a16z Podcast - a16z Podcast: For Buzzfeed Sharing is the Metric that Matters

Episode Date: September 18, 2014

Jonah Peretti is building BuzzFeed to “inform, inspire and entertain” in a world where news and entertainment is increasingly passed around on social networks and consumed on smartphones. Chris Dixon, who is on the board of BuzzFeed as part of Andreessen Horowitz’s recent investment in the startup, sat down with Peretti to talk about building a media company from scratch. If editorial success is driven by digital word-of-mouth, and mountains of data about what people like to read and watch, what does Peretti do differently? Why do BuzzFeed’s lists work so well? Does video finally make financial sense? And why, even if it’s a traffic monster now, is Peretti not religious about any particular format -- including lists. (For more on Dixon’s take on the media business, and BuzzFeed’s “full stack” approach check out this recent post: http://cdixon.org/2014/08/10/buzzfeed/) The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, this is Chris Dixon. This is the A16Z podcast. Today I'm here with Jonah Pretti, the founder and CEO of BuzzFeed. We announced, I guess a few weeks ago now that we invested in BuzzFeed. So we're very excited about that, and thanks for being here. Thanks for having me. I guess maybe you could start by just sort of, for people that don't know, explaining the premise of BuzzFeed, why you started it. Yeah, so the idea behind BuzzFeed is that people still want to be informed and inspired and entertained, and the media industry has always had that role.

But the way people consume media has really dramatically shifted in the last 10 years with social and mobile and digital video becoming the dominant ways people consume media. And so BuzzFeed really is a media company for the social mobile world. And so, you know, someone might say, okay, great, people read stuff on their mobile phone now. They click on stuff on Facebook. But how does that really change what a media, isn't a media company? I mean, a skeptic might say, you know, don't you still want to, you know, write the same kind of stuff you were writing before? Like, how does that change what you do as a media company, the fact that people consume it differently?

Yeah, so there's a lot of differences. I mean, from a business perspective, there's differences in cost structure, so, you know, printing and broadcasts. You don't have trucks and... We don't have timber interests and pulping mills, and we don't have to, you know, have satellites or, you know, cable networks or broadcast networks in the same way. So distribution is different. But the biggest difference is that you get a tremendous amount of data back about what consumers are reading and what they're sharing. And for us, sharing has always been the biggest metric because it shows someone thinks that a piece of content

is worth passing on to a friend. And so you've always had this word of mouth. People watch a television show. They really liked it. They'd go tell their friend around the water cooler. I really like the show. But basically, the distribution was tied to these massive industrial era models.

And then you have a little word of mouth as extra. And now it's been kind of inverted where the word of mouth is the distribution. And so you're getting so much data back about what people like and what people share and that can immediately inform the media you're creating. So instead of just guessing and making something and hoping it's a hit,

you're able to be in a more direct relationship with readers and viewers. What does that mean for how you work? Does that mean that you see the people like some topic and then you write more about the topic? Does it mean you change the formatting, the headlines? Like what is it in terms of how does the data translate into actions? Well, the way to translate data into action is a huge part of what we do

and what we think a lot about and it's not totally straightforward. You can use data to get people to click a headline but then not deliver on the story and that actually has a long-term negative effect. And so some people use the data to optimize for the very short term. Our goal is to use the data to understand

on a deep level what kind of media people want to share and consume and to have a bigger impact on people's lives and a positive impact on people's lives, informing them, entertaining them, inspiring them. And so that means you have to have a more nuanced and skeptical view of what the data is telling you. Just because someone is clicking at a higher rate doesn't mean you're doing a good job. Just because someone's sharing doesn't always mean you're doing a good job. And so we try to avoid local maximums and focus on things that seem like more meaningful long-term signals.

