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Bezos' $5 Million May Put New-Media Company in a Pickle

NEW YORK (Reuters Blogs) -- The news of the day in the media world is that Jeff Bezos has led a $5 million Series E funding round for Business Insider. Here's the story, according to CEO Henry Blodget:

Jeff's investment grew out of a dinner he and I had about a year ago. We talked about the business, and he was excited about it. (He sees some parallels with Amazon.) A few months later, he expressed an interest in investing. My reaction was basically "Hell, yeah!"

Blodget has now articulated a simple public goal: "to become the best digital business publication on the planet." It's a conscious echo of Bloomberg's stated aim to be "the world's most influential news organization." If he needs to invest millions of dollars of other people's money to get there, that's fine.

Blodget goes on to say that he's obsessed with his customers -- both readers and advertisers -- and that his customer focus is the main thing he shares with Bezos. (Well, that and his famous Amazon call, of course.) He also says that Bezos' money "will allow us to continue to invest in our editorial, technology, and client teams" -- which almost certainly means that there's no chance, now, of Business Insider being profitable in 2013. Six years after it was launched, the site is still in growth mode.

And frankly, there are quite a lot of things that Blodget could use the money for, if he is really focused on the reader experience -- indeed, there are so many things that he could probably spend all that money quite a few times over, if he wanted. The site could use a redesign, for starters, to make stories pop more for readers and to provide more attractive opportunities for advertisers. On top of that, the architecture of the site should reflect the way that stories are covered. Here's how BI's editorial chiefs see the way that they work:

"We don't really think of things we put up as 'an article,'" said [Nicholas] Carlson. "It's a bit of information conveyed to people. One of my old colleagues used to say that the last sentence of your last post is the first sentence of your next post. Because by the time you reach the end you sort of come to a cliff, 'Oh I have another thought on this and I'm just going to put it in the next post.' In a way, it does sort of become a narrative. For sure, I think [that's] the attraction of reading something at Business Insider ... It's a live medium where the narrative is always coming out with the next thing."

Joe Weisenthal is often reminded how differently digital outlets such as BI work when it comes time to submit content for awards.

"They have the journalism competitions where they invite people to apply and they always say, 'Submit your top three posts for consideration that you're most proud of' or something like that," he said. "And I can never come up with the stuff. I don't think I have a single great post last year that I'm really proud of. Everything I write is part of this bigger stream."

He pointed to his real-time blanket coverage of the monthly U.S. jobs report as an example. "If you follow me on Jobs Day, within like 20 minutes of the report coming out, I have a summary posted," he said. "Then I have another post singling out one detail I thought was interesting. I have another post saying what it might mean for interest rates and Fed policy. I have another post talking about the political dimensions and so forth. I'm proud of the fact that it's this whole suite of stories."

I'm an admirer of this form of journalism, and I think that many media organizations, including Reuters, are going to move in this direction. But right now, if you go to one of Joe's payrolls posts, it's not easy to find all the other ones -- to have them all in one place, together giving the bigger picture. In order to be able to allow that, Blodget will need to make some serious technology investments.

What's more, a re-engineered website might well result in significantly fewer pageviews. If you can see all of Joe's payrolls posts on one page, then that means fewer pageviews for BI than if you call up all 10 of them individually. For most of its existence, BI has been in an uncomfortable race, trying to increase the number of pageviews it serves up faster than its CPMs are falling. Investors are generally OK with losses, which reportedly reached $3 million last year, only so long as revenues are growing. And they are growing: Blodget tells me they were more than $10 million in 2012, up from about $7.5 million in 2011 and $4.7 million in 2010.

The problem is that in the chase for revenue growth, Blodget is sacrificing a pleasant user experience. He installs ugly automatic links under certain phrases, for instance, which when you mouse over them start playing video ads. Or he sells a lot of interstitial ads, which force you to click another time before reaching the story you want to read. Quartz points out that there's a good chance Business Insider is worth less than the much younger BuzzFeed, where CEO Jonah Peretti is adamant that he'll never run a BI-style slideshow, or even "crappy display ads," just because readers clearly prefer everything on one page and don't get value from those ads.

The problem is that if Blodget decides to pare back on artificial revenue juicers that readers dislike, that hurts revenue growth as well as profits -- even as BI is saying that it intends to accelerate revenues this year to something in the $15 million range. In order to keep revenues growing even as he re-engineers his site to make it sleeker and less optimized towards pageview maximization, Blodget would have to invest not only in technology, but also in sales -- paying big money for expensive staffers to build relationships with brands. BI gets too much of its revenue from banner ads right now: It needs to diversify its ad revenue, and start finding more ways for brands to reach BI's coveted readership.

One of those new channels is conference sponsorship, and I expect that BI will use a bunch of its new money to invest aggressively in conferences. But one of the big hidden costs behind building a new kind of website is the fact that you need to build a new kind of sales team, too, selling the kind of products that are often referred to as "native," whatever that's supposed to mean.

Business Insider has always been run on something of a shoestring; it made the entirely understandable decision, for instance, to hold on to a large chunk of the capital it raised in the past, rather than blowing through it and then suddenly being forced to cut back for the sake of profitability. This new round allows BI to increase the amount it's investing while still retaining a reassuring cushion. But $5 million is not remotely enough money to allow Blodget to pivot to a very different business model, even if he wanted to do so, which he probably doesn't. For better or worse, he's stuck in a world of banner ads and CPMs, and although he's done well in that world to date, the future of that world looks pretty bleak.

There are many sites, Gawker Media's foremost among them, that have gone to great lengths to wean themselves off their addiction to banner ads. And in general it seems to me self-evident that "the best digital business publication on the planet" is not going to be one that aggressively chases pageviews and ad revenues at the expense of the user experience. By thinking of stories as streams, Joe Weisenthal found a great way of juicing pageviews, since every element of that stream, under the current architecture, is a new story and a new page. But he's also stumbled upon a powerful and addictive new form of journalism, which is Blodget's best hope for achieving his ambition. The question is: Will Blodget be willing to give up his current business model to let Weisenthal follow his editorial vision to its logical conclusion?

-- Written by Felix Salmon in New York.

Read more of Felix's blogs at Reuters.

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