What’s so special about the Huffington Post? How come that what started as a political blog three years ago now epitomizes the “superblogs” threat to mainstream media? And, perhaps more important, what causes a blog to mutate into something now perceived as a mainstream media — and do the economics work?
.
From a content perspective, the “HuffPo” is far from mind-blowing. Basically, it is third party content mixed with opinionated blogs.  The whole thing, thanks to Arianna Huffington’s address book, is topped up with high-profile bylines. The founder of the Huffington Post is a well-connected woman, prolific commenter (first on the right, then left-leaning after a divorce from a Republican congressman). She ably enrolled intellectuals and entertainment stars into a flashy blog system positioning itself as a counterpoint to the Drudge Report and others conservatives blogs. When compared to traditional online media, the packaging is aggressive: splashy headlines, an ever-changing home page.  Internet recipes for success have been well internalized. No Pulitzer Prize material, though, even if the HuffPo lands scoops here and there. By journalistic standards, pure players news sites such as Slate or Salon are much more diversified and thorough.
.
But, in these days of heated politics, The Huffington Post is THE thing to click on. This fall, it has raised another $5m for an unspecified share of the company from Softbank Capital and others.  The raise boosted its valuation to an estimated $40m-$60m. Not bad for a blog, even a big one (the total raised now tops $10m). In terms of popularity, Technorati puts the HuffPo on top of its list, ahead of the galaxy of tech sites such as TechCrunch, Gizmodo or ArsTechnica.
.
Let’s look at the empirical strategy evolved by the Huffington Post. In May 2005, the site wants to drill into the political niche.  To do this, it relies on Arianna’s network as well as her ubiquitous media presence made even more notable by her thick Greek accent. It worked fine. In 2006, she’s on the list of Time Magazine’s most influential people (the kind of thing that helps one’s business). That’s lesson #1: if you want your little venture to rise from the blog-swamp, have a prominent and credible figure appearing on other medias.
.
In the meantime, the HuffPo acts pro. It hires good editors, ones able to organize the prattlers and stimulate the hungriest crew members to unearth exclusive stories. That’s lesson #2: editing is key. Too many blogs crumble under uninteresting user generated crap (a.k.a. LGC, Loser Generated Content). Comments are fine – if and only if they add something both piquant and relevant. Therefore, old media know-how is precious. Earlier this year, in the New Yorker,

the Huffington Post is depicted as a new kind of competition to established media.  In the piece, the author exposes the HuffPo relationship to the press, and the way Arianna takes advantage of the dead-tree blues:
“The Huffington Post made a gesture in the direction of original reporting and professionalism last year when it hired Thomas Edsall, a forty-year veteran of the Washington Post and other papers, as its political editor. At the time he was approached by the Huffington Post, Edsall said, he felt that the Post had become “increasingly driven by fear—the fear of declining readership, the fear of losing advertisers, the fear of diminishing revenues, the fear of being swamped by the Internet, the fear of irrelevance. Fear drove the paper, from top to bottom, to corrupt the entire news operation.” Joining the Huffington Post, Edsall said, was akin to “getting out of jail,” and he has written, ever since, with a sense of liberation. But such examples are rare.”
.
At this stage, in its well-crafted buzz, the Huffington Post distillates its new status: it is no longer a blog, but an “Internet newspaper” – a reference knowingly targeted at a slow-moving advertising market. It has extended its editorial footprint in new territories: business, media, entertainment, lifestyle. According to its management, politics account now for the half of its content (but much more when it comes to its audience). Enter the economics attached to the evolved status:  the key difference between the  HuffPo and the rest of the blogosphere is on the business side. And this is perhaps the main component of its transformation into a true mainstream media. Here are some key figures:
-    Staff: about 45 (a significant, large number)
-    Annual costs of operation: about $4-5m (the HuffPo doesn’t publish figures)
-    Break-even is “expected this year” (I love this type of statement, one of the most common lies in the business world, right there with “the check is in the mail”)
-    Money raised: $10m, mostly from Softbank
-    Valuation: between $40m to $50m, if the blogosphere is to be believed
.