So one line of argument today is that media companies, like news organizations in particular had kind of, or printed news, had local monopolies in the past. And that created very good businesses for them. So the New York Times or whatever, the local New Jersey newspaper or something. And that now with the Internet, that's destroyed these geographic boundaries. And some people think has destroyed the economics of that, of, of, of, of, the internet. news business, you know, obviously you don't think that. Like, how do you, how do you create a dominant news company in the modern era? And what are the barriers to entry? Yeah, so there used to be local, there used to be geographic-based monopolies and spectrum-based monopolies. So if you were

one of the three television networks, you know, you had a huge advantage in that there was only two competitors and you had a slot on the dial or with radio, you know, they both had spectrum monopolies and and local monopolies and so what happened is if you got an early start in the beginning of radio or television or newspapers and you you had amassed a big enough audience in a local market it became very hard for anyone to compete with you because you already had the the big printing press and the trucks and then you had a lot of good editors and reporters and so then you'd attract more editors and reporters and it became very difficult for someone else to like create another newspaper and the argument is on the internet that's not true and there's a

million blogs and everyone's on equal footing and and so you can never build a a defensible business and you can never generate great profits and that this is a terrible thing for the news industry and I mean it's funny actually when you hear people say it's a terrible thing for the news industry because they're saying we need these monopolies that are impossible to compete with and that's what's good for society and and you know it it actually is more much more complicated than that and in fact I think when you look at the way that technology can provide competitive advantage for companies today and it's actually makes it in some ways different but bigger barriers to entry, having a site that runs quickly, having an advertising model that works on mobile,

having a good data science team that can give you better insights in terms of what people are sharing and what people are engaging with, certain network properties, once you have a certain level of scale, there's things like preferential attachment and network theory that suggests that it becomes easier to reach an audience. And so all those things together, people I don't think understand very well,

but it does make it possible to build a defensible business. And that's why we've been able to grow so quickly generate profits and while simultaneously investing in foreign correspondents and investigative news team and other things that people thought weren't possible for internet companies to invest in.

The other, obviously, the big change is that the addressable market is now, there are, I think, the last numbers I saw 2.5 billion people with internet-connected smartphones, that number a lot of people think are going to 5 billion very soon, which is 100x what

the scale that a media company in the past could have reached, right? I mean, so even if you assume the margins, let's say drop, you know, by, let's say 3x or 5x, if the scale of the opportunity goes up 100x, it's more than compensated for. Yeah, and people misunderstand that piece a lot too, where they look at particularly companies

that have print publications, and then they go online, and they're like, they had 2 million subscribers in print, and they generated this much revenue, and now they have 20 million or 30 million, and they're generating the same revenue from that that they did from the 2 million to print. Therefore, print monetizes as well, and the Internet doesn't. And what they're missing is that it's actually possible,

to reach a much larger audience and if... Well, and the 2 million, we're sitting down and reading it for an hour in the morning. The 20 million, it's like unique visitors, which means somebody might have passed through and read a paragraph in the entire month. Right. They're not commensurate measures. Yes, for sure. So they're not the same and also it's possible to reach more people than ever before.

And so even if things were monetized at a lower rate, the fact that you're able to reach 100x more people means that you can build a really big business. So you see some really interesting stuff. You've always, you know, I've always gone to you to get little insights into social networks and things. Because you, as a content creator, sit on the cutting edge of this and see, you know, the rise of Pinterest and WhatsApp and all sorts of other interesting things. Can you talk a little bit about that? You even go so far as to organize BuzzFeed, right, according to which social network the content is created for. Yeah.

So we see the social network. almost like the new cable networks and we're the new MTV or CNN where we're making content for these networks and the you know this kind of gets back

to what we're talking about earlier but the way you make content changes depending on the distribution so when CNN started making there wasn't 24 hour cable news and that was a different kind of media that was only possible

because of cable and doing something in a half hour evening news is very different than 24 hour and the point is it yeah 24 you don't just do the half hour over and over you do something very different. Yes, and you can do things like go live and follow a story and you don't have to break in.

So there's a whole bunch of different things you can do that gave them an advantage because they understood that cable was different than broadcast. With the Internet, it's even with social and mobile and digital video, it's even bigger changes where understanding how these different platforms work give you a huge advantage. And we are continually trying to learn how to make content that really is native for these. platforms. People think BuzzFeed does, you know, native advertising for BuzzFeed. We actually do native advertising for other social platforms for Facebook or Pinterest or, you know, the mobile web, the social web. And so we're constantly trying to understand and learn what, how do people consume media in different contexts on different platforms. And so we, you know, I've been shocked that our video consumption, we did 400 million video views last month, and about half as

