Opinion

Felix Salmon

What will Henry Blodget do with Jeff Bezos’s millions?

Felix Salmon
Apr 5, 2013 18:25 UTC

The news of the day in the media world is that Jeff Bezos has led a $5 million Series E funding round for Business Insider. Here’s the story, according to CEO Henry Blodget:

Jeff’s investment grew out of a dinner he and I had about a year ago. We talked about the business, and he was excited about it. (He sees some parallels with Amazon). A few months later, he expressed an interest in investing. My reaction was basically “Hell, yeah!”

Blodget has now articulated a simple public goal: “to become the best digital business publication on the planet”. It’s a conscious echo of Bloomberg’s stated aim to be “the world’s most influential news organization”. If he needs to invest millions of dollars of other people’s money to get there, that’s fine.

Blodget goes on to say that he’s obsessed with his customers — both readers and advertisers — and that his customer focus is the main thing he shares with Bezos. (Well, that and his famous Amazon call, of course.) He also says that Bezos’s money “will allow us to continue to invest in our editorial, technology, and client teams” — which almost certainly means that there’s no chance, now, of Business Insider being profitable in 2013. Six years after it was launched, the site is still in growth mode.

And frankly, there are quite a lot of things that Blodget could use the money for, if he is really focused on the reader experience — indeed, there are so many things that he could probably spend all that money quite a few times over, if he wanted. The site could use a redesign, for starters, to make stories pop more for readers and to provide more attractive opportunities for advertisers. On top of that, the architecture of the site should reflect the way that stories are covered. Here’s how BI’s editorial chiefs see the way that they work:

“We don’t really think of things we put up as ‘an article,’” said Carlson. “It’s a bit of information conveyed to people. One of my old colleagues used to say that the last sentence of your last post is the first sentence of your next post. Because by the time you reach the end you sort of come to a cliff, ‘Oh I have another thought on this and I’m just going to put it in the next post.’ In a way, it does sort of become a narrative. For sure, I think [that's] the attraction of reading something at Business Insider … It’s a live medium where the narrative is always coming out with the next thing.”

Weisenthal is often reminded how differently digital outlets such as BI work when it comes time to submit content for awards.

“They have the journalism competitions where they invite people to apply and they always say, ‘Submit your top three posts for consideration that you’re most proud of’ or something like that,” he said. “And I can never come up with the stuff. I don’t think I have a single great post last year that I’m really proud of. Everything I write is part of this bigger stream.”

He pointed to his real-time blanket coverage of the monthly U.S. jobs report as an example. “If you follow me on Jobs Day, within like 20 minutes of the report coming out, I have a summary posted,” he said. “Then I have another post singling out one detail I thought was interesting. I have another post saying what it might mean for interest rates and fed policy. I have another post talking about the political dimensions and so forth. I’m proud of the fact that it’s this whole suite of stories.”

I’m an admirer of this form of journalism, and I think that many media organizations, including Reuters, are going to move in this direction. But right now, if you go to one of Joe’s payrolls posts, it’s not easy to find all the other ones — to have them all in one place, together giving the bigger picture. In order to be able to allow that, Blodget will need to make some serious technology investments.

What’s more, a re-engineered website might well result in a website with significantly fewer pageviews. If you can see all of Joe’s payrolls posts on one page, then that means fewer pageviews for BI than if you call up all ten of them individually. For most of its existence, BI has been in an uncomfortable race, trying to increase the number of pageviews it serves up faster than its CPMs are falling. Investors are generally OK with losses, which reportedly reached $3 million last year, only so long as revenues are growing. And they are growing: Blodget tells me they were more than $10 million in 2012, up from about $7.5 million in 2011 and $4.7 million in 2010.

The problem is that in the chase for revenue growth, Blodget is sacrificing a pleasant user experience. He installs ugly automatic links under certain phrases, for instance, which when you mouse over them start playing video ads. Or he sells a lot of interstitial ads which force you to click another time before reaching the story you want to read. Quartz points out that there’s a good chance Business Insider is worth less than the much younger BuzzFeed, where CEO Jonah Peretti is adamant that he’ll never run a BI-style slideshow, or even “crappy display ads”, just because readers clearly prefer everything on one page and don’t get value from those ads.

