Forrester Research (subscription required): How Nico Nico Douga Energizes its Community to Create Appealing Video Experiences:

Japan’s second largest online video portal – Nico Nico Douga – has succeeded in engaging its target audience of young Japanese consumers.

Nico Nico Douga – a homegrown video-sharing community – grew to 7 million registered members between its January 2007 launch and July of 2008.

If you’ve never seen the interface, it’s wild. It’s a complete, anonymous free-for-all: viewers of videos create colorful, witty, comments that appear at selected times, overlayed on top of the video, creating an immersive, cluttered, meta-rich viewing experience for online videos. And since the users’ additions and comments only stay up for days or weeks, the experience is constantly changing. This is not YouTube.

[Nico Nico Douga was originally] an interface for viewing YouTube content rather than a site in its own right. However, after YouTube blocked Nico Nico Douga from showing YouTube content, the owners … relaunched their service two weeks later as a full video sharing community.

Even though user growth was strong, Nico Nico Douga struggled to monetize its service. Instead of succumbing to indirect monetization efforts such as advertising…

Rather than alienating the community by interrupting people’s experience with ads, Nico Nico Douga launched a low-price “premium” membership (500 yen per month), with minimal benefits (e.g. a few high-definition videos and some extra fonts and colors to use on screen).

Even though virtually all content and function is available without upgrading, 200,000 of Nico Nico Douga’s members were motivated to sign up by their desire to ensure the community’s survival. The fees provide 60% of the company’s revenue.

The freemium model can work. I doubt the paying members pay just because they want to keep the community alive: anyone doubt there is a “badging effect”? Give people the opportunity to display their status and they will take it: and they’ll even pay for it if it helps differentiate themselves to their community.

Creators and viewers of videos can place links to Amazon Japan and other retailers under the videos – letting people buy items that are related to the videos Fans of a particular video are often the best judges of whether other fans would appreciate a link to buy figurines that look like the characters in the video or purchase the background music. Users can see how many sales were generated, but Nico Nico Douga keeps the affiliate revenues. The site’s executives say it would destroy the atmosphere of the community if people started to participate with the aim of earning affiliate revenue rather than for the sake of generating and sharing cool content. (emphasis added by me)

Again, incentives guide behavior.

Nico Nico Douga executives “trust their instinct rather than employ methodical research and design processes.” How?

• Hiring people who are its target audience.
• Having a culture that puts the fan base first.
• Relishing popularizing content created by the fan base.

For example, Nico Nico Douga’s target audience are “young slackers”, and they intentionally target employees with “High School of Junior High School” educations, eschewing university graduates. Not exactly normal in Japan. Unsurprisingly, they enjoy and are good at cultivating and supporting an audience that enjoys tweaking mainstream culture.

There are plenty of communities in other web cultures around the world with fantastic user bases: what can we learn from others’ experiences?

When will learn that monetizing eyeballs is not just about advertising?

When will we learn that advertising on social networks doesn’t work?

When will we realize that nobody really likes ads?

When will we learn to monetize intention, not attention?