BuzzFeed, the company started by Jonah Peretti has received $50 million in funding from Chris Dixon at Andreessen Horowitz, making it one of the largest VC investments in a media company. The news has everyone talking about the deal and everyone has an opinion, including me, which I shared with Bloomberg West’s Emily Chang and her viewers.
The investment values BuzzFeed at $850 million, which seems to be pretty rich for a news organization. It is actually not high if you look at BuzzFeed from the lens of “media company.” Media companies are those companies that have our attention — they can be social networks (Twitter), games (Farmville/Zynga or Candy Crush/King.com) or photo sharing services (Instagram) or a listicles powered flywheel of social attention — BuzzFeed. Like I have said before, they all are basically trying to get us to spend many fractions of our attention on their offerings.
BuzzFeed seems to have a lot of attention from a different generation of viewer/reader/consumer. It has done that through deliberate choice of content, deep understanding of social platforms and a technical stack. Paul Kedrosky calls it “engineered attention.” And this attention, theoretically allows them to expand to different markets. Attention-to-expand into new markets is a strategy that works — as I explained in my Fast Company column. It has worked for cable companies in the past. It has worked for P&G and it has also worked for my much smaller company, Gigaom Inc., which started as a blog and now has expanded into events, subscription offerings and an enterprise research business. It would be fairly easy for BuzzFeed to expand to video, podcasting or whatever next that becomes popular.
It is one of the main reasons why Disney wanted them. BuzzFeed is a media/entertainment company, no different than Disney. Its news operation is as relevant as ABC News is relevant to the larger Disney empire — it gives them a nice cachet and pretensions of being a real news company. It is not — and that is a good thing. And that is what makes it worth so much money that an astute investor like Dixon (trust me, he is!) thinks he can make money. Even a modest IPO helps them win big on this investment — though they don’t expect modest returns on any of their investments. (I might be a premature, but a Yahoo+BuzzFeed merger with Jonah running the show would make a lot of sense sometime in the future.)
The risk for a company like BuzzFeed is that attention is fleeting and viewers are whimsical and fickle. They can move onto something new as quickly as they embraced BuzzFeed. How big of a risk? I don’t know — people still are using Yahoo and people still listen to radio. The other risk is algorithmic. BuzzFeed is very reliant on other platforms for growth and ability to engineer attention. Facebook is known to tinker with its algorithms and destroy businesses in the process.
Google with a few little tweaks were like a gently breeze that knocked down many house of cards including red hot content farm, Demand Media. BuzzFeed is in a lot less risky position — its fortune isn’t tied to just one social platform (though I suspect Facebook is their sugar daddy) and can tap into multiple platforms such as Pinterest and Tumblr.
The big question is how they are going to scale their revenues using native advertising. The risk for native ads is that at scale they can lose potency, much like the more traditional banner ads. As such I have mixed feelings about native advertising, so it would be interesting to see what BuzzFeed does to scale, because it would actually create a template for the traditional news houses. The good news for BuzzFeed — it now has money and thus time to experiment and come up newer & bigger sources of revenue and profit.