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From financial point of view, obviously free content is better, but in reality it is not, as from a Site management point of view again #2 is better, content entered by strangers has to be closely monitored.
Which do you think will convert better for your advertisers? Another question you have to ask yourself.
I would choose less frequent quality over daily low quality content.
'Free' articles are usually rubbish that people have thrown together to get a link back - they submit the same trash to 2,000 sites (and in most cases, it was unoriginal in the first place).
All that merely clutters the web with duplicate garbage, and Google - quite rightly - has developed an allergy to the stuff (as have I ;) ).
Google LOVES original, unique content; so your site will do much, much better, medium to long term, with your own work.
Slower to get going - but well worth the patience.
#1 could get you sued. Do you know that all of this free content is legal? Sure, you can have your fun little disclaimers, but you will be first in line to be sued. After your civil case, you can then proceed against others--if you even know who they really are.
I have run an articles submission website for about 9 months or so now. Let me tell you this. 99.5% of the articles submitted are garbage. On a scale of 1-10, the writing is between 1 and 4 on average.
Sure, people think they are writing well, but that's like a minor league ball player thinking he is great.
Hire real writers and get real content.
Using many of the article databses is like sifting for gold. Although there often are good articles amongst them it can be a bit labourious and I can't imagine the approach is good for engaging visitors.
On that subject, has anyone had any success from the other end of it? (i.e submitting their own articles to directories)
However, if you want to publish the defitive article on a type of drug or any kind of self help, resource (think evergreen) contents, yopu'll require better writers. That means you may have to pay.