August 2005

The Business of Blogging

Continued from page 2

By Andrew Madden

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.