The business of blog networking
We’ve been looking carefully at the Syntagma network over the early summer, thanks to Gerry Reynolds, a business consultant specializing in the retail sector. Like all such exercises, much of what emerged was already known to me from the experiences of the past two years, but two thoughts in particular were illuminating.
Gerry’s first insight, which I was aware of, is that the online content business is a small margin trade — unless you’re prepared to invest heavily ($20m). By that he means that there are few big payouts for individual sales — i.e. of ad space. Big bucks have to be accumulated over time from small sum payments.
Drawing on his retail knowledge, he likened the business to little corner shops, which make margins of around 2 percent. To make that sort of business pay it has to be run almost around the clock. Most small shops are owned by immigrant groups and open between 8am and 10pm. Moreover, they are family run, with the kids roped in for shelf stacking after they’ve returned from school. Teenagers and grandparents also take turns behind the counter.
The owner may also import exotic foods from Asia or elsewhere and wholesale them to other outlets. Other shops may be opened in different parts of town. Everything is optimized to lift that slim margin to an impressive return.
Similarly, a digital (blog) network needs quantity and variety to make the business pay. For example, some of our sites do well on text link ads, selling out in a couple of months. A few are Adsense magnets drawing clicks from heavy, regular traffic. Others attract different types of advertising, while one or two specialize in affiliate sales. Often you simply can’t tell until you try.
The attraction of multi-domain networks is that they can contain a variety of advertising magnets, which allow many fingers in different pies.
All sites need time to mature, of course — around 18 months — before they reach their potential and start contributing to the pot.
Rarely will one site make a living salary for its owner. It does happen, of course, usually for quirky, semi-commercial blogs which catch on for reasons known only to visitors, or sites using below the radar techniques for hoovering up Adsense clicks.
By accumulating sufficient inventory in the right niches, and optimizing it for profitable trading, network owners can make a good living from the business. In some isolated cases, they can even sell off the company for seven or eight figure sums, but that should not be taken as read for the vast majority.
So, that’s one of Gerry’s insights : the need, like corner shops, to work with low margins through quantity, while not compromising on quality. A hard call, and only for the determined. But does anyone think it’s easy winning a gold medal in the Olympic Games?
Another aspect of the business our consultant stared hard at was the use of branding. He looked at our basic brands and assessed their worth.
On his advice we closed down our Allusionz network magazine last month as it was going nowhere. The brand last in, Moneyizor, has already overtaken LifeTimes, but is slightly behind Phi still. It could end up in front of both.
However, one brand stood head and shoulders above the remaining three, and it’s not hard to guess what it is : Syntagma. The whole network should be pulled together more tightly like a drawstring, he suggested, to emphasize the Syntagma brand, while retaining the three subsidiary brands as “sections” of one online publication — with their own portals as now — instead of separate “magazines”.
It makes a lot of sense, and marks a retreat from the long-list method of presenting a network, which we partially moved away from with the network magazine concept. It’s simply the logical next step along the same path.
We’ll be working on this project over the rest of the summer.
There are other profitable elements in this package too, but those are confidential and for my eyes only.
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By 21st-century Phi » The digital network business on July 23rd, 2007 at 7:17 pm
I really like your slow go at it pace. I think its the method that will have the most success as long as you can keep your stable of writers happy during the growth stages. Truthfully you probably have more potential than b5 of actually developing a long term successful business based on some of his advice.
By David Krug on July 24th, 2007 at 9:29 pm
Thanks for that, David. I’m not sure Jeremy Wright would agree with you, though.
I’ve always thought that a fully-functioning content business would take up to three years to find itself, especially in terms of the major advertising Jeremy Lieow (?) was writing about yesterday.
Our main advantage is that we’ve never taken funding — either from VCs or bank loans. So we’re completely debt free and finance everything from earnings. Compared to b5’s $4m funding, which probably cost them 70% of the shares, it leaves a lot of potential within the business. The old formula for funding, that the bit you have left should be worth more than the original 100% after funding, must be cut very fine with some of the deals going down.
By John Evans on July 25th, 2007 at 10:14 am
4m in funding? Wtf? 70%?
For the record, no content business has EVER grown to scale (ie: 50m or more) without funding.
If that’s your goal (and I always thought you were against that), then the advice you received will set you back more than it will empower you.
I know you won’t agree, but I’ll give you the benefit of having built two multi-million dollar per year content businesses (but none at liew’s scale): if you’re going to switch from going wide to going deep, you need to be very, very wide so that 1) you have a deep enough dataset to be significant and 2) you don’t drop significant amounts of traffic.
By jeremy wright on July 25th, 2007 at 12:58 pm
Thanks, Jeremy.
I do say in the piece that it takes $20m (JCal’s number) to build network to WIN’s previous scale. We’re not going that route now. My aim is to triple personal income to $300,000 in two years, and only sell out to a very good offer (unlikely).
We’re still going with a multi-domain network (around 35 sites), but with far more cohesion and based on our major brand. We will, of course, keep monitoring progress.
In this modality, the only stat that counts with me is what I take home every month. That’s good enough now and rising steadily.
Happiness is not caring what others do and having the freedom to choose your own way forward.
By John Evans on July 25th, 2007 at 1:48 pm
It wouldn’t take 20M$ to build a network to WIN’s scale. WIN was making about 3M$/year when it got sold to AOL. Anyone who spends 20M$ to get to 3-5M$/year is just a little odd.
By Jeremy Wright on July 25th, 2007 at 2:43 pm
I think his point was that it would take $20m now. But it’s his number, not mine. I listen because he was recently the leader in his field.
By John Evans on July 25th, 2007 at 2:49 pm
That’s what I’m saying, it wouldn’t take 20M$ now. Even if all you did was buy existing networks, you could get to 5M$/year in revenue with less than 20M$ (ie: bigger than WIN for less cash).
Not sure why anyone would buy everything, but that’s decidedly the most expensive route.
By Jeremy Wright on July 25th, 2007 at 2:54 pm
Yep, on reflection, I think you’re probably right. You could also incubate a substantial part of the inventory yourself, saving on costs.
That’s assuming, of course, you want to go the head-butting route of being numero uno in the field.
By John Evans on July 25th, 2007 at 3:02 pm
Naw, even that wouldn’t get you #1. Gawker’s now doing 5-10M/year now. To beat Gawker, you’d need to spend something like 40M from scratch.
By Jeremy Wright on July 25th, 2007 at 3:08 pm
Well, Nick Denton’s complaining about internet advertising and even hinted about quitting a little while back. I believe he only has 15 sites, which shows the potential of the deep model — if you can create a great standalone title, with bruiser branding and in the right niches.
By John Evans on July 25th, 2007 at 3:16 pm
[...] Syntagma network magazine has a great article on the business of blog networking, based on the insights of Gerry Reynolds, a “business consultant specializing in the retail [...]
By Blog Network Watch » A Closer Look at the Business of Blog Networks on July 26th, 2007 at 12:05 pm
[...] Over the summer Syntagma hosted a consultancy exercise by retail specialist Gerry Reynolds. You can read some of his conclusions here : # [...]
By SYNTAGMA » An interview with John Evans on September 14th, 2007 at 10:27 am