User-Generated Content Platforms : Managing the Relationship Triangle

A typical user-generated content (UGC) platform operates as an ecosystem: the platform provides incomes for the creators, the creators provide contents for the viewers, and the viewers provide advertising revenue to the platform, forming a relationship triangle. Managing a UGC platform is a delicate and dynamic balancing act around the relationship triangle. We adopt the continuous-time optimal-control framework to study the dynamic operational decisions of UGC platforms, including promotion, advertising, and revenue sharing. We find that, in a UGC platform’s earliest stages, it can maximize advertising revenue without worrying about stifling the viewer base growth, then gradually shift to balancing growth and profitability, until reverting back to maximizing revenue when the viewer base becomes saturated. This pattern is a result of the unique relationship triangle in UGC platforms and contrasts with the common wisdom about managing ad-supported free services. We further show that these insights are robust under liquidity constraints and allowing paid advertisement removal, and that sponsored contents do not fundamentally change the insights but offer surprising flexibilities in UGC business model implementations