Of course, audience is the main ingredient in assessing the value of a site. Welcome to the wonderful world of Internet economics. Ten years after Google’s birth, medias on the Internet are still unable to agree on reliable metrics to measure visits to any given site. In the print media, a comparable example would be the Wall Street Journal claiming sales of two million copies a day while audience boutiques would peg it a million or so. Guess which dataset advertisers would use to adjust the price they’d be willing to pay?  This is exactly what is happening on the Internet. As far as the Huffington Post is concerned, its internal measure gives 8m unique visitors (UV) a month. But Nielsen Net Ratings grants it only about 4m UVs. For the HuffPo and most websites, true audience measurement is a guessing game.  The numbers depend upon whom you pick between Nielsen, Alexa, Quantcast, Compete, even if you use only one of these tools for all your measurements, you’ll end up nowhere since some sites are better tracked by one or the other.
.
The situation is somewhat paradoxical (to put it gently): websites are born with ways to count visitors. Hits on servers, logs, compiled by traffic analysis tools give a detailed view of the audience: how many people are visiting the site, what they look at, for how long, where do they come from, and so on. Compared to the print press, which laboriously counts its sales and rely on quarterly polls for readers’ profiles, it is a dream come true: instantaneous, accurate, and crunchable to the extreme. Whoever has spent half an hour tinkering with Google Analytics will agree: such tools are a fantastic way to stay in tune with your audience. But it was too good to be true. A conjunction of conservative laziness in the media buying agencies and powerful lobbying by Nielsen (they already measure television audiences) settled the issue: The ad market would superbly ignore the tools embedded in websites.
.
Instead, the market would go for a truly mediocre measurement system based on Nielsen’s evaluative panels of Internet users (it is called “user centric”, as opposed to the “site centric” for the computerized tools). Just to get an idea: its French panel has 6000 users (they get special tracking software), for a market of about 35m users.  This explains why, for the Huffington Post like others, audience is imprecise by a ±50% margin of error — at least. Of course, the ad market turns around and invokes this very uncertainty to put further downward pressure on prices. This explains why an Internet user yields only one-fifth or one-tenth of the revenue generated by his paper counterpart, even though the Internet audience structure is much better known and is tracked in real time. It remains quite a mystery to me why publishers have not lobbied harder for an audited site-centric measurement.
.
Let’s get it straight: as long as we can’t rely on a unique, credible Internet audience measurement, websites economics will be wobbly and prices won’t reflect the true value of audiences. That situation makes assessing the current status and the  future of superblogs (more than 1m UV a month) a difficult task. And forget about valuations: whether it is based on (often negative) EBIT or revenue, the “multiple” for any transaction will continue to lack any solid basis in fact.
.
What’s ahead for the Huffington Post? It could break-even this year, thanks to the election. Afterwards, two factors will influence its future. The first one will be its editors’ ability to keep the politically addicted coming back to the site. Sounds trivial but it’s a matter of resources, i.e. number of reporters the HuffPo will be able to line up. Consider this: during the Democratic convention in Denver, more than 500 bloggers were accredited. On the top tier, the Huffington Post had 20 people, Talking Points Memo (a remarkable superblog to follow the campaign) had 9, Salon.com 9 also and Slate 7. Apart from this, Politico,
which was also producing a newspaper, had 40 people under the Big Tent. This shows two things: first, it takes a fairly big staff to cover big events (nothing new, I agree). Two, — and more worrisome from a business perspective — the blogosphere is heavily fragmented.  At the Democratic Party convention, the n°1 superblog had only 1/25th of all registered bloggers.
.
For the future of the Huffington Post, the second critical element lies in its ability to capitalize on its diversification. For now, most of its traffic goes to the political content. Channeling audience to other parts of the site won’t be easy.  It is one thing to rise above the crowd in a specific, news intensive domain such as politics; it is another story to do achieve the same rise when covering a much wider array of topics.  Many more competitors, and stronger ones, could lead to a dangerous cost escalation.
.
Jumping from a nice, enjoyable niche business to a mainstream one inevitably collides with economics. Just one final data point to assess the situation: the Huffington Post requires an annual revenue of $4m to $7m to break-even, right? Now this: just to maintain its Bagdhad bureau, the New York Times will spend more than $3m in 2008. Comments and content aggregation is inexpensive, but news remains a very, very cash-intensive business.  –FF
.
.

Print Friendly
Be Sociable, Share!