UGC Is Dead And We Have Killed It

Nietzsche said God was dead not because He disappeared, but because society hollowed Him out.

In performance marketing, UGC is dead for the same reason. What started as something messy, human, unpredictable, and genuinely different turned into a checklist: briefs, creator marketplaces, templates, and AI tools. Once the format was standardized, it started behaving like any other crowded trade. 

Ad networks behave like financial markets. But instead of stocks, marketers trade attention and CPMs. When a new inefficiency appears in a market, a handful of early players quietly find an edge, everyone else floods in, and the very thing that made the “trade” special evaporates. By the time it shows up on a conference panel, the alpha is already gone. 

Why hedge funds (and agencies) exist

In The Algorithm, we argued that performance marketing and investing share parallel best practices. Those who claim to have “cracked the algorithm” (or markets) are charlatans chasing something that doesn’t really exist. There isn’t a magic toggle buried inside Ads Manager. There is simply a machine optimizing probabilities across billions of signals.

In ads, it’s basically the same thing: go broad, make a bunch of creative, let the system figure it out. Trying to outsmart the platform usually means you’re just paying a tax to feel clever.

In finance, the conclusion is that you buy the index (S&P) and forget about it. So why do hedge funds actually exist?

For retail investors, sure: If you’re not already in the market, your next dollar probably belongs in an index like $SPY. But institutions with large capital stacks are different. 

They think (mostly) about two things: “beta,” which measures how related a portfolio is to the market, and “alpha,” which measures a portfolio’s orthogonal performance. Simply buying the index has perfect beta. This is good because markets usually go up. It’s bad because it gives no protection if everything moves together. These institutions already have tons of market exposure and they don’t need “more market.” They need things that behave differently when everything else moves the same way, i.e. alpha.

Alpha comes from unique insight and timing and gets squeezed very easily. That’s why the best hedge funds don’t take a lot of money (Renaissance’s medallion fund has been closed to external investors since 1993). 

Very reductively, alpha is zero-sum. If more people find out about an opportunity, the opportunity erodes. Sometimes alpha eventually becomes beta when the market figures out something is mispriced: the price adjusts and the edge is gone. 

Hedge funds exist to go find that alpha on behalf of institutional capital. They’re measured on whether that alpha is worth it through fancy words like Sharpe, factor neutrality, etc., but that’s not the point of the essay so if you really give a shit you can read more here.

For most advertisers, especially those spending modestly, beta is not just fine but actually optimal. But, if you’re doing a good job, spend scales and performance marketing becomes something your CEO actually cares about. You’re no longer thinking about single campaigns; you’re thinking about capital allocation, risk, variance, and what your return looks like over time.

At that level, “just buy the market” becomes insufficient (even irresponsible) and you need an edge.

UGC was a trade

TikTok (and “for-you” style feeds at large) built a distribution system that rewarded authenticity. The For You Page prioritized watch time and interest instead of status or follower count. Content that felt real got outsized reach and advertisers realized you could basically buy that authenticity by just paying a random creator to say your product is great and run it as an ad.

For a while, UGC was alpha. It blended into the platforms, converted well, and allowed for content to become the new targeting. We gave a talk about this a few years ago.

Eventually, UGC became the best practice. Creator sourcing got easier, briefs got standardized, UGC marketplaces/tooling added liquidity everywhere, and the financial advantage went away.

The audience sentiment shifted too. People got better at spotting bullshit and the authenticity that helped early UGC convert/blend into the FYP eroded. TLDR: UGC still works, it just moved from alpha to beta. It’s way harder to find winners and those UGC winners drive a lot less incremental return.

But muh AI ads!

Posts like this are a dime a dozen. AI makes it cheaper and faster to crank out UGC-style assets. You can spin up hundreds of variations in an afternoon, but so can everyone else.

If you and your competitor have roughly the same budget, the same tools, and you’re both pressing the same “generate more UGC” button, you’re both just scaling beta. You’re feeding the machine, not changing the trade you’re running.

Once you’re producing at the level you need to be, more volume is mostly diminishing returns. The real question isn’t “how do we make more AI ads,” it’s “what are we running that the rest of the market hasn’t priced in yet.” Anything after a minimum allocation to UGC ads should be spent on hunting alpha, not stacking more beta.

So where’s the alpha

Formats.

Everyone already agrees that creative drives performance. Meta, TikTok, and every other platform keeps shouting it. But if you actually read what they’re saying, the real takeaway isn’t “make 1000 UGC variations.” It’s that performance improves when you diversify formats: different structures, different storytelling frames, different ways creative shows up in the feed.

Simply rotating more UGC, more hooks, more iterations is a necessary but non-sufficient function. It’s market beta.

The alpha lives in discovering formats the market hasn’t priced in yet, that don’t look like the default, that behave differently in the Meta quagmire, and that unlock audiences your current UGC will never touch (our work w/ Betr is a great example).

Over the last quarter, we’ve seen the same pattern repeat across accounts. A small number of formats rise to the top, outperform for a window, and then decay as they get copied. That window doesn’t last long, which is why the work is moving quickly to apply it across the book while the edge still exists.

In practice, this has forced us to organize very differently. If formats are where the alpha lives, then the work isn’t defending a single creative idea forever. It’s building a system that can surface new formats quickly, test them aggressively, and move on once the market catches up.

That’s why we’ve doubled down on an in-house creative team, our own studio in NYC, and enough throughput to explore as many ideas as possible. AI helps compress the cycle and move faster in identifying winners, but it doesn’t create the edge. The edge comes from having the team, the volume, and the tolerance to move into a trade before it’s obvious, and to exit it once it’s no longer mispriced.

Alpha doesn't come from doing more. It comes from doing something before the market notices. That's why 2026 is the year of the format.