As we all know, user-generated content is the heart and soul of Web 2.0. Because of all our addictions…’er I mean “passions,” 100+ million of us around the world spend many hours a week populating sites like Facebook, MySpace, Digg, and YouTube with our content. From creating videos to uploading pictures to posting articles, we toil away day after day like ants building an ant hill. The problem is at the end of the day, aside from the pure fun we experience, we don’t receive any monetary compensation for all our hard work. Ah…but rest assured somebody does.  The founders, employees and investors – usually venture capitalists – of these social media sites are all getting rich off our sweatshop labor for which we receive zero compensation – that would be nil, nada, zippity-doo-da.

NewsCorp acquired MySpace for $580 million and today’s valuation is projected to be $20+ billion. Google acquired YouTube for $1.8 billion in spite of the fact that it had virtually no revenue at the time and only 65 employees. And according to Forbes’ recently published World’s Billionaire List, the youngest person on the list is 23-year-old Facebook founder Mark Zuckerberg, who is quite possibly the world’s youngest self-made billionaire ever. Go Mark!

Why are these companies being given such a high valuation? Is it based on high revenue? High margin? Negative ghost rider. The reason is because of you and me and the 100+ million people around the world who are participants of this Web 2.0 sweatshop economy.

Metcalfe’s Law on “Network Valuation” states that the combined value of the network is proportional to the square of the number of participants. For people like me who loath math, the net/net of what this means is more members, more money (in valuation not revenue). For a less mathematical explanation, I like BusinessWeek’s approach to valuation. In May 2007, BusinessWeek stated “the value of the business is beyond cash flow and P&L …the value is in the creation, power and size of the network.” The common denominator in both these valuation methodologies is you, me and our content.

What happened to the “Power to the People” mantra of Web 2.0? Power, yes. Money, no. But as Bob Dylan once said, “the times they are a changing.”  Companies like Lemonade are paving the way for the social economics revolution where users can leverage social media activity to earn money. In the spirit of full disclosure, it’s important I note that Lemonade is a Kel & Partners client. Lemonade enables individuals to make money by setting up a digital lemonade stand on their social networking profile, blog or personal website to sell and promote personally selected products/services. Lemonade is not alone in its quest to allow people to monetize their social media activity. Social media sites like Capazoo.com are doing the same. Members of Capazoo.com will share in 7% of all net profits three times a year and in 10% of advertising revenues once a month.

Do you think it’s fair that users are not compensated for their content?