The Business of Blogging

The case: Blogs are the soapboxes of the Internet era–independent platforms for everything from personal diatribes to political discourse to tech-gadget reviews. But with their growing popularity, could blogs also become media platforms capable of making money? Two entrepreneurs are trying to find out.

Depending on whom you talk to, Web logs, or blogs, inspire excitement, alarm, or a yawn. They are the personal diaries that now litter the Web, composing a newish online medium that is simplicity itself.

Most blogs consist of musings posted to idiosyncratic and amateurish websites. But while blogging is a favored mode of expression for blowhards of every stripe, it is also the basis for a new crop of editorial products with high-quality content and loyal readerships. Over the past several years, blogs have become platforms for political discourse, Hollywood gossip, and insider information on subjects ranging from the latest Apple operating system to presidential-election results.

Several factors have contributed to the emergence of blogs. First, they can be started with very little, and very inexpensive, editorial content yet are capable of exerting extraordinary influence. Blogging software is inexpensive–or often free–and easy to use. Low bandwidth requirements and Web-hosting fees keep the ongoing infrastructure costs of maintaining a blog very low. And new, easy-to-use advertising services such as Google AdSense, which frees content creators from having to deal with actual advertisers, have breathed fresh life into online media.

The accessibility and ease of use of blogs have had a dual effect, a simultaneous erosion and improvement of quality. At the low end, blog-platform sites like LiveJournal and Xanga provide an outlet for hobbyists and diarists. More-serious bloggers, however, have increasingly approached their sites as they would any other sort of editorial platform, with regular publishing schedules and clear editorial missions. These bloggers tend to use more-sophisticated software than do more-casual bloggers. One such tool is Movable Type, made by San Francisco-based Six Apart. Movable Type is customizable and can help make a blogger’s postings look professional.

All these trends are leading a number of media entrepreneurs to wonder whether blogs can generate meaningful revenues or, for that matter, offer a legitimate alternative to the business models of existing media companies.

Two of those entrepreneurs are Brian Alvey and Jason McCabe Calacanis. They are the cofounders–Alvey is president and Calacanis is chairman and CEO–of Weblogs Inc., a network of 80 blogs. The pair bootstrapped Weblogs with their own funds, and barely 18 months after the network’s January 1, 2004, launch, they were already earning revenues. But it remains to be seen whether the business model will deliver profits.

New Medium, Old Partners
This is not the first time Calacanis and Alvey have collaborated. They attended the same Brooklyn high school and started their first venture, a magazine about online services called Cyber Surfer, in 1994. Two years later they launched Silicon Alley Reporter, a magazine that covered Internet startups and served as an East Coast foil to the better-known California-based tech tomes of the late 1990s, such as Red Herring and the Industry Standard.

Silicon Alley Reporter prospered in the days of profligate advertising budgets, and it launched additional businesses, such as an events-planning division, e-mail newsletters, a website, and a radio show. Calacanis established himself as a familiar pundit of the East Coast tech boom. He served as CEO of the company, while Alvey, who built TV Guide’s website in 1995 and was a member of the team that built the first BusinessWeek site later that year, was chief technology officer.

When the market crashed in 2000, and other Internet-focused media companies went out of business, Calacanis retooled Silicon Alley Reporter to focus on venture capital. In 2001, he changed the name to Venture Reporter, ditched the advertising-based business model, and increased the price of the magazine, turning it into a high-end business-information offering. Venture Reporter charged up to $1,000 for research reports and from $1,000 to $5,000 for access to a proprietary database of information about venture capital investment and mergers-and-acquisitions activity. The makeover narrowly rescued the company from oblivion. After Venture Reporter was acquired, first by Wicks Business Media and then by Dow Jones, Alvey, and eventually Calacanis (who stuck around until 2004), decided to move on.

