Congrats to Rafat Ali for the scoop that Weblogs Inc are selling to the venerable (and vulnerable) AOL for $25 million.
Assuming it’s true, it’s certainly a very fast turnaround from startup to sale – about two years – and Jason Calacanis and team are to be congratulated if they’ve pulled this off. Mark Cuban also invested $5 million in the company, so he’s presumably done very nicely too, though hardly the kind of returns VCs typically look for.
But the $25 million question is; is it worth the money? Frankly, I don’t think so and my bet is Jason has cannily sold out at the top of the market. It’s yet another sign of the bubble that’s going on.
There’s a couple of reasons why I think it’s over valued.
Firstly, we have the business model itself of niche publishing. The concept is to offer advertisers and sponsors a way of targeting niche audiences via their blogs. This sounds supremely logical when married with the obvious benefits of advertising online – accountability, efficiency, speed to market.
However, most advertisers and their agencies just aren’t equipped with the skills and manpower to delve into these rich niches, unless they enjoy real volume of readers. The 30 TV second slot may be dying fast, but it still delivers millions of eyeballs. To get anywhere near these numbers (even taking account of the wastage) an advertiser would need to get on what? 100 blogs? 1,000? Even more? Don’t forget that the average blog outside the top 5,000 gets less than 16 visits a day.
So, the poor advertising buyer is suddenly faced with 1,000 buying points, with the same manpower and resources as they had to buy from one.
Ahhha, they say. Isn’t that exactly where Weblogs Inc can help? They can offer the advertiser one buying point for 130 blogs.
But it really isn’t that simple.
If I’m an advertiser and want to hit parents, as an example, Blogging Baby may well be a great vehicle. It’ll help me pick up a few thousand readers a day (and maybe more – I don’t have the readership figures). But it’s nowhere near the millions of parents I want to hit. So what else can Weblogs Inc offer in that line? Err…nothing.
So, there really is little synergy between the titles.
OK, they do make a lot of money on Google AdWords and the long tail of advertisers this has uncovered. According to PaidContent, Jason recently claimed this was $2 million a year. If so, this would still be a very high multiple and who knows if this kind of thing is really sustainable?
My final concern is the way the content creators get paid. Weblogs Inc pays its bloggers relatively small amounts to create content, which is at the heart of the value proposition – no content, no readers, no value creation. In fairness, it has to be relatively small amounts, as the readership of most of the blogs is pretty small and therefore won’t generate much income to spread around.
But, if they’re not earning much and it costs nothing – or a few 100 dollars at the most – to set up on your own, why would they stay with you long term? Particularity, as they’ll now see you pocketing a nice fat cheque/check off the fruit of their labours. After all, if they move to their own site, work hard for 2 years, might they not sell for a few million dollars too?
Most of these publications are one-wo/man creations and really only have value while the founder is in place. If you doubt this, do you think an individual title Weblogs Inc could be sold, without a very generous share being given to the writer? Engaget might just possibly be the exception that proves the rule.
So a hearty, “well done” from me to Jason and Co. I think AOL have picked a bit of a dud, but then $25 million is small change to them and nothing in the context of their wider business problems and indeed, their very future. In this context, they can take a little risk like this and if I’m wrong, enjoy any upside that comes with it.
Image from Corante.
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