Last night I published a quick post highlighting three takeaways from Buzzfeed’s disclosure that it generated $100 million in revenues from areas that didn’t exist the previous year. Someone asked what that meant to Buzzfeed’s editorial going forward, here are my expanded thoughts, using an internal WatchMojo memo which I since adapted to discuss what many may be thinking in boardrooms and executive suites.
WatchMojo is a smaller version of Vox, Buzzfeed and Vice Media. We didn’t raise capital so we didn’t let costs get out of hand, but like those companies, once we struck “platform/format” fit, we expanded into other genres, formats, platforms, businesses with various degrees of success. Conde Nast’s former Chief Digital Officer Fred Santarpia talked about a brand’s permission to venture into an area. No one wants to be told to “stay in their lane” and no entrepreneur will ever heed that advice, but it’s important to understand that content production is an expensive process, distribution is hard to build, and making a living off the content is not a right, but a privilege. With investors being more cautious than ever, here’s what it all means.
Buzzfeed and Vice Media each found early success elsewhere, but both were drawn to news. Entrepreneurs are motivated by insecurities, I think that Vice Media’s Shane Smith wanted to shed the “tits & ass magazine from Montreal” reputation while Buzzfeed’s Jonah Peretti wanted to change the conversation around Buzzfeed being the cat listicle company. Both of those descriptions were unfair, but life’s never been fair. In NYC, if you want credibility, the path is via news. Always has been, always will be. But news is expensive. It’s also not exactly brand-safe. Yet both dove in head first and asked questions later. Rafat Ali, recently asked what Buzzfeed thought the ROI or exit strategy would be on a 300-person news operation.
Buzzfeed ultimately became a purveyor of pop culture, while Vice reinvented itself as an organization that produced news for millennials. It worked, in the sense that investors and marketers flocked to them. Vice scored a show on HBO, both scored interviews with the likes of President Obama. Times were good. Both turned down massive acquisition offers. As mentioned, entrepreneurs are builders or flippers.
Imitation isn’t merely the nicest form of flattery, it’s a given once you are successful. We didn’t invent top 10 lists (hat tip: Moses, Letterman, Garth & Wayne), but online, we nailed the format… and that drew in competition.
Competition, for lack of a better word, is good. Competition captures the essence of the evolutionary spirit. Competition, in all of its forms; competition for life, for money, for love, knowledge has marked the upward surge of mankind. Sound familiar? It should.
For Vice and Buzzfeed, their success not just with mainstream audiences but marketers and investors drew in competitors.
With the web presenting infinite supply, today we’re drowning in clutter. The pedestrian view on clutter is that it hurts companies like Vice and Buzzfeed (and WatchMojo). But the contrarian view is that while barriers to entry don’t seem to exist, clutter is actually the mother of all barriers to entry. It’s not merely that there’s endless shelf space, there are endless aisles, stores and the reality is – MeToo scandals aside – there’s always a flight to quality and Vice, Buzzfeed, Vox (and dare I add WatchMojo) offer a bona fide brand that breeds familiarity to various stakeholders.
YouTube doesn’t even send out your new videos to all of your own subscribers. Good luck starting a new channel today. Sure, it may catch fire, but for every one that takes off, 99.9% go nowhere. Vice, Buzzfeed et al. have built brands, and brands is the path to billions in Goodwill.
But, we are all humans, and humans are tempted by things. We sometimes discount the luck and timing that went into our previous success to think that we have a Midas touch that we can replicate whatever success we had in new areas. Then, when we see existing and new competitors try to encroach our space, instead of double downing on our comparative advantage, we tend to go on the offensive and expand. We mistake our community’s desire for that one thing that’s was our area of specialization in thinking that they will want more things from us. So we expand. And expand. And expand.
In doing so, costs balloon. For WatchMojo, it’s a small amount in added expenses. For Buzzfeed, Vox, Vice – who raised $200 million to $1.7 billion (!) – it adds up. Eventually, things get out of hand. In 2018, Vice said they’d reduce headcount by 15% through attrition, which didn’t make sense, so in 2019 the other shoe fell and they actually laid off 200 people. Ditto Buzzfeed. No one – particularly the heads of those companies – likes to see employees being let go… but costs are always going to grow faster than you expected sooner, whereas revenues will take longer and not be as high as you forecast. Exacerbating matters is that you probably channeled your Tony Robbins and got a bit too optimistic in projecting where the top-line would be… in good times, every investor lined up to offer you an umbrella… but now the sun has set and clouds are abound, and everyone wants their umbrella back.
I don’t want to speak on behalf of anyone, but I think most entrepreneurs eventually embrace it when common sense re-enters the landscape. We go through our own 12-step program but eventually we are happy about that.
Yes, we like revenue, reach and growth more than costs, bottom line and budgets… but we identified an opportunity and found early success by adopting and applying common sense to a market and our operations, but somehow lost our way by not being comfortable to say… no.
I sometimes wish I had outside investors so they can play bad cop. I found myself feeling like I had to say yes to everything and everyone. When startups go from losing money to being profitable (or even moreso, raising too much money), they move from a culture of scarcity and craftiness, to one of abundance and complacency.
My sense is that Peretti, Vox’s Jim Bankoff and Vice’s Shane Smith simply couldn’t say no when staff would point to their massive war chests in funding. Whatever the idea – good or bad, economic or not – by saying no, they would be cast as Scrooge. So it was YES, YES, YES. When Vice’s Josh Tyrangiel closed Vice’s Spanish office, he said that he didn’t know Vice had a Spanish bureau.
I started a business for many reasons. One was because I wanted to say yes… and I love saying yes to ideas, initiatives and questions… but there’s something emancipating about saying no. People have great ideas, but they also have bad ideas. People think they see the whole picture, but they seldom actually do.
And coming full circle… my guess is that the market reset and change in investor mood and expectations was a bit of downer first, but it did two things. With regards to content, it gave CEOs the opportunity to be a bit more nuanced into what areas they should expand in. I want to cover everything, but we don’t (and can’t) cover everything now. Then with regards to monetization, it forces executives to pursue less sexy, but more lucrative areas.
eCommerce is an example of that. eCommerce is as sexy as a root canal, but that today you are seeing venerable brands from NY Times (by way of their Wirecutter acquisition) and Buzzfeed include eCommerce as part of their strategy and offerings, it raises its profile.
Now granted, grossing $100 million in sales where you are retaining a small margin of that. For that reason, I think eCommerce is also due its day of reckoning as it’s really easy to create smoke and mirrors that suggest a company may be printing money, when in fact it’s struggling to run nickels together.
The web was always about the 3 Cs: content, community and commerce. But, many publishers got lazy thinking that advertising alone (Buzzfeed eschewed display ads altogether early on!) could create successful profitable businesses.
Today we are seeing that a business needs to diversify editorial, distribution and commercialization… which is paradoxical because audiences have not yet supported the thesis that a publisher will satisfy their various editorial needs, same way that a consumer may be a client of both McDonald’s and Luger’s, but won’t necessarily want to order a Big Mac in Brooklyn or a porterhouse from the Golden Arches.
Ultimately, that supports another thesis Peretti has floated, which is consolidation, doubling down and going deeper to serve more of their core offering to global audiences, instead of going wide and offering a buffet of content to maximize reach that audiences didn’t care or ask for to begin with.