The problem is that if Blodget decides to pare back on artificial revenue juicers which readers dislike, that hurts revenue growth as well as profits — even as BI is saying that it intends to accelerate revenues this year to something in the $15 million range. In order to keep revenues growing even as he re-engineers his site to make it sleeker and less optimized towards pageview maximization, Blodget would have to invest not only in technology, but also in sales — paying big money for expensive staffers to build relationships with brands. BI gets too much of its revenue from banner ads right now: it needs to diversify its ad revenue, and start finding more ways for brands to reach BI’s coveted readership. One of those new channels is conference sponsorship, and I expect that BI will use a bunch of its new money to invest aggressively in conferences. But one of the big hidden costs behind building a new kind of website is the fact that you need to build a new kind of sales team, too, selling the kind of products which are often referred to as “native”, whatever that’s supposed to mean.

Business Insider has always been run on something of a shoestring; it made the entirely understandable decision, for instance, to hold onto a large chunk of the capital it raised in the past, rather than blowing through it and then suddenly being forced to cut back for the sake of profitability. This new round allows BI to increase the amount it’s investing while still retaining a reassuring cushion. But $5 million is not remotely enough money to allow Blodget to pivot to a very different business model, even if he wanted to do so, which he probably doesn’t. For better or for worse, he’s stuck in a world of banner ads and CPMs, and although he’s done well in that world to date, the future of that world looks pretty bleak.

There are many sites, Gawker Media’s foremost among them, which have gone to great lengths to wean themselves off their addiction to banner ads. And in general it seems to me self-evident that “the best digital business publication on the planet” is not going to be one which aggressively chases pageviews and ad revenues at the expense of the user experience. By thinking of stories as streams, Joe Weisenthal found a great way of juicing pageviews, since every element of that stream, under the current architecture, is a new story and a new page. But he’s also stumbled upon a powerful and addictive new form of journalism, which is Blodget’s best hope for achieving his ambition. The question is: will Blodget be willing to give up his current business model, in order to let Weisenthal follow his editorial vision to its logical conclusion?

COMMENT

Henry Bodget was pumping stocks on CNBC, etc then emailing his important clients and telling them that these same stocks were garbage and to sell them when they rallied on his buy recomendation. He was, and still is hyping overpriced amazon as his wall street buddy is Jeff Bezos. Bezos has now rewarded Bloget with a 5 million dollar investment for hyping amazon stock.
Both Bezos and Blodget are wall street crooks who belong behind bars. Boycott amazon and send a message to Bezos that his paying off wall street to prop up his stock price is both illegal and immoral. Boycott amazon and send these two crooks into the gutter where they belong

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Content economics, part 1: advertising

Felix Salmon
Feb 21, 2013 00:59 UTC

Back in December, Peter Kafka summed up the most important question with regards to the future of online advertising. Do advertising dollars ultimately end up where people spend their time, he asked, echoing Kleiner Perkins’ Mary Meeker says, or, pace Bernstein Research’s Todd Juenger, is that a “fallacy”?

I’m with Juenger on this one. As he says, “time spent is supply, advertising spend is demand… Just because there is a large and growing supply of Internet inventory doesn’t mean advertisers have a correspondingly large desire to deliver more Internet impressions.” Indeed, as the price of online inventory continues to fall, it seems just as likely that online ad spend will go down (because the ads being bought are getting cheaper) as that it will go up.

According to Meeker, some 67% of all ad dollars are spent either on TV or in print. And according to Juenger, ad spend on TV actually went up, between 2009 and 2012, even as Americans’ attention moved away from TV and towards other screens. That makes sense to me, mainly because of the point I was making back in 2009, drawing the distinction between brand advertising, on the one hand, and direct marketing, on the other. TV is brand advertising; online ads, by contrast, are closer to direct marketing.

When people like Meeker look at ad spend, they’re looking mainly at brand advertising. Brands are valuable things, and billions of dollars are spent every year to keep them that way, mostly on TV and in print. And if you have a big national brand, there’s really only one way to reach a big national audience: you need to buy ads on TV. Doing so is expensive, but it’s necessary, and it works, which explains the huge sums of money which still flow into TV every year.

