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The Buzz About BuzzFeed: Some Reflections

Posted on Wednesday, Aug 20th 2014

New York-based BuzzFeed is a content discovery platform that integrates content-driven publishing technology with social media tools. Their platform provides users with access to breaking news and original content, including videos, across the social web. Here is a brief look into BuzzFeed’s performance so far.

BuzzFeed’s Offerings
Founded in 2008 by Jonah Peretti and John Johnson, BuzzFeed boasts of a following of more than 150 million users worldwide. Their smart analytical tools detect the trending stories on the web and connect people on a real-time basis with access to this content. According to a comScore report, the average monthly unique visits to Buzzfeed grew 200% last year to more than 71.3 million as of March this year.

They are expanding their offerings and recently released BuzzFeed Video, which displays short-form video content. Of late, they have been spending money on adding acting and entertainment professionals to their employee list. Analysts believe that the move is to help BuzzFeed compete with the likes of YouTube. They recently set up BuzzFeed Motion Pictures, an Los Angeles-based operation that will focus on creation of this type of content. Details of what sort of videos will be generated are still being ironed out, but news videos are definitely on the menu.

They are also verticalizing their offerings and released a mobile app that will focus only on news content. They are also creating three separate categories of content producers – BuzzTeam for social focused content, BuzzFeed News for news focused content, and BuzzFeed Life for lifestyle content.

BuzzFeed’s Financials
Unlike other content discovery platforms, BuzzFeed does not rely on banner advertising. Instead, they leverage their own produced content and sponsored content to earn revenues. BuzzFeed works with their customers like Geico, Coca Cola, MTV, and Nike to produce sponsored or advertorial content that helps convert their traffic to revenues. The company has been especially successful in the mobile device age where traditional banner advertising is proving to be less efficient than sponsored content advertising. With apps that feature simple share buttons that let users share these sponsored stories on social media networks including Facebook and Twitter, the site is able to make these sponsored stories go viral.

Analysts estimate that their revenues are on track to reach $100 million-$120 million for the year compared with $60 million recorded in 2013. Further details on profitability are not known, but reports suggest that unlike many other online players, at least, they are profitable.

Earlier this year, BuzzFeed was in the news when talks with media giant Disney for a possible acquisition fell through. The deal was estimated to value BuzzFeed at $1 billion. BuzzFeed maintains that they want to stay an independent company, but are not averse to a public listing.

They have been venture funded so far with investments of $96.3 million received from Andreessen Horowitz, Lerer Ventures, RRE Ventures, Kass Lazerow, Michael Lazerow, New Enterprise Associates, SoftBank Capital, Hearst Ventures, John Johnson, Founder Collective, and Ron Conway. Their last round of funding was held earlier this month when they raised $50 million from Andreessen Horowitz. The funding is expected to have valued BuzzFeed at $850 million – a significant reduction since the billion dollar price tag that Disney had put. They plan to use these funds for growth into newer markets, products, and possible acquisitions.

The new funding will require BuzzFeed to prove their monetization capabilities. For now, the site has done well in generating traffic and the expansion plan also sounds impressive.

The media industry in the United States has more or less been devastated. Consumers now expect content to be free; they are not willing to pay for content (with a few notable exceptions like WSJ and The Economist). Against this backdrop, BuzzFeed, that claims to compete with Mail Online, believes it can substantially monetize its audience by using the sponsored content business model (advertorials of yesteryears). It will generate branded content, and use its reach to propagate that content to users.

This, most likely, is the future of media. Sponsored content is pretty much the only kind of content that will survive the business model implosion that the industry is going through.

Of course, this begs the question, what is the future of independent journalism? How does that get financed? Running outfits like CNN, CBS, NYT, and WSJ is expensive. If subscription revenues become impossible monetization paths for the majority of media companies, they would then have no choice but to switch to sponsored content models. Ad rates on the Internet are dreadful, on mobile phones much worse. Sponsored content follows different economics, and hence, perhaps, can offer an alternative path forward.

BuzzFeed claims to also produce original content. A lot of it is junk, in the same way that a lot of Mail Online content is junk. Obviously, there is demand for junk online.

What about serious content though? Serious journalism? Serious analysis? Serious Opinions?

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