The BuzzFeed Lesson

Stratechery ^ | 28JAN19 | Editorial Staff

[vannrox]

Monday, January 28, 2019 Author by Ben Thompson

If you remove the societal impact, just for a moment, the story of publishers’ demise — first newspapers, and now digital-only companies like BuzzFeed and Huffington Post, which both announced significant layoffs last week — is rather banal: infinite competition combined with an inferior product resulted in failed business models.

Infinite competition is the result of the Internet: any piece of content is only a tap away, a far cry from a world where geographic areas were dominated by a small number of newspapers. The inferior product is advertising: when newspapers were the only option, advertising inventory was scarce; now advertisers — which only paid for newspaper space as a matter of convenience, not principle — can reach the exact customers they want exactly where they spend most of their time and attention, namely Facebook and Google. And thus the failed business model: is it any surprise that commoditized content and non-competitive ad inventory did not work?

The BuzzFeed Disappointment

Still, the BuzzFeed layoffs in particular are disappointing, precisely because of the societal importance of journalism. Back in 2015 I wrote that BuzzFeed [Was] the Most Important News Organization in the World:

Perhaps the single most powerful implication of an organization operating with Internet assumptions is that iteration – and its associated learning – is doable in a way that just wasn’t possible with print. BuzzFeed as an organization has been figuring out what works online for over eight years now, and while “The Dress” may have been unusual in its scale, its existence was no accident. What’s especially exciting about BuzzFeed, though, is how it uses that knowledge to make money…

More importantly, with this model BuzzFeed has returned to the journalistic ideal that many — including myself — thought was lost with the demise of newspapers’ old geographic monopolies: true journalistic independence. Just as journalists of old didn’t need to worry about making money, just writing stories that they thought important, BuzzFeed’s writers simply need to write stories that people find important enough to share; the learning that results is how they make money. The incentives are perfectly aligned…The world needs great journalism, but great journalism needs a great business model. That’s exactly what BuzzFeed seems to have, and it’s for that reason the company is the most important news organization in the world.

So what went wrong?

BuzzFeed’s Pivot

It was only two weeks after that post that CEO Jonah Peretti announced a pivot; from an interview with Peter Kafka of Recode:

JP: As [full-stack media companies] started to become received wisdom, it started to stop being true, that it was the best way to build a company, and that happened largely because there was this jump to mobile and to mobile apps, and probably the majority of content consumption is happening inside of mobile apps. You think “Facebook traffic”, but in a way that’s people opening Facebook, seeing a BuzzFeed story, clicking a BuzzFeed story…That has started to create an environment where media is much more distributed…

PK: So you built this system that was optimized for generating traffic and making money from stuff that happened on BuzzFeed.com and now you’re realizing that’s not what you want to do.

JP: What we realized is that that was just one piece of our business…What I’ve been doing is meeting with every team in BuzzFeed with this little chart that is our model for making content that people love — News, Buzz, Life, Video, Lists, Quizzes, all different types of content, and have great tools for making content that people love — and then we send that content to various places. We send it to our own websites and to our own apps, which are owned-and-operated properties and remain important to us, where we have a certain ability to get data and learn from what we’re doing, but we also send it natively to other platforms like YouTube, or Facebook.

2015 was the year that Facebook unveiled Instant Articles: publishers could put their content directly on Facebook, and Facebook, at least in theory, would help them monetize it. That seemed like a great deal! Facebook, for reasons I laid out in Popping the Publishing Bubble, was much better at advertising than any publishing company could hope to be:

In the pre-Internet era publishers had it easy: on one hand, they employed journalists whose goal it was to reach as many readers as possible. On the other, they were largely paid by advertisers, whose goal was to reach as many potential customers as possible. The alignment — reach as many X as possible — was obvious, and profitable for the publishers in particular.

[…]

The shift from paper to digital meant publications could now reach every person on earth (not just their geographic area), and starting a new publication was vastly easier and cheaper than before…The increase in competition destroyed the monopoly, but it was the divorce of “readers” from “potential customers” that prevented even the largest publishers from profiting much from the massive amounts of new traffic they were receiving. After all, advertisers don’t really care about readers; they care about identifying, reaching, and converting potential customers. And, by extension, this meant that differentiating ad inventory depended less on volume and much more on the degree to which a particular ad offered superior targeting, a superior format, or superior tracking.

[…]

The above graph shows the inefficiency of this arrangement: publishers and ad networks are locked in a dysfunctional relationship that doesn’t serve readers or advertisers, and it’s only a matter of time until advertisers — which again, care only about reaching potential customers, wherever they may be — desert the whole mess entirely for new, more efficient and effective advertising options that put them directly in front of the people they care about. That, first and foremost, is Facebook…

With Instant Articles it appeared that the social network would share the spoils: Facebook collects the advertising money, and publishers that embrace the platform share in the reward.

The core problem for BuzzFeed is that never really happened: Instant Articles relied on the Facebook Audience Network, not Facebook’s core News Feed ad product, and nearly all of Facebook’s energy went into the latter. Companies that embraced Instant Articles — and, in the case of BuzzFeed, built their business models around them — were left earning pennies, mostly on programmatic advertising.

Complete Commoditization

For the record, I was completely wrong about the degree to which Facebook would help publishers monetize Instant Articles: it seemed to me that it was in Facebook’s interest to create sustainable models for quality content that lived directly on its platform. Sure, the company would be giving up a slice of its revenue, but the impact on the overall user experience generally and establishing Facebook as the center of not just the consumption of content but the monetization of content specifically would be powerful moats.

The truth, though, is that the short-term incentives to maximize revenue, primarily through News Feed ads that Facebook kept for itself, were irresistible, and besides, the company had other fish to fry: Snapchat was looming as a threat through 2015, and by 2016 the company was starting to warn that ad loads were saturating. Quarterly growth was very much the priority, and once Snapchat was neutralized, was a content-based moat really necessary?

I suspect, thought, that there is a more fundamental reason why BuzzFeed’s strategy was untenable. I wrote about the Conservation of Attractive Profits in the context of Netflix back in 2015:

The Law of Conservation of Attractive Profits,

[moonhawk]

Buzz feed goin’ down cause they don’t have real journalists. Can’t attract enough flies with all bullshit all the time.

[mrsmith]

“infinite competition “... For the same market.
The young and the foolish can only spend so much time absorbing propaganda.

[Darksheare]

So many of the people laid off by BuzzFeed list “gender studies” and “inclusive” in their whiny tweets complaining about being told to learn to code.
(Funny, these same “journos” told the laid off coal workers to “learn to code”)

[4Liberty]

[LostPassword]

There is “infinite competition “ for mixing fiction and non-fiction and pushing an agenda. There’s almost no competition for journalism. Unfortunately there may be little market for journalism either.

[dufus]