Yes, some blogs are profitable – very profitable

Yes, some blogs are profitable – very profitable

Sunday, October 21, 2007

In 2005, when Silicon Valley entrepreneur
Michael Arrington started TechCrunch, his popular blog on Internet
startups, he saw it mainly as a chance to indulge his obsession with
young technology companies.

But it turned out that Arrington had latched onto something big.
TechCrunch became the go-to site for the scoop on new Web companies.
And, as technophiles flocked to TechCrunch, advertisers followed suit.
Arrington’s blog morphed from a labor of love into a fast-growing
business.


"When I started the blog, it was just a hobby," Arrington said. But,
after a while, "It was pretty clear that I could make more money
blogging than from anything else."

More quickly than most anyone imagined, blogging is growing up. From
the blogosphere’s anarchistic roots, a professional cadre is emerging
that is creating an industry whose top-performing businesses now earn
serious money. The industry is expanding at warp speed. Blog-based
media could just be poised to elbow aside traditional print and
broadcast outlets to become one of the dominant sources of news,
information and opinion, many observers believe.

"As traditional media continue to contract, this stuff is going to
expand," said Steve King, senior fellow with the Society for New
Communications Research, a Palo Alto think tank. "The business models
have caught up and you’re starting to see little blog publishing
companies that frankly are becoming not so little."

The blogging world has tremendous strengths – original voices,
provocative opinions, imagination and intimate knowledge of a variety
of subjects. But it is also an industry struggling to mature, many
observers argue. They say blogging companies must overcome the
industry’s reputation as a sort of digital Wild West where anything
goes, and confront such questions as conflicts of interest, product
hype, bias and low standards of accuracy.

Professional blogs "are at a fork in the road," said Lisa Stone,
co-founder and CEO of BlogHer, an online company operating a women’s
blogging network. "Any publisher has to implement (ethical) guidelines.
If someone recommends a mixer, a diaper or a personal digital
assistant, it has to be because they absolutely love it. It’s the only
way to succeed."

While there are plenty of growing pains, insiders are convinced
there’s vast amounts of money to be made. Venture capitalists and
big-time media companies are taking notice.

"This is the next evolution of media," said Jon Callaghan, a partner
with True Ventures, a Palo Alto venture capital firm that has invested
in Om Malik’s technology news blog GigaOm. "We are in the second or
third inning, extremely early in the emergence of this industry."

Still many skeptics

Skeptical voices can be heard. But even they acknowledge rapid progress.

"A few self-sustaining blog media businesses do seem to have
emerged," said Nick Denton, founder of Gawker Media, the parent of
gossip site Gawker.com. "But they’re still minuscule by the standards
of traditional media. And none have weathered a downturn. So it would
be unwise to sound too triumphant."

A blog, of course, is an Internet writing format featuring regular
posts by one or more authors that mix text, images, video, links to
other sites, and comments from readers. The vast majority are still the
personal creations of those souls eager to share their thoughts and
feelings with the world at large.

But out of that morass, an elite of professionally produced blogs
has risen thanks to their quality of writing, originality of thought
and usefulness of information. An unknown number of those have quickly
become bona fide businesses.

Of the millions of blogs on the Web, "most are diaries by teenagers
and the like, but they get no traffic," King said. "The sites that are
attracting traffic are professional blogs."

When King speaks of professionals, he is referring to those whose
full-time occupations and main sources of income are their blogs.
That’s different from people who blog as an extension of their jobs,
such as newspaper reporters who put out online items as part of their
work or Sun Microsystems CEO Jonathan Schwartz, who writes a widely
followed technology blog.

The blogging industry is coming to resemble the magazine world, with
multiple sites for every taste in politics, entertainment, business,
technology and any other imaginable field.

"The ones that have become very strong small businesses have a niche
market that’s big enough to attract advertisers," King said. "In most
categories, a few blogs tend to dominate."

At the top of the industry are sites such as the gossip and
commentary network Gawker Media and politics site Huffington Post that
started as blogs but mushroomed into Internet destinations with
multiple blogs and other features such as news and product sales.

Not surprisingly, given the region’s role in the development of the
Internet, the Bay Area is a center of the blogging business.

Several of the most popular tech-oriented blogs are based here,
including TechCrunch, GigaOm and Matt Marshall’s VentureBeat. BlogHer,
with 13 employees, is in Redwood City. Markos Moulitsas, the founder of
Daily Kos, the influential and sometimes-feared liberal political blog,
writes from Berkeley. Sugar Inc., one of the most powerful women’s
lifestyle blog networks, is in San Francisco.

