Is BuzzFeed Multiplying Its Value?

Jonah Peretti’s Buzzfeed has been especially buzz-worthy of late, first with a $15.5M capital raise, and more recently via some fascinating brow-raising editorial hires.  First, Ben Smith from Politico and then last week, Doree Shafrir from Rolling Stone… and surely more are on the way. It’s a surprise direction to build original content for a site that had been more of a virality aggregator.   Why the sudden change, especially considering BuzzFeed has been so successful at acquiring audience?

Here’s my two cents:  Virality is a multiplier.  But like any other “x-factor”, it can only make things valuable relative to how much they’re worth to begin with.  A 10X booster can add 9 cents to a penny; or it can be worth $90 by turning a Hamilton into a Franklin.

BuzzFeed is among the best on the planet when it comes to this kind of multiplication.  And when you’re that good, it only makes sense to start working on the base rate.  That means beyond building buzz, the company needs to build a premium brand to attract premium advertisers to its core product and audience.  In media, the best way to make a strong brand that attracts high dollars to begin with is with outstanding content.

I’ve been fascinated to see that at Wetpaint. We now see more than 12 million uniques monthly:  nearly 6 million on our user-generated wiki platform; and 6+ million more on our premium Wetpaint Entertainment property.  They both have great virality that helps them draw audience.  But the original editorial in Wetpaint Entertainment makes the advertising worth even more – and it’s an even more valuable business model.

Premium content plus social distribution means a high base, and a high multiplier on the business model.  And it’s the perfect combination for a successful business model.  Congratulations to Jonah and team for all the success they’re having!

SOS – The Social Operating System

Facebook F8 has made clear that the digital world is now powered by social operating systems.  It’s all changed.  The below post was previously published at paidContent, and is republished here for DigitalQuarters readers.

SOS – The Social Operating System

How the Social Web Has Rewired the Digital World From the Ground Up

In the wake of Facebook’s F8 mega-event, with its parade of product, feature, and platform announcements, I’m struck by the recent major inflection that has social networking penetrating more and more completely into our digital lives.

Indeed, social networking has moved from something that’s a destination activity, to something that is ever-present throughout every digital experience.  And, no doubt, Facebook will continue this rapid progression.

My awareness that social networks have seriously and profoundly journeyed into our lives began with the startling statistics that I published in June:  the searchable Web is shrinking (by 9% in consumers’ monthly time spent over a recent one year period); while the social Web is growing (with a matching 69% increase in time spent on Facebook specifically).

But the change has since intensified, as Facebook’s share of consumer attention has increased even further, and as Web sites the world over race to recruit Facebook “fans” and “likes.”

In addition, the trendline has also become increasingly clear and sharply etched in recent months with the LinkedIn IPO; and with the Google+ Project, as even mighty Google vies for relevance as a social fabric that helps weave our world together.

Putting it all together, I’m seeing a restructuring of the stack: a new layering of how media is created, distributed, and experienced, different from the first generation of the Internet.

It’s the rise of what I’ve come to view as the “social operating system (Social OS).”  And I think it changes everything for media and other companies online.

The New Way News Travels

Unlike the analog world, where content and distribution companies have largely fixed channels (licensed spectrum; contracted cable distribution; stable subscription bases; theater outlets; and other distribution power), digital content isn’t channelized.  It’s itemized.

That means digital content has to earn an audience – item by item.  The first generation of digital media publishers turned to search engine optimization to solve that, with an endless and constantly escalating set of editorial and technical tricks to bait search algorithms to rank them highly.  This became de rigeur for every digital publisher; even as it spawned an arms race to find an audience.

But now that social is ubiquitous, the nature of distribution changes for media companies.  And now, instead of having to reinvent the distribution wheel every day for every page, publishers can rely on a system far more powerful than the search engine to sort, select, and rank content.  That system is part human, and part technology – but it is 100% social.

The Social OS sits at the boundary between content and the people who consume it.  It provides a layer of functionality that lets Web companies focus on their unique content and the experiences that they offer – while earning distribution, not via channels, but via people.  And, in the process, they earn, not a mechanistic relationship with an algorithm, but a real relationship with their audience.