As Juenger explains, the audience for network TV has been shrinking by 1.8% per year for the past 20 years — but at the same time, the audience for every other TV channel  has been “atomized into increasingly tinier fragments”, leaving the networks the only game in town for advertisers wanting scale. The result is that network-TV ads have been increasing in price by 4.9% per year on a per-person-reached basis, resulting in total revenues growing, by 3% a year, in a market which is actually shrinking.

The corollary to the continued success of network TV is the utter irrelevance of online ads. Here’s a handy chart from Nielsen, breaking down the amount of time we spend in front of various screens each month:

sun.tiff

TV is still the monster, the elephant: for all the talk of cord-cutting, Americans have clearly voted that, given the choice, they’d much rather have cable TV than broadband internet.

And for web-based publishers, the situation is much, much worse even than this chart makes it look. Consider: the number of websites out there is many orders of magnitude greater than the number of TV channels, which means that even as network TV is winning over small cable channels, small cable channels are still in a much better position than just about any website which isn’t called Facebook or Google or Yahoo. Moreover, if you’re running a news site, you’ll be even more sobered to learn that just 2.7% of the time that people spend on the internet is spent on news sites. You think you’re competing against a lot of other news sites to attract advertisers? You don’t know the half of it. In reality, you’re competing against the other 97.3% of websites, and they are competing against TV. It’s a fight you can’t hope to win, especially since non-news websites are so much better at delivering people primed to buy stuff (search) or delivering large numbers of people in narrowly-targeted demographics (Facebook).

The key concept at the heart of Juenger’s fallacy — the thing which Meeker doesn’t seem to understand — is the fact that internet advertising in no way substitutes for TV or print advertising, no matter how often digital ad-sales people bring out their metrics of comparative CPMs.

In 2011, I gave a talk to a group of online ad-sales people who were so full of the multitude of different ways that they could target and quantify their product, they literally no longer understood what brand advertising is, or why it exists, or why brands would be so foolish as to spend so much money on it. They’re quants, living in a world where something only has value insofar as it can be quantified, and where the unquantifiable therefore is perceived to have no value at all. In other words, they’re basically in the direct-marketing business: they’re the digital version of junk mail. As a result, just about every website in the world is in the business of delivering that digital junk mail to our computers and iPhones and iPads.

This, then, is the biggest reason why TV ad dollars are not going to become online ad dollars: online ads simply don’t do what TV ads do. TV ads are large and beautifully produced and expensive, and they’re presented on a beautiful screen without distractions: they fill up the screen, and 30 seconds of time, and they appear often enough that they become part of the world of the people watching 145 hours of TV every month. Online ads don’t behave like that at all: they’re easy to ignore, there’s nothing inherently interesting about them, and insofar as they grab your attention, they tend to do so in a very annoying way, by preventing you from reading or watching the thing you were looking for.

Hence the rise of so-called native ads: things you want to read and look at and click on. There’s a certain amount of promise there, and the native-ad industry is certainly going to grow from its present size. But it’s tough: building these things is a huge amount of work for the advertiser, with no guaranteed payoff. And selling them is even more work for any publisher.

And here’s the next big problem with selling online advertising, especially native advertising: it’s really expensive to do so. While online journalism is still cheap, online ad-sales staffers tend to cost a fortune, especially if they have a clue what they’re doing. This is something the Meekers of the world would do well to remember: the ad dollars spent online are spread across so many sites that a massive proportion of them end up just going straight into the pockets of the people selling those units, or else to the various ad networks and other intermediaries which have popped up in a very busy and messy space.

Display-LUMAscape_2012-04-05.jpg

This kind of thing just doesn’t exist in TV or even in brand advertising more generally — areas which are much simpler, much easier to navigate, and which sit much more comfortably within consumers’ comfort zone. And it’s not going away. I was told this evening that Buzzfeed alone has no fewer than sixty ad-sales people, all of whom are out there, knocking on doors, taking potential clients out to lunch, and generating income one hard-won deal at a time. That doesn’t scale. (Update: BuzzFeed CEO Jonah Peretti says that the actual number is 19.)