mobile. Like I thought video wouldn't be as big on mobile just because there's sound and a smaller screen and really mobile has sucked up lots of video consumption. The same for long form. We had a 6,000 word piece where the average time reading it was 22 minutes on mobile. And so people are sitting on their couch and the phone is good enough for them to read the long form article. And even though they probably could get up and get their laptop or an iPad or something, the effort of getting up isn't worth it when your phone is pretty good. I started reading books. I actually, I got the Steve Jobs book, for example, when it came out, whatever it was two years

ago. I read the whole thing on my iPhone. You get used to it pretty quickly. I didn't expect it. And just the convenience of being able to, like, you get in the car and you can still read or whatever, you know, makes up for the screen size. You get used to the screen size, too. Yeah. The other thing that surprises a lot of people is that Pinterest sends double the traffic to BuzzFeed as Twitter.

Yeah, a lot of people don't, because you have a big DIY section. You'll have a recipe with a photo. Yeah, we had this clean living challenge, which was 30-day recipes, original recipes, breakfast, lunch, and dinner for 30 days. We've had over 2.5 million people read that. And the vast majority of that is coming from Pinterest. And you do things like the lists, tell me if I'm wrong, like some of the lists in the DIY section. you can pin just one of the items as an example, right, as opposed to pinning the whole list. Yeah, you can pin an individual item and then also we make these title cards

for longer articles that are very Pinterest friendly that let you know there's more so people on Pinterest can say oh, this is a recipe and I can click to get the full recipe. It was funny, I was reading the New York Times the other day and it was like the weekend one and they had a thing on like summer

you know summer salad recipes or something and I read it and it was sort of like basically they went through and listed five summer recipes but they did it in prose format the way the new york times does um you know you think about you can do it like what one question people obviously you know people associate buzzfeed with lists listicles and uh and you know why do you like list someone i think one tell me if i'm wrong but one reason is you can take the different if it's you know as opposed to pros you can take the different parts share them separately discuss them separately on facebook it's a much more sort of social

format yeah and and also a more mobile format because slideshows were pretty dominant which would game CPM advertising and would their slideshows are just particular on mobile very difficult like with with a list you can just with one motion you can slide through yeah and then also you know when you're done with the story you know how many how what you're getting into you can skip things that are boring to you and go to the things that are interesting to you but it's not that we we have any religion around lists I mean we really don't see ourselves as a company that is wedded to any particular format. And what's so exciting about not having a legacy business is that we're not tied to the constraints of any particular medium. And so I think when you look at even the first

generation of online media companies, they tended to mimic print, even though they didn't have to. So articles tended to be the same length as newspaper articles, or sometimes they do a long which is like a magazine article and you know video tended you know to you know to to to sort of mimic television with like Hulu and even Netflix where it's kind of looking like more like television and what's what's interesting to me is that none of those things are predetermined or when you're making media for the web so you can make a list you can make a quiz you can do something super short you can do something super long you can do the little slidey things that we started doing recently where you can you can slide between two images

and compare them. And then you can keep tweaking and changing the formats to figure out new ways of communicating that aren't constrained in the same way that they were with this very standardized industrial media distribution. And so I think that is going to be a really exciting thing looking back 10 years from now when you say, oh, look at all the different forms of media

that emerged in the next. It's funny what people really, they get so custom to certain things and that becomes that becomes okay so for example you know you have horoscopes and you know dating columnists and advice columnists and crosswords and those are all of course little games

and diversions and comics and things like this or you know and yet because those have existed in newspapers for you know decades it's considered okay but then you know you have sly things and lists and everything else and because it's new it's like oh god the web is

destroying Western culture Yeah, so we sometimes get criticized for things, and the argument goes along the lines of, how can I take you seriously if you have a slighty thing on your site or if you have a list or quiz? And yet, when you look across all traditional media, there's always been a mix of serious things and crosswords and cartoons and things like that. But when things are new, they stand out more. They stand out more for sure. Let's talk about native advertising. You call it branded content.

