Is information a business?
Venture capital firm Andreessen Horowitz isn't wrong. The business where he invests works and works well. See among many others Facebook, Twitter, Pinterest and Airbnb. Ben Horowitz also wrote an important book on how to build such a business, The Hard Thing About Hard Things, which was shortlisted in the “Financial Times Best Business Book of 2014”. After many investments made in countless hyper- innovative, Andreessen Horowitz has decided to enter a depressed area, which could not be more, such as that of information and news and, among the many and not very exciting options (including also very large newspapers), has invested 50 million dollars in BuzzFeed, all in all an outsider. He valued it at $850 million, a reasonable amount for a tech company, but still a robust one. A previous offer from Disney, which was rejected, had put up $500 million. To make comparisons in the "far" February of 2011 AOL had paid 315 million for "The Huffington Post"; 850 million are just under half the value of the NYTimes (1,86 billion), not far from those 750 million dollars paid by Etihad for 49% of Alitalia, technically bankrupt. Chris Dixon, partner of Andreessen Horowitz who will join the board BuzzFeed's board of directors, replied to those who were puzzled by BuzzFeed's valuation with an 8,5 multiple of revenues (in 2014, $100 million): If BuzzFeed is the key, as we believe, to connecting the best media talent with five billion people who within a few years will surf the Internet via smartphone, then this valuation is a bargain. After all, AOL bought "The Huffington Post" with a higher multiple, ten. David Dinsmore, director of the "Sun", has declared that BuzzFeed is “the best thing on the internet“. Shane Smith, CEO and co-founder of VICE a competitor site, declared that “BuzzFeed can be the next CNN“.
A good deal yes, but full of unknowns
If one had to reason à la Warren Buffet, one could comment that the price is good, the business is understandable and that news is and will be a basic necessity like Colgate toothpaste. And it would end there. But Warren Buffet does not invest in generalist newspapers and is only interested in small local newspapers. In fact, the "Washington Post" had him bought by Jeff Bezos who paid him less than a third of BuzzFeed's valuation. With good reason: the state of the major information industry always resembles that of the City of Detroit which is considering selling the city's art collection housed in the Detroit Institute of Arts (the fifth largest museum in the USA) for pay debts. One thing is certain: the press as packaged and distributed in the age of mass media is moribund. Newspaper circulations sink, their websites struggle, paywalls creak, front pages are no longer considered, and readers except the baby boomer generation bounce off a news page from a social media or any aggregator. The most serious thing is that advertising investments seem like an episode of Waiting for Godot while there are few willing people around who are willing to put out a few dollars to pay for online news. It seems more and more that the still magmatic business of information 2.0 is precisely in the hands of those who distribute it and not to those who make it. This is nothing new, this is the trend that seems to be asserting itself throughout the area of content and new media and which has its spearhead in Amazon and Netflix.
What's special about BuzzFeed
In this regard, one of Bill Gates' apparently most unsuccessful predictions could prove prophetic, as he said and did both right and wrong. In 1996 he declared “Content is where most of the money produced by the Internet will be, just as happened with television”. Perhaps Andreessen and Horowitz had these words in mind when they signed the check to Jonah Peretti , the eccentric and determined founder of BuzzFeed, but also of “The Huffington Post” and “Reblog”. Peretti recently moved the BuzzFeed offices to Manhattan at no. 200 Fifth Avenue on an area of 5.360 m2, where the rooms are named after the site's most popular memes (Surprise Kitten, Grumpy Cat, etc.). What's so special about BuzzFeed? It is the media resource that best corresponds to the description of the information business that Marc Andreessen, Ben Horowitz and the partners of the venture capital firm have in mind. The already mentioned Chris Dixon of Andreesse Horowitz expresses it well: We are in the midst of a change fundamental technology in which more and more information and entertainment will be distributed on social networks and consumed on mobile devices… We think BuzzFeed is a technological enterprise and something more than that. It is ingrained in internet culture. Everything is optimized for mobile and social media first. Oh My God (OMG) is an acronym formed by BuzzFeed employees who set out to create the name of a section of the site. OMG is the abbreviation used by teenage girls to mean surprise or disgust. OMG also stands for an idiotic thing to share. Explained well here. BuzzFeed was born in 2006 as a laboratory to push the viral diffusion of content and its sharing on the net. Which has succeeded very well also thanks to the advent of web 2.0. and a type of editorial proposal that is tantalizing in form and topics. In fact, BuzzFeed's positioning on social media is outstanding. Just as amazing is the viral mechanism that BuzzFeed manages to trigger with its posts. There is even a specific team of 20 people who are entirely dedicated to building content for social platforms such as Tumblr, Instagram, Snapchat which then bounce on BuzzFeed to multiply traffic. It should therefore come as no surprise that 75% of its 150 million monthly readers come from social media, in particular from Facebook, Pinterest and Twitter. If “The Huiffington Post” built its fortune on Google's outstanding natural search rankings, BuzzFeed has replicated this ability on social networks and mobile.
BuzzFeed content
Furthermore, BuzzFeed is the site that has most successfully experimented and promoted native advertising, i.e. advertising that is an integral, if not fundamental, part of the content itself. This type of advertising, which is also called "branded content" (as Peretti calls it), like product placement in videos, has a better chance of meeting the favor of advertising investors. A team of 75 people, BuzzFeed Creative, is dedicated entirely to creating videos and sponsored articles for the clients who commission them. A large part of BuzzFeed's revenues comes from the work of this staff which in 2014 will manage 600-700 sponsored content programs including those of the 100 most important American brands. Exceptional positioning on social media, obsessive virality and native advertising are the three axes on which builds the success of BuzzFeed which, however, also owes a great deal to the type of content of its 378 daily posts. The content initially offered by BuzzFeed was built for impromptu readers who arrived from social networks, consumed and returned through social networks. This is the reason for the memes, quizzes, listicles and demented videos of cats and hippos. To this lucky and even mocked initial nucleus of light and easy contents (OMG – Oh My God! in the slang of teenagers), BuzzFeed's management has gradually added more "heavy" contents such as investigative journalism, reports, scoops and denunciation articles for a more sophisticated and demanding readership. In fact, in 2012 from "Politico" Ben Smith arrived as editor-in-chief with the task of developing "serious" journalism, without however distorting the light and popular character of the site. Today there are 200 journalists engaged in this effort. The operation was successful and it really seems that BuzzFeed was able to find that right mix of contents and styles which was not successful, for example, in the big newspapers in which the lighter contents seem out of place and artifacts, as if they were juxtaposed with those traditional.
Questions
We conclude with a couple of BuzzFeed-style questions. Why, instead of Andreessen Horowitz, wasn't the ownership of the NYTimes investing in BuzzFeed given that the large New York newspaper, as the internal editorial staff declares, shows little understanding of the culture of Is the Internet bundled up as it is in its mold-centric culture? In the same way we ask ourselves, coming to us, why Mondadori, pursuing the uncertain strategies of Condé Nast, has invested in a London e-commerce specialized in luxury products, instead of taking a participation in a start-up specializing in new generation ebooks? But these are questions that are up to the shareholders of these great and glorious media companies that seem to have gotten a little lost. Let's hope for a little while because they are needed. Unfortunately, as Andrew Edgecliffe Johnson writes in the "Financial Times", the big media are fighting the wrong battle.
Published on ebookextra