Indeed, if you want to get your brand out there on the internet, you can try buying ads on websites, or you can try going native on a site like Buzzfeed, but the fact is that the whole point of the internet is that it disintermediates: it’s great at drawing direct connections. Hence the rise of what’s known as “content marketing”: why buy ad space from a publisher, when you can be the publisher instead? We’re still in the early days of this, but already musicians are discovering that brands are much friendlier — and pay much higher rates — than record labels, while American Express has been employing extremely good journalists for years.

On top of that, as Liz Gannes and Noah Brier note, nobody “goes online” any more: the internet is becoming an ambient background thing-that’s-always-there, rather than a mass communications medium that people consciously think of themselves as paying attention to. When you pick up a magazine, you do so because you want to read it; similarly, when you turn on the TV. But the internet is different: your phone is always just sitting there, and sometimes it beeps at you; your computer is always on your desk at work, and it’s never not online. In a mobile world, the distinction between being online and not being online is an increasingly silly one to draw. And as a result, the idea of using “time spent online” as a useful metric of anything, really, is equally silly.

So if the internet is not going to displace TV as a medium for mass-market brand advertising, might it at least be good at direct marketing? Can publishers not deliver certain readers, in certain demographics, to marketers who want to reach them? To a certain extent, yes. But the fact is that Google and Facebook, between them, are extremely good at delivering as many of those readers as any advertiser could ever want: all that Facebook needs to do is turn a dial, and billions of new impressions get added to the stock of global inventory, targeted at any demographic that any advertiser could want. Google, similarly, owns search, especially mobile search. It’s conceivable that some marketers might prefer to reach an audience some other way — but this is a race to the bottom, with a finite amount of demand chasing an essentially infinite amount of supply. That’s a buyer’s world, where the sellers have no real leverage at all.

Some very large proportion of the websites on the internet have a pretty basic business model: “we will publish great content; millions of people will want to read or view that content; advertisers will want to reach those people; and so we’ll be able to sell our audience to advertisers and make lots of money”. There are people out there who have succeeded with that model, but the number of successes is dwarfed by the number of failures, and the amount of scale you need to even get your foot in any media buyer’s door has been rising dramatically for years. By the time you’ve paid for your content and for your ad-sales infrastructure, the chances that you’ll have any money at all left over for your shareholders are slim indeed, and getting slimmer year by year.

All of which means that smart online publishers are looking beyond advertising, to other forms of generating revenues. But that story will have to wait for part 2.

COMMENT

The most preposterous thing about that Nielsen graphic is that people spend more than ten times as much time watching live tv as DVR’d TV. Really? The only people who sit through an ad these days (other than sports) are the ones who can’t find the remote. Upton Sinclair’s quote, “It is difficult to get a man to understand something, when his salary depends on his not understanding it” is totally relevant here. Neither the networks, nor the tv ad buyers, nor nielsen have any incentive to acknowledge how the world is changing, and they never will. We all just have to wait for them all to die, and then a new generation of ad buyers will redirect those ad dollars to online. And ‘site wraps’, as innovated by Denton, are very much branded advertising.

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Henry Blodget allows embedded content

Felix Salmon
Aug 20, 2009 18:55 UTC

Well done to Henry Blodget, who is now allowing anybody to republish his content for free, by embedding posts from his site. Like this:

This is a great idea, and something I’ve wanted to do for a while. Bloggers want their stuff read by as many people as possible, and there’s no need to force your readers to come to your own site before your readers can do that.

Henry, by doing this, is allowing his most engaged readers to pick and choose their favorite articles and put them on their own sites — it’s free advertising for him, it gives him reach to a large number of readers he otherwise wouldn’t have, and it shows a real embrace of the medium, and a desire to reach readers in the manner most convenient for them. All of that is a great way of building a business.

There’s been talk of publishers doing something like this for some time, often with ads embedded along with the copy, but this is much simpler and easier, with no embedded ads (except of course for the prominent branding for Henry’s own site). I hope it’s a great success, and widely copied.

COMMENT

Reuters allows this, too.

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