None of this was possible until very recently.

The Internet was too immature: both in terms of technology, and audience. Indeed, it’s only since this decade started that we’ve had the social network and mobile technology in combination with literally billions of users online; this mix lets people connect to each other, and allows content to flow effortlessly from one consumer to the next.

And it’s this combination of technology (networks like Facebook and Twitter); content (with providers like Apple, NetFlix, and YouTube, not to mention the hundreds of blogs and media companies); and, most significantly, real people online to spread all that goodness, which makes the Social OS work.

The New Common Medium For Transmission

That’s why each Social OS is defined, first and foremost, by who’s on it, and what the connections mean.  But beyond that, each social operating system can make identity, personal information and interests, relationships, and other data and actions available to applications.  And third, and most importantly, is the role of the Social OS as distributor.  Because Social OS’s have transformed the primary navigational coordinates of the Web from document-to-document links to person-to-person, the Social OS becomes the medium for propagation.

As recently as a few years ago, large media companies saw some parts of this wave coming, and they thought the answer was for each of them to build their own proprietary social network.  But relationships between people aren’t proprietary to media; rather, they are the conduits through which all media travels.

And that puts in perspective what Mark Zuckerberg recently said, about how media is the next big application for his Facebook Social OS:

“Some of the earliest examples we’ve seen are with games.  It just leads to massive disruption.  And I think, over the next 2, 3 years, we’re going to start to see that in more and more industries, and the next ones I would expect are going to be media-type industries.”

Or, as we say at my company, Wetpaint, we are becoming the Zynga of publishing, leveraging social operating systems like Facebook, Twitter, and YouTube to build a powerful media business on top of them.

Reinventing the Media Industry For a Social World

The rise of the social operating system has two implications for old (and even some new) media companies, who are mostly still trying to figure out what to do with all this.  If the idea isn’t to be a social network, then how do they use Social OS’s to make their business more successful?

Social maven Jonah Peretti, co-founder of Huffington Post and CEO of BuzzFeed, points out that different social networks specialize in different content:  Facebook users share “what you want your friends to think you like … content you can wear as a badge of honor,” while Twitter is a platform for topic curators and wholesalers in the information trade, and LinkedIn has a strictly professional domain.

For its part, YouTube has its own character: with most consumption anonymous, it’s largely an open public repository, and much of the networking that forwards YouTube videos from person to person happens via email, Facebook, and other networks.

And, as Google gets into the fray with its Google+ Project, presumably it is meant to specialize in closed groups, when full public exposure isn’t in order. If it works, it will likely find its best traction in topics like health & wellness, parenting, or certain hobbies.

For media companies, the key is knowing which Social OS’s to bet on; and then tuning content, packaging and distribution for them.

For celebrity entertainment and gossip at Wetpaint, we know Facebook is a natural match for mass consumer promotion.  On the other hand, for industry analysis, like my blog posts, I’m not surprised that Facebook is relatively unimportant:  for most of my readers, my posts wouldn’t fit in among family photos and Farmville accomplishments.  Twitter and LinkedIn do far better for heady topics like the future of media.

High Stakes:  The Future of an Industry

The last decade of audience fragmentation and content de-bundling on the Internet has ravaged media, particularly in a world characterized by fierce competition for the love of Google’s robots.

When Mark Zuckerberg recently spoke at a Facebook event in Seattle, he said:

“The last 5 years have been about connecting all these people. The next 5 years are going to be about all the crazy things you can do now that these people are connected, and I think it’s going to be cool.”

In a world powered by social operating systems, the prize is that, when we execute well, we get to be hooked into people’s lives.  Media companies can earn constant places in consumers’ newsfeeds, along with a button asking them to consider sharing their experience every time they see us. I think that’s going to be cool.

 

 

 

Netflix – It’s Wall Street’s Error, Not Reed’s

Change is hard. Change is scary. Change is costly. Change is essential.

This is no more true anywhere than in today’s unbelievably dynamic digital media business.

