Can a billion-dollar media entity be run like a startup? BuzzFeed gets $50M to find out

Although the site he founded is seen by many as a kind of internet sideshow populated primarily by animated GIFs and listicles, BuzzFeed’s Jonah Peretti has always had his eye on a much larger prize: as he put it in an internal memo two years ago, he wants to build “a truly great publishing company for the digital age.” And now he has the backing to do so, thanks to a $50 million financing round led by Andreessen Horowitz that was announced late Sunday night — a round that reportedly values the company at $850 million. But can BuzzFeed make the transition to globe-spanning media entity without losing its new-media mojo?

What’s amazing about the company’s theoretical market value is that BuzzFeed didn’t even exist seven years ago, and legendary traditional media entities like the Washington Post have sold for a fraction of that value. The company is now worth almost half the market value of the New York Times, which has about 3,500 employees and revenues of $1.6 billion.

Why should a digital media entity be so much more valuable than a traditional one? Andreessen Horowitz partner Chris Dixon, who was an early investor in BuzzFeed before he joined the Silicon Valley VC firm, explained in a blog post that they invested not just because they believe BuzzFeed is building what will become “a pre-eminent media company,” but because it has also built a technological platform for understanding how media works on the internet:

“BuzzFeed has technology at its core. Its 100+ person tech team has created world-class systems for analytics, advertising, and content management. Engineers are 1st class citizens. Everything is built for mobile devices from the outset. Internet native formats like lists, tweets, pins, animated GIFs, etc. are treated as equals to older formats like photos, videos, and long form essays.”

No longer a new-media toy

In his post, Dixon also talks about how BuzzFeed has been seen by many as “a toy,” and refers to an earlier post in which he discusses Clay Christensen’s theory that the next disruptive technology often starts out looking like a toy, and therefore catches competitors off-guard. In one of his previous memos to BuzzFeed staff, Peretti made a similar argument by describing the early years of the Time Inc. empire, which in the beginning was often criticized for aggregating news reports from other media entities — something BuzzFeed has also been slammed for doing.

Just like the disruptive companies that Christensen wrote about in The Innovator’s Dilemma, Dixon says BuzzFeed is moving up the value chain by adding more “serious” journalism, a process that started with the hiring of Ben Smith from Politico and has continued as the site has added long-form and investigative journalism to its repertoire. The company now has 200 editorial staff, and according to a news release is looking to expand rapidly, including the opening of a number of foreign offices in countries such as Japan, Mexico and India. It is also looking at acquisitions and is expanding its video unit.

The transition from being Peretti’s experimental media lab to serious global media entity — something the BuzzFeed founder talked about in an interview with Felix Salmon earlier this year — has not been without its speed bumps: in one of the most recent, BuzzFeed writer Benny Johnson was found to have plagiarized other news sources on more than 40 occasions and was fired. Ben Smith explained in an apology to readers that the site was founded as a “laboratory for content,” but that this “started changing a long time ago.”

The bet that Andreessen Horowitz and the other investors in BuzzFeed are making is that Peretti and his team can expand the company and make the transition to being a massive media entity (either that or be acquired for multiple billions of dollars) without losing the skills that got it there — the speed with which it has been able to generate content, and the ability to tune content so that it works with social networks like Facebook, Twitter and Pinterest. As Peretti put it in his interview with the New York Times:

“As we grow, how can we maintain a culture that can still be entrepreneurial? What if a Hollywood studio or a news organization was run like a start-up?”

Can the BuzzFeed model scale?

One of the risks that BuzzFeed faces is that the social tuning of content it does in order to help that content “go viral” could stop working, or at least stop working so successfully. Facebook in particular has been fine-tuning its own algorithms so that certain kinds of “low quality” content don’t show up as often in the newsfeeds of its users, and while these changes reportedly haven’t hurt BuzzFeed so far, that doesn’t mean they won’t do so in the future — although BuzzFeed is also less reliant on Facebook than it used to be: in fact, the company recently said that Pinterest drives more traffic than the giant social network does.

Another risk is that the sponsored-content arm that is responsible for the majority of BuzzFeed’s revenue — a kind of in-house studio called BuzzFeed Creative, which works with advertisers and agencies to create sponsored posts that are almost indistinguishable from the rest of the content — will stop being as effective. The site is currently generating what Dixon says will be “triple digit millions” worth of revenue this year, but more media entities are chasing the same sponsored-content rainbow because their existing revenue continues to decline. Andreessen Horowitz isn’t just betting that BuzzFeed will reinvent the news, but advertising as well.

One thing the financing does is reinforce the fact that BuzzFeed is one of the biggest bets on the future of media, along with VICE — which, like BuzzFeed, has reportedly been in acquisition talks that could value the company in the billions of dollars. All Peretti has to do now is build a media empire to rival Time Inc. without losing the new-media DNA that got BuzzFeed to where it is.

Post and thumbnail images courtesy of BuzzFeed