Can you describe what that means to you first, I guess? Yeah, I mean, back in my previous company, which was the Huffington Post, I didn't know anything about advertising, neither did my partners when we first launched, and we did all this tech development to build the platform for Huffington Post that the editors would use, and they had all these special tools and all these things that they could do, and the advertisers would come to us and they would just get banners. So all our tech development did not go, did not benefit us as a business at all. and at BuzzFeed I wanted to avoid that where I wanted one unified platform for distributing media and that unified platform could be used for news, it could be used for entertainment, it could be used for brand of content. And then we still created separate teams to, you know, separate team works on the advertising and works on editorial, but they get the benefit of the data science and all the cool formats and all the different innovation we're doing on the platform side. And so the idea was to do really

what Google did with their product, which is make the advertising a version of the editorial product where it's powered by the same thing, but have a church state separation. So the organic search results are relevant results for a keyword query, and the branded results are relative links for the critical thing to understand is that Google ads are relevant in the sense that they relate to what you search for. But they're not about tricking the user. They're clearly marked. And now, of course, when they first started off, people didn't fully understand. I mean, it said

sponsor, but didn't fully understand. Now, it takes years and people get trained and they understand they're separate. But for the most part, like, I click on Google Ads all the time. They're actually really relevant. It turns out that an auction is a good way to get relevant content to a keyword in addition to your algorithmic results. And similarly, like

in your case, you're not trying to be relevant. You're trying to be compelling, right? With entertaining lists and videos and things like this. I don't know. I think it's funny, like people in Silicon Valley, a very widespread adage is to make things that people want. Yeah. And yet, somehow when it comes to monetization, that they forget that and they put up a teeth whitening banner ad, you know, or whatever. These really, for the most part, I think, is one of the, you know, is a very poor experience. Is the, is the banner ad kind of monotization layer

of the web? Yeah, I think part of the, part of the reason that Silicon Valley sometimes has that problem is that they're so allergic to ever paying anyone to create content just because the holy grail is this purely scalable business where nobody is actually making content and you're just making the platform entirely

and so as a result you end up with some third party making teeth whitening ads and pumping them through your platform and then you kind of do a policy level of say no we're going to have some ad quality control or whatever and you try to limit it at BuzzFeed we say we'll do a full stack of

helping the brand make compelling brand of content and they often want to do things that aren't good for the user and aren't in their own self-interest and would be bad for the BuzzFeed site and bad for them as a brand and we tell them, don't do that. Here, we'll help you do something better.

And I think in a way it kind of goes back to you know, a magazine like Vogue has really great editorial fashion photography and then really great branded fashion photography and if you ripped all the ads out, the magazine would be a worse magazine and the branded content actually and the advertising actually adds to the product.

And that's a really high goal. You know, the Super Bowl is kind of another example people use. Like the ads actually add to the entertainment value of the Super Bowl. Well, TV is the original need of advertising, right? Or at least one of the original ones, right? Because the ads are compelling. They're the same format, their video, you know, 30-second whatever videos. Yeah, for sure.

I mean, it's not, it just feels like a historical anomaly that you had this weird, fish and foul kind of thing on the web where banner ads looked and looked and looked and felt and worked totally different than the rest of the content on the site and just felt bolted on. And it's, in my view at least, and I don't know if you agree, the

decline of that very bad business model is going to accelerate on mobile because on mobile you simply can't fit all that stuff. It's a terrible, it's even a worse experience. I would wager, when you look at the click-through rates on mobile banner ads, it's probably mostly accidental.

cliental clicks. It's like 0.2% or something. And a lot of it's like fat finger kind of stuff. Yeah. So basically it's just not working and it's going to collapse very soon. And then you're left with either, what are you left with? You're left with a paywall model, which the New York Times and the journal are, you know, and the FT maybe you're experimenting with. There's some other experiments going on with like crowdfunding and things. And then there's native advertising and that's it. Yeah. And the pay. Or hope a billionaire buys your, your newspaper because those are the only models, I think. Yeah, and the paywall model is unfortunate when you think about news being in the public interest, where, you know, every time there's really serious news, the news they have

to take the paywall down, you know, but, you know, the rest of the time, it doesn't matter, but. Yeah, I mean, if your news, if news matters, you want it to be out there. And, you know, by the way, like, you know, we're not even selling in terms of adjacency the same way that traditional media has. So you can have branded content that finds its own audience and, and that doesn't even necessarily ride along with news content. So everything is kind of unbundling and spreading along these social networks. And ideally, with great technology and great content, everything is reaching the audience that it should reach.