In February of this year, I outlined the characteristics that define great leadership in this tumultuous digital media industry – and will determine who ultimately succeeds.  I published it in my Media Success newsletter that month (reprinted below), and it has remained a sidebar feature ever since, as the definition of a perfect game.

The 7 Variables For Media Success

  1. Focused strategy and leadership
  2. Meaningful destination brands
  3. Content and experiences craved by audiences
  4. Scalable channels to acquire new audiences
  5. Reach the audience when, where, and how they want
  6. Robust revenue streams (advertising and other)
  7. Profitable business model that scales

Those with these seven attributes will win in media.

 

And that’s why I hereby nominate Netflix CEO Reed Hastings for real-time membership in the Digital Hall of Fame. 

His extremely controversial and determined decision this week to split his company in two is both phenomenally ballsy and smart.

Hastings sees where the world is going, and, instead of resisting, he is getting out in front. He knows that his DVD service today is immensely profitable, and yet it is on a long slow ramp toward zero.  And, at the same time, Internet-delivered video is a whole new, and far more valuable, business.

Sound familiar?

It’s the same dynamic throughout most large old media businesses.  And yet – unlike many in old media – Reed is doing something aggressive about it.

Rather than playing to short-term profits on the DVD business, he is turning full-tilt to the business with the greatest strategic value. If I’m not convincing on this point, please read Mark Suster’s trenchant analysis.

Yes, Hastings communicated his new strategy poorly. But he admits as much in his widely distributed apology. So, with this mea culpa now delivered and digested, let’s get off Hastings’ back, and get back to the most interesting dynamics at play here:

Far beyond any villainy on Hastings’ part, and far beyond any damage to his customer base for changing his product line, I suggest looking for someone else to blame by pointing the finger at Wall Street.

Verrrrrrrrry hypocritical.

The Street talks about its desire to see long-term strategic vision; but whenever it’s there, right in plain sight, investors collectively blink – and then sell, sell, sell. Indeed, the current sell-off of Netlfix’s stock is one of the most alarming signs of the Street’s misunderstanding of media’s strategic future. And now, looking forward, I pity any CEO who turns to Wall Street for strategic validation.

Let’s keep the spotlight on Netflix, though.

I wholeheartedly agree with Hastings.

And there’s no question – in my view, at least – that broadband-delivered content represents the much more important and valuable business opportunity for his company. The fact that he decided to split the service lines at Netflix simply confirms openly what was already inevitable, if previously hushed.

For some reason, Wall Street just doesn’t get it.  And, in my opinion, its punishing resistance to Hastings’ moves is akin to pummeling AOL for thinking beyond dial-up service; yet, as we all know, that company is a decade overdue in figuring out its next wave.

I’m a believer in facing facts, truth-telling, marketplace opportunity, and getting to the sweet spot first.

So, having said that, I’m putting my money on it. Yesterday, I bought Netflix shares. It’s the first single stock purchase I’ve made in media in a couple of years; and I made the buy after seeing a CEO – who has all the variables dialed in to achieve on the next big opportunity in media – do the absolute right thing.

Are You a Media Company or a Technology Company?

One of the most important questions publishers are grappling with today is whether they oversee a media company or a technology company. In the following article, which appeared originally in my Media Success newsletter and was subsequently republished at AllThingsD, I explain why every media company has to be a technology company. Then I offer several keys to success in the current digital environment, which is dominated by the rise and evolution of the new social Web. Please take a read, and let me know what you think.

Two Truths

Let’s start with two truths.

First, publishers need cutting-edge technology to hook an audience through today’s digital media channels of the Web, mobile, social, and search.

And, second, the breakthrough technology can’t just be about product design – it’s got to go beyond to create distribution advantages on the new connected Web.

One Question

Okay, now that we have the truth out of the way, let me ask you a question:

“Is your company a media company, or a technology company?”

I love getting asked this question.  And every digital media leader I know hates answering it.