In early 2003, Calacanis and Alvey began to discuss new business ideas in the media sector. They’d followed the blogging exploits of two former Silicon Alley Reporter employees: Xeni Jardin, who is a contributor to the popular collaborative blog Boing Boing, and Rafat Ali, who publishes PaidContent.org, a blog about emerging new-media business models. Calacanis saw the validity of one of those models as he observed the immediacy of Jardin’s and Ali’s postings, the value of their information, and the loyalty of their readerships. “It wasn’t hard to see that there was this new model emerging where writers are unfiltered and readers actually like it as much as, or perhaps even more than, they like magazines,” he says. “And they certainly appreciate that the content is available on a more regular basis.”

The Network Effect
But as Calacanis and Alvey began to study the economics of blogging, they encountered a question that few bloggers have been able to answer: how to expand. “We looked at individual blogs and couldn’t figure out when or how you add employee number two. Maybe never?” explains Alvey. “We wanted to put together a blogging franchise that could actually grow.”

It was clear that growth couldn’t happen at the level of the blog. A stand-alone blog tends to have a single author, a narrow focus, and a small audience. It is thus unlikely to benefit from Google AdSense, an automated contextual-advertising program that becomes lucrative for site owners only when traffic increases to hundreds of thousands of page views per month. In a best-case scenario, a blogger with low traffic might be able to make money by finding a sponsor willing to pay a premium to reach a targeted audience.

Calacanis and Alvey’s solution was to assemble a large network of bloggers who together would generate a river of traffic. Stand-alone bloggers face great pressure to keep their sites fresh for audiences who expect frequent updates. With a network, if fresh content is not available at one blog, it most likely will be at a sister blog with overlapping coverage–and authors can contribute to one another’s sites.

The final business plan for Weblogs called for a network of more than 300 blogs targeting niche markets in technology, media, entertainment, and consumer goods. With his experience in creating content management systems, Alvey built the publishing platform from the ground up; he believed that commercially available blogging programs such as Movable Type couldn’t handle such a large number of blogs and didn’t offer the kinds of reporting tools that Weblogs wanted to build into its system.

In early 2004, Calacanis and Alvey began to recruit writers into the network. “When we started, there weren’t that many blogs out there that had reached any level of significance,” says Calacanis. “For any of the ones that had, we went and talked to them and tried to see if there was a deal we could do. We made offers to buy or partner with them.”

But bloggers are independent spirits. Few established bloggers wanted to partner with the company or sell controlling interest in their content, Calacanis found. Nor did the bloggers, many of whom had been stung by the dot-com crash, have much interest in Weblogs equity.

Engadget, a Weblogs site that covers technology devices, was an exception. It is now the most popular blog in the network and ranks among the most popular on the Web. Its author, Peter Rojas, had previously written a similar blog called Gizmodo for a rival network, Gawker Media. [Disclosure: Rojas worked for Jason Pontin, Technology Review’s editor in chief, when Pontin was editor of Red Herring.] According to Gawker founder Nick Denton, Rojas sought an equity stake in the business, but Denton was unwilling to offer one. Calacanis poached Rojas from Gawker, by offering him a new platform and an undisclosed equity stake in Weblogs. But Rojas’s contract is an exception for the company, says Calacanis: “Nineteen out of 20 people we talked to rejected the idea of equity. Most just want that paycheck.”

As a result, almost all Weblogs bloggers are freelance contractors who are paid on a monthly basis. They make anywhere from $100 to $3,000 a month, with the average falling between $500 and $600, says Calacanis. Contract negotiations are based on a number of factors, including how often the blogger updates his or her site. The Weblogs network currently includes 80 bloggers and generates 60 million page views per month. Weblogs is the exclusive copyright holder on all the content it publishes.

The company is generating a steady stream of revenue from network ads, which are automatically served by companies such as Google and Tribal Fusion, and from direct ads, which are the result of traditional contracts with such advertisers as Volvo, Equifax, Pacific Poker, Palm, and Subaru. According to Calacanis, the majority of the company’s revenues come from direct ads, which currently command a CPM rate (cost per 1,000 impressions) of between $4 and $12, whereas network ads generate between $1 and $4 CPM. The most popular blogs tend to feature a greater number of ads purchased directly by advertisers. More than half of Weblogs’ advertisers end up buying space on more than one of the network’s blogs, says Calacanis, but to pique a direct advertiser’s interest, a blog’s traffic must exceed one million page views per month.