Federated Media Publishing, the brainchild of former Industry
Standard Publisher John Battelle, operates here as a sort of uberblog,
selling advertising and carrying out business functions for a stable of
130 independent blogs and related online media.

And the area is also home to an array of quirky, hard-to-categorize
blogs that are succeeding as businesses, such Boing Boing, with an
office in Sausalito, a sort of techno-futurist meditation that
describes itself as a "directory of wonderful things." Boing Boing is
one of the blogs in the Federated Media network.

What’s got entrepreneurs excited, especially those who went through
the dot-com debacle, is that an increasing number of blogs are bringing
in cash faster than they’re spending it after only a few years of
existence. That’s in sharp contrast with the dot-coms of several years
ago, many of which lived off the proceeds of stock offerings and never
succeeded in generating significant sales.

The economics of blogging is so strong that entrepreneurs often can
self-finance, which lets them tell potential investors to take a hike.
TechCrunch’s Arrington said he’s walked away from venture capital deals
four separate times.

"Every time we almost did a round (of financing), we grew so fast the terms didn’t make sense anymore," he said.

The emerging business model is to start by selling advertising and
build from there with events, subscriptions or product sales. And with
audiences growing at double- or triple-digit rates, ad prices are
soaring for top blogs.

"When we started selling advertising in this space late in 2005, it
was very experimental and risky. We were able to get maybe $4 or $5"
per 1,000 page views, Battelle said. "For the same impressions we were
selling then, we are now on average $20 to $30."

On the other side of the coin, blogging businesses can make money
because their overhead is low. "It’s dirt cheap to operate, which makes
break-even incredibly achievable," Callaghan said.

Right now, it’s rare for even the most successful blogging
operations to employ more than a dozen full-time staff members.
Computer power and bandwidth get cheaper all the time. And a
headquarters is not essential.

"There are no offices. It’s all virtual," Daily Kos’ Moulitsas said about his site in an e-mail.

One success story

TechCrunch illustrates the new blogging math. It sells sponsorships
that allow advertisers to display on the home page at $10,000 per
month. It also uses Federated Media to sell display ads, keeping 60
percent of the revenue. And it charges $200 to list in its Cool Jobs
section, getting about five or six want ads per day. Parties and
conferences add another income source. Last month, TechCrunch organized
a two-day event at the Palace Hotel that gave 40 startups a platform to
tout their wares.

And, as far as spending goes, "our costs are only headcount," Arrington said.

As blogs mature and start producing good cash flow, they often
create additional blogs or new sites, forming networks with multiple
products and a common brand identity. For example, GigaOm now offers
four additional blogs, all with a common brand, and its staff has grown
to 10 full-time employees.

"You’re seeing small media groups being created," said Paul
Walborsky, GigaOm’s newly hired chief operating officer. "This is the
next evolution."

Brian Sugar, a veteran of several Silicon Valley startups, and wife
Lisa began celebrity gossip blog Pop Sugar in 2005 as a hobby. As they
watched traffic rise and ran the numbers, they decided to organize as a
business.

Now, one blog has become 11 aimed at college-educated young women,
covering everything from fashion to health. Five more blogs are on the
drawing boards and a social network started in February. The enterprise
has emerged as Sugar Inc., with a staff of 56, including about 40 in
editorial. About 5 million people visit Sugar blogs every month, a
number that is growing more than 10 percent a month.

Such growth has made it easy to raise money. Sequoia Capital, one of
Silicon Valley’s top venture firms, has contributed almost $10 million
in two rounds of financing. And NBC’s digital media unit, which owns
the women-oriented Web site iVillage, invested a little more than $5
million this year, agreed to sell advertising for Sugar sites and is
distributing Sugar’s content across its properties.

Meanwhile, the company has repeatedly turned down buyout offers,
according to Brian Sugar, who noted that NBC bought iVillage for $600
million.

"We’re living in a very frothy environment at the moment," he said.

Asked why he would turn down offers to buy his company at a lofty
price, Sugar described the operation as "a family-run editorial
business," explaining that he collaborates with his wife and they get
to bring their 16-month-old daughter to work with them every day.

"This may be a weird answer," he said, "but I’m having way too much fun."

 

E-mail Sam Zuckerman at szuckerman@sfchronicle.com
This article appeared on page C – 1 of the San Francisco Chronicle

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