Discomfort, Uneasiness, Anxiety, Fear

The uneasiness begins with the mistaken idea that the two are separable.  And they were – back in the 15th century, when Gutenberg first worked his printing magic, and up until a few years ago. But we all know digital technology has inserted itself inextricably into the guts of publishing, replacing ink with bytes and paper with pipes.  And now, over the last two years, technology has transformed the basis of publishers’ relationships with their audience, by connecting them through social operating systems, as we discussed last month.

And yet, our uneasiness escalates to anxiety when we realize we still don’t fully understand the new technology’s potential or impact on our business.

That is a scary thought. 

Technology Drives Media

I think we all need to collectively swallow our fear.  We know every media company must be a technology company today.

In the first generations of digital media, it was easy.  In AOL’s past, technology’s key role was simply to provide basic Internet access over dial-up lines. Today, while that access provides cash flow, it no longer has any strategic value in media.  Similarly, Yahoo’s early technology prowess was applied to create significant products like Yahoo Mail.  But while Mail still drives 73 percent of the audience to Yahoo’s media properties, it won’t secure Yahoo’s future ability to be a great media destination.

These two companies – as well as the rest of us – need to use technology for something more advanced than access and ancillary products. We need to put it right into the heart of media so that we can create breakthrough user experiences and new connections with audiences.

Millions of Ways to Engage

To do that, let’s start by recognizing what’s changed about the medium itself: In analog days, publishers’ products were two-dimensional; and all we had to work with was ink and some paper.  And similarly, distribution was mostly two-dimensional; a subscription list and newsstand sales was all there was to it.

But now, consumers have access to millions of sources at their fingertips, and each one can be rich and interactive, reaching us through several different digital channels.  Both our product experiences and our distribution can be much more intricate – and much more valuable.  And combining the two gives media the chance to do something it’s always aspired to do before, but never been able to.

The Future Will Be Personalized

We have recently become ready for a whole new vision for media.

And that’s giving every audience member the right content in the right place at the right time.

To do this takes a combination of data – from the social operating system – coupled with media’s greatest power, that of creating experiences and distributing them.

To achieve this, though, we need technology to do more than output HTML pages; instead, it has to chaperone customized content to every individual.

This is a big change from the original Internetization of media, which was, like generations of offline media before it: “If you publish it they will come.” That worked when directories like Yahoo and search engines like Google matched consumers to content. But that attitude was passive; and today’s social Web is anything but. So publishers now have the opportunity – and the challenge – of taking charge of their distribution.

The key is using the emerging social Web to get signals from, and connect to, the audience.  And when we do this, we are putting technology in the role of relating uniquely to every consumer in order to create the ultimate experiences they crave.

Now that’s a refreshing concept for media.

Three Ways to Get Ahead

But what does this mean, practically speaking?

I believe the role of technology in media success must embody these three things:

  • Use technology to determine the right content – The social Web offers a wealth of real-time data.  Use it to see what matters to your constituents. Tools like Newsbeat are helpful moment by moment, and article by article. But you have to go further. The great breakthrough of digital media is being able to connect to your audience as individuals, not just in aggregate. No longer do you have to create for a persona or prototypical user; instead, you can create for real users. Media companies need to develop technologies that give them a proprietary edge when it comes to understanding the specific needs of their potential audience; that way, they can serve consumers better. And the opportunities abound. At Wetpaint, my company, for example, we process Twitter, Facebook, Google, and our own site’s data, all in real-time to know what content matters – and to whom.  And yet, we can go much further, to ask and intuit feedback from each user individually. The future is a completely personalized experience from every publisher. It’s not far-fetched; in fact, it mirrors what consumers already patch together with all too much difficulty.
  • Take control of your distribution – Reach consumers with the right content at the right time and place (via Web, mobile, video, social, and search).  Don’t just have your social media team pump the same content from your Web CMS through Facebook and Twitter. Instead, use technology and research to understand the secrets of what works.  Truly engaging your potential audience can improve your results by a factor of two or more.

We’ve already seen this at Wetpaint, and the results are still getting better each week. Our database of everything we publish tracks all the distribution causes and effects, so we know what works. We also pay attention to who the influencers are, with technology that identifies them as well as who their influencers are; and now we’re building a “CRM”-like system to help us know more about these individuals and win them over.

