Apparently, Piczo has hit hard times: users are fleeing, executives are leaving, advertisers are balking. The problem is, with many of these sites, advertisers never really signed on in the first place.  That’s definitely not a reflection of the people in place to sell ads at Piczo who I am sure are all pros; but their challenges are symptomatic of user-generation sites that have never proven the hypothesis that advertisers will flock to them because they have large audiences.

What do Marketers and Advertising Agencies Look For? 

In my experience with ad agencies and marketers, generally speaking, media planners and buyers look for six things, these are:

1- Audience size
2- The right demographics
3- Brand equity
4- Content they can feel comfortable with and projects positively on their brand
5- Other strong advertisers that are advertising on the site
6- Experience, comfort and familiarity with the people or publisher in question.

These user-generated content platforms simply don’t make the cut despite all of the audience in the world, they lack some or all of the other things.

But because of how many of these social networking sites are propped, a lot of things can go wrong, quickly.

Of course, it doesn’t help when audiences aren’t there or leaving, either.  As audiences jump from one social network to another, sites are forced to open up to a wider audience demographic, which hurts in the long term, because advertisers generally look for a high concentration of their targeted demographic.

I have no idea how Piczo will fare, but this general storyline will be a recurring one in 2008, partially because the tight credit markets make funding more challenging for ad-supported business plans that don’t capture ad dollars.

Investors just won’t have the appetite to put more money into these “advertising maybe” plays.  Revver sold for 35% of the funding it got.

This is a result of three things:

- advertisers don’t want to advertise on social networks
- VCs didn’t understand advertising when they invested these business plans, and with tight credit markets, they won’t invest any more, because they are already moving on to greener pastures.
- Overfunding in many of these companies forces them to go too big, too fast, diluting any actual value proposition to users, marketers and partners.

But because these companies have raised a lot of money, they hired plenty of people and probably assumed that their sales people could get the job done. I spoke to one sales person at one such company who asked to remain anonymous.

There’s a chain reaction:

Salespeople, naturally ones to promise a lot, went along with the big assumptions, until they hit the pavement and talked to ad agencies, got feedback and realized that marketers won’t exactly jump on board of these social networks based on audience size alone.

They want a few more things, one of which is “content surety” and another one is seeing other advertisers take the lead.  Advertisers, like VCs, suffer from herd mentality, too.

It becomes a vicious cycle, because then Piczo’s (for example) backers see the growth rates of Bebo and Facebook eat into their audience sizes, so they then move from being niche sites (in Pizco’s case reaching teenage girls) to more general ones.  What happens then is that advertisers who wanted to reach teenage girls and were considering making ad buys all of a sudden see a more general audience with a diluted teenage girl concentration… and then they balk.

This becomes a downward spiral as sites try to boost revenue in any way possible, forcing users to go elsewhere.

The same thing happened in the video space a few years ago when leading content producers got YouTube envy and dived into UGC:

- Bolt.com took a UGC turn and then died;
- ManiaTV also took a UGC turn last year but then did a 180 degree turn and went back to producing content.

All in all, content is king.  Any site that does not actually have content is doomed to fail.  Thankfully, there are a dozen or so content producers out there (and yes, we’re one of them, and one of the larger ones) and media companies are moving more and more of their libraries online (they’re not always doing it in the right way, but as a first step, it’s a welcome sign).  I hope that many of these sites like Piczo, Revver et al. can position themselves in a way that helps them stay around because they have built decent-sized audiences and while the value thereof remains to be seen, when there is an audience, there is usually some kind of value.