Fortunately, there's been a few very high-profile bad attempts to do native advertising, like these advertorial kind of things, which I think somehow have become synonymous in some people's minds with native advertising. But I think that'll change very quickly. Yeah, I mean, we find sometimes people criticizing BuzzFeed are actually criticizing someone who's copying BuzzFeed, which is frustrating. So the next couple of years, what are you most excited about? There's so much to be excited about.

So video, you know, is some, is an area that has just exploded for us. We didn't have a video business two years ago. Can you just very high level explain why, you know, we're hearing video more and more in Silicon Valley and just generally on the web? Like what, is it just the transition from TV? Like, why video? Well, for us, I was, I have been frustrated

with video for years. And I've been frustrated with it because we haven't found a way to do the rapid creation of content and then constant learning from the audience. And that's something you could do with text because it was cheaper to do and so you could make more content more quickly. You could

play more hands of poker or I don't know what the right metaphor is. And video was so expensive that it was difficult to try ideas and experiment. And Zay Frank, our president at BuzzFeed Motion Pictures, he joined through an acquisition of a small startup company, and he went from four people to 100 people and built out a really tremendous team that has figured out how to make video production much more web-friendly than ever four. So we have a studio lot in Los Angeles. It's a four-acre studio a lot.

We've built out sets for all different kinds of scenarios. So a school, an office, a cafe, a dungeon, you know, whatever you want. And then we have a team that can, that brainstorms ideas for concepts they want to do, and then quickly can shoot videos, release them, and then learn from how people respond.

Everything from Facebook and YouTube comments and sharing and, you know, how many views it gets, but also the way people engage with it. And then learn from that, and then immediately go back and make something else. And so it's become all, we have the fixed costs of our studio already spent, and then the variable cost is almost nothing.

So it flips the Hollywood model where nobody, you know, the studio lots essentially become banks, and they will greenlight a project and $100 million will be spent to make a film, and then people come from all over, make the film, and then they disperse, and there's no learning, and they go off to their separate ways after the project's done.

We've been able to figure out a way to flip that so that we can try lots of ideas, experiment, and learn through time. And that's one reason why I'm super excited about video. The other is Facebook video, mobile video consumption, all these sort of trends are starting to converge where social, mobile, and video are really converging, and it allows us to reach a much larger audience with the video that we're creating. So video is really exciting, international is exciting. You're one of the biggest sites in the UK now, and have the, if you want to see what the

UK site is like there's a you can toggle and look at the UK version it's like I look it in rugby and we don't we don't do so much sports but the it's a little it's a little smarter a little snarkier the sense of humor is a little different but I really like love the British the British site and we're opening up other offices and and what else I don't know there's a lot you know a lot of tech things and data science things that are exciting we're starting to really be able to map out how content spreads across networks. So one of the things that there's kind of blind spot for social networks, which is that they have huge amounts of data, they have huge number of logged-in users, but

they're only seeing sharing within their network. And what ends up happening is sharing within their network is heavily influenced by sharing that happens outside their network that they don't even see. So if something is blowing up on Facebook, they might not realize that a lot of the people sharing it are discovering it on Pinterest or discovering it on Twitter and then sharing the content They discover on one network with another network. So you're one of the few people with the scale and the cross-network reach to see that. Yeah, so we can start to see, oh, we're actually able to understand how something taking off on one network bleeds over to another network.

Often Facebook's a beneficiary of it. Something will, you know, take off on a social network and then quickly start to be bigger on Facebook than it was on the original place where it took off. But that kind of cross-network sharing where you're really looking at social networks, that not a social network in the sense of a tech company that's a social network, but the actual human social network of sharing that goes across many networks. So that's another interesting area

where I think both for making content that is better quality, so you're not ever looking at one social network as the arbiter of quality because if you do that, there might be a quirk in an algorithm or a flaw in a social network, but if someone is sharing it across three or four,

you actually realize, okay, this is something, that people like in different contexts so it's a stronger quality signal so it allows us to make better content but it also um is powerful for advertisers when they're making content because they they want to you know understand how their content is spreading between different networks okay great uh we're we're out of time thanks for thanks for chatting all right thanks