  • Package it into the right experiences – Print is static and flat; but so are too many digital media properties. That’s why I applaud The New York Times for continually looking at how to repackage into mobile apps; and that’s why I like Flipboard, which takes a data-rich, but visually cacophonic, content feed and packages it into an immersive experience.  AOL’s riff of ultimate personalization has impressed me even more:  they’ve recognized that every consumer should get their own Edition – nailing the concept of personalization better than any media approach before. This is the opportunity for each of us now, as we connect with audience members and try to offer them more compelling experiences in return for loyal usage.

Technology Changes Businesses

Let’s circle back to the discussion of whether you’re a media or technology company.

By its very nature, digital publishing is a technical medium. But, beyond that, what makes technology interesting isn’t its ability to carry bits; it’s its ability to change businesses. And we need to change our own by updating our sense of audience, distribution, and experience creation to provide thousands of times more precision than media ever has before.

When we do that, we’re making the content thousands of times more relevant. And I believe that’s how you build a thriving digital media business in the next decade.

 

 

 

 

An Inflection Point for Consumer Spending on Digital Media: Who Will Be the Web’s Master Currency Provider in 2012?

As you know, I’m obsessed with figuring out the future of digital media. And to do that, there’s nothing better than putting stakes in the ground – based on the best available information and sharpest analysis I can muster – and then checking back to see how they held up.

In the last couple of weeks, two of the calls I made have come true; and that offers us a great opportunity to re-visit them, and see what we can learn from them.

Hulu Plus:  Great Experiences Worth Paying For

First, Hulu Plus, which is thriving with over 1 million consumer subscriptions.

A year ago, when success seemed far from likely, I went out on a limb and estimated that Hulu Plus would have huge traction with consumers, surpassing $100 million in revenue in 2011.  As it turns out, Hulu’s growth with its subscription product has been even faster than I expected – albeit with lower revenue per customer, given to CEO Jason Kilar’s smartly aggressive pricing, and the resulting much higher consumer adoption.  The result has been substantial corporate revenues that have helped make Hulu market itself, enticing suitors to break it free of its complicated parent-company structure.

Content licensing agreements may still represent the greatest complexity of Hulu’s business under any ownership scenario, but what’s been a fascinating expectation exceeder is that by delivering the most desirable content and consumer experience, Hulu has gotten consumers to open their wallets in droves.  That’s something that we can all learn from.

PayPal Acquires Zong:  Making Payments Easier

And second, EBay’s PayPal, which recently bought mobile payment company Zong for $240 million.

Back in June 2010, I strongly recommended this deal and pointed out its many advantages.  Indeed, Zong’s payment system makes it easy for consumers to pay – leveraging the addictive relationships people have with their mobile phones.

As my newsletter readers know, I recently updated my formula for consumer spending on digital media.

The Consumer Media Spending Formula:

(Desire + Relationship + Ease) X Scarcity = Spend

Now both of these transactions are reinforcing it for me.

The Future of Consumer Paid Media

Beyond that, these two announcements also tell us something important about the rapidly approaching future of digital media: increasingly, the industry will be relying on consumers to contribute toward its profitability.

Now it’s up to us to create great content and meaningful experiences that are worthy.

A Bonus Prediction: Apple Versus Facebook in 2012

And that’s why I’ll take this opportunity to make a bonus prediction.

By this time next year, we will be in the early stages of what will later become an all-out war over who will be the master payment and currency provider for digital media. Even as Paypal has made significant upgrades with the Zong acquisition, they won’t be enough to ignite Paypal as the leader in the key venues:  on the social networks and in mobile applications.  Instead, this online conflagration will, I believe, be waged primarily between Apple and Facebook Credits.

What do you think? And what’s your favorite digital media prediction for 2012?

 

 

Xconomy: Facebook, Google and Beyond

A couple of weeks ago, here in Seattle,  I had the opportunity to participate in a discussion about the future of SEO (search engine optimization) and SMO (social media optimization), along with one of the top SEO experts in the world:  Rand Fishkin.  The conversation was a lively one, moderated and reported –by Curt Woodward, at Xconomy.

