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Death by Overfunding: Glam Media

Posted on Friday, Jan 6th 2017

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After raising an enormous amount of money over a decade, Mode Media, formerly Glam Media, finally gave up fighting the uphill battle of trying to run a vertical ad network and content platform that could be scaled while being profitable and relevant.

Glam Media’s Journey

Brisbane, CA-based Mode Media was founded in 2003 as Glam Media by Apple and NetObjects veteran Samir Arora, Fernando Ruarte, Dianna Mullins, Raj Narayan, Ernie Cicogna, Vic Zauderer, Rebecca Bogle Arora, Susan Kare, and Emmanuel Job. It operated a media discovery engine that connected people with others based on common interests. Glam Media focused on curated fashion and lifestyle content and attracted a large female audience. Samir’s thesis, which at one time made a lot of sense, was to accumulate a large segmented audience and then monetize it through high-end brand advertising.

It raised millions of dollars to compete with digital giants like DoubleClick and Condé Nast initially, and in the later stages, Facebook, YouTube, and Yahoo’s Tumblr. In 2011, it bought DIY social network Ning for an estimated $150 million in the hope of pushing up its traffic of monthly unique visitors from 200 million to 240 million. I never understood this particular move. It was counter to Glam’s sharp vertical focus, and I remember frowning when it was announced.

But it was not just these giants that it was competing against. As programmatic advertising became the preferred way of online advertising, it had to veer away from its core competency which was to work closely with advertisers on high touch brand advertising campaigns.

To gain a wider market reach, Glam Media re-branded itself as Mode Media in 2014 and also expanded its services to include programmatic, video and native advertising and other verticals including home-focused Tend, men-oriented Brash, and Foodie.

However, as other publishers were adapting faster and its traffic continued to decline. According to a comScore report for February 2016, Mode Media was the tenth largest digital media property in the country with a following of 137 million unique monthly visitors while in 2015, it was the seventh largest digital property with 150 million unique monthly visitors.

Mode earned revenues through advertising. It shared proceeds from the advertisements with its portfolio of more than 10,000 content creators. It was privately held and did not disclose detailed financials, but analysts in 2015 estimated that it generating more than $100 million in annual revenue.

However, it was not yet profitable and burned through the funds it raised. Overall, Mode had raised $245 million in venture and debt funding from investors including 137 Ventures, Accel Partners, Aeris Capital, BDCA Venture, Inc., DAG Ventures, Draper Fisher Jurvetson (DFJ), GLG Partners, Hercules Technology Growth Capital, Hubert Burda Media, Information Capital LLC, Mizuho Venture Capital, Silicon Valley Bank, and Walden Venture Capital. Even after a decade of operations, Mode raised $30 million in May 2015 to pay off its debt and invest on its technology platform. Its valuation was not disclosed, but analysts estimated that it was a member of the Billion Dollar Unicorn club at some point.

The company’s investors, especially the latest addition Burda Media, began to question Samir’s heavy spending and business decisions. Samir stepped down in April 2016 and was replaced by temporary CEO Jack Rotolo who had the backing of Burda Media.

But that did not help either as Mode was still draining funds. In the last few months, Mode was looking for additional funding, but investor interest had dried. In the absence of further funds, Mode finally had to shut down in September 2016 and left behind angry employees and bloggers.

From where we sit today in 2017, clearly ad-based revenue models don’t work unless you have the targeting capability of Facebook or Google. WPP CEO Martin Sorrell said in a speech at the UBS Conference last year that WPP will spend some $5.5 billion on advertising in 2016 with Google on behalf of its clients (up from $4 billion a year ago). He also said that WPP will spend about $1.75 billion with Facebook in 2016, making it the third-largest media supplier. Both Facebook and Google have tremendously precise targeting algorithms and immense data with which to drive that. Most of the media industry simply publishes content, and does not have remotely the degree of personalization or identity data to deliver ANY personalization. Mode too did not have any of the capabilities needed to compete in the fast changing landscape of digital advertising.

Mode, when it was Glam Media, back in the 2007-2008 timeframe, was a relevant, cutting edge idea. Vertical ad networks were popular then, and the company should have raised a lot less funding, spent a lot less money in grandiose moves, and sold itself to a larger media player while it was still relevant to the market. Other vertical ad networks did so, successfully. Exorbitant amounts of funding without a clear direction in its post Glam Media era, instead, resulted in a disaster!

Here’s a lesson that startups should take from this story as well as other upcoming media industry failures: pumping huge amounts of venture capital into building audience that cannot be monetized is a very bad business strategy. Every few years, investors get carried away and fund a bunch of businesses with the hope of the large traffic turning into revenue or getting acquired. A few low probability acquisitions like WhatsApp by Facebook and Tumblr by Yahoo! further confuse both entrepreneurs and investors.

And the same movie plays out. Company after company, heavily funded, with large audiences acquired through reckless spending, eventually die.

Photo Credit: NEXTConf/Flickr.com

This segment is a part in the series : Death by Overfunding

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