The company openly experiments with homegrown ad formats, including Focus Ads, which invites users to comment on ads, and “adverposts,” which are ads written in a blog format (though they are clearly labeled as ads). Weblogs Inc. has also begun to embed ads in its RSS feeds. RSS (“really simple syndication”) allows content providers to disseminate the information on their sites, including links, headlines, and summaries of stories, to an RSS reader–a software program that aggregates the updated content from a person’s favorite sites, eliminating the need to visit them individually. An advertisement within an RSS feed appears as a text link, much like a Google “sponsored link” on a Web page. With this new advertising format, the ads accompany the content wherever it goes.

One potential pitfall of the reliance on automated ad programs is the temptation to game the system by creating search-friendly editorial content referring to highly trafficked search subjects, like Paris Hilton. Calacanis maintains, however, that the practice of gaming search engines is quickly punished by readers. “People come to blogs not to be duped–to get genuine coverage,” he says. And while he admits that blog publishers have fostered a spirit of collaboration with advertisers, he says the so-called Chinese wall between editorial and advertising is essential to establishing the credibility of commercial blogs, just as it is for traditional forms of media. For this reason, Weblogs rejects the idea of tying compensation for a specific blog to its ad performance; the company wants its content to be as genuine as possible. “If our bloggers are just chasing traffic by writing about Lindsay Lohan, readers won’t tolerate it,” Calacanis says.

Though Calacanis and Alvey will not disclose revenues, Calacanis–in the collaborative spirit of blogging–has shared certain details on his own blog (calacanis.weblogsinc.com). Weblogs generates more than $1,000 per day from Google AdSense alone and has recently surged as high as $2,000. Maintaining that average would translate to $730,000 in revenue in a year, “which is nice,” Calacanis observed on his blog, “but much, much, less than we write in checks to our team every month (think 75+ bloggers and 10 full-time staff).” In May 2004, Mark Cuban, who sold Broadcast.com to Yahoo at the height of the bubble for an astonishing $5.7 billion, made an investment in the company. His own personal blog, Blog Maverick, is part of the Weblogs network. Calacanis says he has no immediate plans to raise more money.

No Barriers to Entry
Calacanis openly refers to his latest venture as a “blog experiment,” and to be sure, it is an unproven model. In addition to competing with other networks, like Gawker Media, which currently publishes 13 blogs, Weblogs must compete with businesses using other emerging models. John Battelle, who founded Industry Standard and writes SearchBlog, a blog about the intersection of media, technology, and the Internet, has launched a venture tentatively called FM Publishing that will provide independent blogs with such services as ad sales, but will not own their content.

With this approach, Battelle may be able to attract high-end bloggers who want to maintain ownership of their editorial content but don’t have the time and resources to figure out how to monetize their blogs. And by bringing prominent blogs together, FM Publishing could begin to enjoy some of the same network benefits that Weblogs does.

A similar venture, called BlackInc Media, is being launched later this year by former CNET Networks employees. The company will help blog publishers with ad sales and business development. “Our goal is to allow bloggers to focus on the thing that made them valuable in the first place–good editorial content,” says Matt Comyns, one of BlackInc Media’s founders.

Another, less tangible challenge facing Weblogs is the fickle nature of Internet trends. The influence that bloggers wielded in the national debate during last year’s presidential election suggests that the medium’s cultural importance is unlikely to fade anytime soon. But that doesn’t guarantee that advertisers will ultimately find sufficient value in blogs. To date, most advertising has been conducted on an experimental basis.

Calacanis believes that blogs need not revolutionize media in order to be successful. “The problem is that lots of people want to make this a zero-sum game,” he says. “I don’t see blogs cannibalizing what Google News does or what the New York Times does. I see it as something unique. I think blogs will eventually represent 20 percent of a person’s media diet.”

If he’s right, then blog networks–and even some stand-alone blogs–may be able to carve out a comfortable existence. But in the end, a blogging company’s greatest weakness may be the very thing that makes the new medium so powerful: anybody can publish a blog.