My view is that – particularly for media – we are at a tipping moment.  The web is no longer a field of static documents navigated by a precise search engine.  Instead it’s a living organic distribution machine from person to person, through the ether of “social operating systems” like Facebook and Twitter.  And, as a result, I expect Google will be losing ground to Facebook.

It’s was a lively and fun dialogue.

Read the highlights and play-by-play here, courtesy of @curtwoodward.

My Tricoastal Media Map

This week at the All Things D D9 conference, I found myself telling people that lately I’ve been “tricoastal.”  It’s a codeword I’m enjoying for the rotation I have been doing between the Bay Area, Los Angeles, and New York.  I seem to run between the three of them continually, as I’m trying to put together my best thinking about the future of media.  And, despite the time, expense, and hassle of the travel, I keep finding that blending the three of them is far more powerful than if I spent time in any one of them.  And if I didn’t visit all three frequently, I wouldn’t just be facing the catastrophic loss of super elite status on multiple airliner, nor innumerable calls from my mother asking “where are you and are you wearing a sweater??”.  Far worse, I’d be missing an accurate picture of media.

My company, Wetpaint, has its roots in Silicon Valley.  The Valley is great for its appreciation of the mechanics of digital media.  In fact, it’s obsessed with them.  The Bay Area practically invented the word “virality,” and it understands distribution – both through search engines and social networks, and from person to person – far better than others.  At least at a mechanical level.  The Bay Area culture is left-brained; it celebrates analytics, tactics, and leverage created by software and automation to get nonlinear results from human efforts.  However, it is blind to the art of content and the realities of the advertising business.  It assumes that both of these can be deconstructed successively into analytical components; that all actors are rational; and that these are systems problems, not human problems.  But these assumptions are all patently false in media.

New York, on the other hand, recognizes the art of editorial and the less predictable, more spontaneous nature of the consumer.  The iconic titles of companies like Conde Nast, and their personality-driven cultures, seem to have established a reverence for the editor-monarch with perfect knowledge, and have embedded a culture of royalty based on editorial superiority that translates into sales prowess.  And that last component is met by New York’s enormous advertising machine, which operates based on a currency of relationships and perks.

But it’s Los Angeles that impresses me even more for being image-obsessed.  Hollywood’s influence seems to understand the value of brands the best – that brands are greater than the sum of their parts.  The LA mentality, however, assumes that content creators have captive distribution – as they do in broadcast and cable TV channel agreements and movie theater agreements.  It assumes that once a brand is launched it becomes a pipe through which you can shove whatever content you want, like a cable channel, as though the lead-in and lead-out are guaranteed.  And it carries an assumption that brand franchises have immense value to be tapped and negotiated by dealmakers.

In truth, digital media doesn’t operate this way.  No distribution is guaranteed.  Just as LA has seen the record companies crumbling under disaggregation, now it is happening to other forms of digital content.  Published content online needs to find its audience one “single” at a time.  The brand value of the collection, while still significant, no longer carries guaranteed distribution online.  And the personalities linked to that content no longer have the star-power that an Anna Wintour or Tina Brown have been able to create in the New York model.

None of which is to say that the Silicon Valley mechanists are right, either.  They aren’t. Their mechanical analysis of the universe doesn’t survive contact with humanity.

Instead, what I love to find every time I tour is how these pieces fit together.

If you’re not practicing the art of content that the New York media is best at, then you are creating a bunch of meaningless drivel that will never deserve the loyalty of a branded relationship.  That branded relationship is the exact mantra of LA’s movie franchise creators; and yet, the distribution mentality of LA (that you can own a captive channel) is all wrong.  Instead, I find that the Silicon Valley mindset of each item needing to find its audience – and then self-lubricate for viral distribution – complements it best.  And this, then, reinforces the fact that it all starts with the NYC notion of content, in contrast to Silicon Valley’s algorithmic bias that it’s all about the technology.

By putting the three together, we end up with a complete picture of media – content, mechanics, and brands all working together – and that combination is one that represents how the audience behaves, with human drives around interest, engagement, and loyalty.