth. “The return on investment is engagement with the brand,” he says.

MasterCard was also after greater “engagement” when it sponsored a write-in contest last spring for a new “Priceless” TV ad. The credit card giant, which supplied the video, received 100,000 text submissions from consumers. The winning text aired with the video on TV last fall. Also in the fall, MasterCard relaunched its site, just six months after the original site went live, to handle text, photo, and video submissions from consumers. Since the revamp, the company says traffic on the site, which is devoted to the “Priceless” campaign touting things and events that defy a monetary value, has doubled that of the main MasterCard site. The company wouldn’t disclose traffic figures, except to say that had 1 million visitors in both November and December. The site includes consumer-made videos of “Priceless” things, such as a U.S. bakery making croissants that are as good as those found in France, or riding a motorcycle through Mexico.

And there’s some evidence that the revamped site is prompting people to sign up for MasterCard’s services. Consumers are “coming back to see the [consumer-generated] picks and clicking through on promotions and offers,” says Cheryl Guerin, vice president of promotions and interactive at MasterCard, based in Purchase, New York. “Their expectations have changed, and they’re expecting brands to interact with them.”

Seeing Green?

Experiments with consumer-generated video on corporate sites have so far mostly yielded more traffic, not driven sales in any appreciable way. But that could change in 2007. Deloitte & Touche managing partner Tony Kern, who specializes in media and entertainment, says it’s just a matter of time before companies start seeing green. In general, he says, user-generated content gives companies “better contact and more direct contact” to consumers, and “the better the customer experience, the better the buying patterns are.”

The big guns of online video—YouTube, MySpace, Google, and Yahoo—are hardly immune to the fact that consumer-generated videos are morphing from home videos of cats and toddlers into slick advertising productions. These sites provide consulting and web-hosting services to companies that want to promote their brands via consumer-generated videos. Toyota, for instance, partnered with MySpace on a promotion for its new Yaris model.

Doritos’ Super Bowl challenge is being “powered” by Yahoo Video and Jumpcut, the video-editing startup that the Sunnyvale, California-based Internet company acquired last year. The Coke-sponsored Diet Coke and Mentos video is hosted on Coca-Cola’s main site, as well as Google Video. Mountain View, California-based Google receives ad revenues from the Coke video. And YouTube hosted a contest with Cingular to select the best homemade videos of independent bands.

Corporations and Internet giants aren’t the only ones cashing in on the consumer-generated video phenomenon. A cottage industry of startups has emerged to help big companies create and manage user-generated video contests. UGENmedia, which sprang up last year, has snagged a half-dozen contracts for such projects as consumer contests for the Sunlight Foundation and Skechers shoes. UGEN’s software platform helped Washington, D.C.-based Sunlight, an organization that disseminates information about the U.S. Congress via the Internet, create a site to host a contest for a consumer-made video that implores Congress to do a better job. For Manhattan Beach, California-based Skechers, UGEN created the site Consumers take pictures of their Skechers and post them on the site. Posters will receive a coupon for a discount on their next pair of Skechers.

UGEN says it charges companies on average $75,000 to $125,000 to create and manage an online contest. UGEN was founded in January 2006 with $50,000 in personal money from co-founders Mr. Jehenson, a former senior vice president at Right Media, an online display advertising exchange that Yahoo acquired a 20 percent stake in last year, and Adam Benjamin, a former vice president at online advertiser DoubleClick.

Mr. Jehenson says corporations were hesitant at first to experiment with consumer-generated content. But they changed their minds once they realized that it was the only way to reach young consumers. “When I talked to marketers in January 2006, there was a reluctance to give up control,” Mr. Jehenson says. “In July, I started to see a shift from, ‘Should I do this?’ to ‘How do I do this?’”

So far, UGEN’s main competitor is ViTrue. Up and running only since May, the Atlanta-based startup has a dozen customers, and plans to add a dozen more by year’s end. Clients include Turner Broadcasting System, MTV, and the Cincinnati Bengals football team. Like UGEN, ViTrue helps companies and organizations create and manage sites for consumer contests and community input. For the Bengals, ViTrue created a site to accept consumer-made videos that profess a passion for the team. The Bengals pick a couple of videos to broadcast on a jumbotron at home games. Jason Subramaniam, ViTrue’s chief product officer, says the Bengals hope the videos will draw more home viewers, which will lure more advertisers and ad dollars to the team.

ViTrue has also helped two clients—Moe’s Southwest Grill, a burrito chain in Atlanta, and Lance, a Charlotte, North Carolina-based cookie maker—host consumer-generated video contests that tout their brands. Mr. Subramaniam says the companies are thinking of using the winning videos as TV commercials.

ViTrue charges companies $75,000 to $100,000 on average to set up a site for consumer-generated content. It also charges about $10,000 per month to maintain the site and monitor content. ViTrue got started with $6 million in funding from its CEO Reggie Bradford, a former chief marketing officer at WebMD, venture firm General Catalyst, Turner Broadcasting, and cable giant Comcast.

Great Unknowns

Of course, there are still many unknowns about the direction of user-generated videos in corporate advertising. Though most companies aren’t paying consumers for content yet, it’s still not an entirely free endeavor. Companies still have marketing, online hosting, and administrative costs associated with user-generated programs. Still, Mr. Jehenson says the average cost of a 30-second TV ad, including production and airtime costs, can run $500,000 to $1 million, and is a far greater expense to companies than consumer-generated campaigns, which can cost just a few thousand dollars.

Other companies are starting to pay consumers directly for their work. Sony Electronics plans to unveil a revenue-sharing plan with consumer content makers this year. The company, which currently operates a site that accepts consumer submissions, such as wallpaper for the PlayStation 3, wouldn’t disclose details of its revenue-sharing plan. Spokesman Dave Karraker says the consumer-generated movement “is allowing consumers to create content, share content, and sell content using your platform. We’re taking a very close look into how we’ll do that.”

All of this corporate attention has created a new avenue for budding video and filmmakers looking to get noticed online, rather than relying on the hard-to-crack Hollywood system of studios and agents. The five finalists in the Doritos Super Bowl ad contest, for example, were mostly aspiring or experienced moviemakers. Even movie executives have caught on to the consumer-generated phenomenon, and are now trawling YouTube and other sites for talent (see “Famous, Almost.” Vol. 3, No. 41, p. 28).

It can be dangerous, however, for companies to give consumers too much free rein. MasterCard, for example, monitors all of the entries to and posts only the ones it deems suitable. “They don’t go up live, like on YouTube,” Ms. Guerin says.

Gartner’s Mr. Frank says companies need to walk a fine line between letting their customers express themselves and carefully controlling their content. “If you sell an SUV, you can wind up being branded as a destroyer of the planet,” he says. “Any liabilities a brand has are going to get amplified in the user-generated environment.”

© 1993-2006 Red Herring, Inc. All rights reserved.

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