Google didn’t become an online advertising powerhouse by bolting on banner ads. It sold what it was good at: search.
Similarly, digital publishers pinning their hopes on online ad revenue should play to their strengths, argues BuzzFeed Founder and CEO Jonah Peretti.
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Speaking at the Vivid Ideas Game-Changer Talks Series in Sydney yesterday, Peretti compared BuzzFeed’s approach to selling native advertising to how Google began making money.
“When Google first started everyone said ‘they are never going to be able to make money. How is a search engine going to make money?’ It’s now one of the best businesses in history. But the way that they figured it out is what I would call an example of native advertising,” Peretti said.
He explained, “When you do a Google query there is a keyword entered into Google and it shows you a bunch of relevant results that are essentially editorial results, and they have a bunch of sponsored results that are paid by companies that want to get attention.
“What that allowed Google to do is take what they are good at — which is powering search — and to use that to serve the consumer by giving them better search results and serve their business by having relevant sponsored results.”
Peretti, who also co-founded The Huffington Post along with Arianna Huffington and Kenneth Lerer before launching BuzzFeed, said he couldn’t understand the way media companies on the web were trying to make money online in the days prior to founding BuzzFeed.
“It didn’t make sense to me that you would have a tech team that gets really good at making a publishing system, lists, quizzes and new formats and that none of that would make you any revenue and then you would just put these banners on the site and that’s how you would make your revenue. It was like all the things you were building in the company didn’t even help you and then you were bolting something on to the site to make revenue,” he said.
Peretti said BuzzFeed takes the same technology and approach to its editorial business and applies that to its advertising with the addition of a ‘sponsored’ label.
Better Online Ads
There are two criteria for ads appearing on BuzzFeed, Peretti said: don’t be annoying; and be engaging.
“We make sure it [advertising] doesn’t annoy you, block what you are reading, cause the site to load slowly or antagonise you, which a lot of companies do with their advertising,” he said.
“Secondly, [we ask] can we raise the bar even further and make the advertising actually interesting and engaging?”
Peretti cited the example of BuzzFeed creating a quiz for HBO titled “How would you die in Game of Thrones?”
“People know it’s from HBO, the byline is HBO, but it’s something that is actually adding value to their experience of reading BuzzFeed instead of interrupting or annoying them,” Peretti said.
When asked by ABC journalist Leigh Sales — who was conducting the on-stage interview — about how BuzzFeed manages advertisers’ expectations of going viral, Peretti said there’s a huge space between something going viral (the dress) and a traditional TV and print ad that can’t be shared online.
“There’s a lot of space in the middle, and so if you can make branded content or native advertising that gets some extra sharing because it’s actually engaging and can add value to the consumer, that’s much better than traditional advertising. So you don’t actually have to make something that is hugely viral and you can get a lot of benefits.”
Branded content also “keeps you honest,” Peretti said. If people find it interesting and engaging they will share it, so you know you’re not just adding more bad advertising to the Internet.
Finding New Business Models
The biggest challenge digital media companies are facing is the speed at which the industry is changing, Peretti said.
Now with 18 offices, 11 international editions and content that gets an average of 7 billion views each month, BuzzFeed faces a similar challenge to legacy media organisations, becoming anchored to the way they’ve always done things.
“We ask ourselves a lot if we were starting BuzzFeed today, would we do it this way? And if the answer is no then we say, how would we do it and how do we get there?” Peretti said.
“You have to continually evolve your business model and find new ways of generating revenue. We have had the luxury of having a strong core business and a lot of investment and that has allowed us to continually innovate and evolve our business models.”
BuzzFeed started life as a web site making money from native advertising. It has now shifted to become a “distributed cross-platform media company” that makes “considerable revenue from creating content for platforms or sharing revenue with platforms like YouTube or Facebook.” It has also made moves into news, commerce and video, which now accounts for half of BuzzFeed’s revenue, Peretti said.
Another advantage of branded content is its ability to continue to generate revenue as media products increasingly become unbundled, Peretti said. For example, a video featuring a sponsored product can still provide value for the advertiser as it spreads to more online real estate such as YouTube, Facebook or Instagram. By comparison, on a television program or newspaper the ads and content are bundled together in one on your own property.
“I think that the rise of these distributed platforms has helped enable this branded content business model for us. So when we switched from being essentially a web site to being a distributed cross-platform media company, our business model still worked and that was something that as more consumption happens distributed on those platforms, you are going to see the power of branded content because it will travel,” Peretti said.
Peretti dismissed concerns that digital publishers are reliant on Google and Facebook for audiences and traffic.
“Every business has platform dependencies. We can worry about Google and Facebook, but Google and Facebook have to worry about Apple because they’re on the iPhone, and Apple has to worry about the carriers that are connecting the iPhone to the network,” he said.
“The important thing is not that you have dependencies — everyone has dependencies — the important thing is are you aligned and complementary and providing value.”
He said that right now the big social platforms don’t want to hire hundreds of video producers and journalists to make creative content, report the news and do investigations and do all that work but the audiences want that.
“So we are very aligned and we are doing something that Facebook and Google don’t want to do themselves, but that they need to be successful with their customers. That’s how we find ourselves pretty aligned with these big platforms.”