Last month, Paul Walborsky stepped down after seven years as chief executive of Gigaom. During that time, the tech site grew enormously in traffic and revenue as it expanded its business beyond just advertising. Currently, about 60 percent of Gigaom’s revenues (estimated to be around $15 million annually) come from research and 25 percent from events. Advertising accounts for only about 15 percent of total revenues. Walborsky, who is 48, spoke with PBS MediaShift about the struggles of running an editorial-based business when competition is fierce and ad rates continue to slump.
Gabriel Kahn: In media, size matters. How does an operation like Gigaom, which averages about 6.5 million unique visitors a month, make a go of it?
Paul Walborsky: Media either has to be huge, at the BuzzFeed level, or small and intimate.
When we started, we looked at each other and said, “We’re never going to get to a 100 million uniques.” The type of content we write is more analytical. We can squeeze about 20 million page views a month out of our audience. If we tried to build an editorial business just based on advertising we’d never be able to pay our staff.
So chasing page views is a dead end?
Paul Walborsky: Our whole concept was not to serve you another page and make you click once more; it was to give you a good user experience. So by definition we had to have a different business model. I don’t think about creating page views. I think about creating long-term relationships with readers. If you have a long-term relationship, you do different things. You get them to come back. You serve them well. And you then try to upsell them more products and services.
What do you sell them?
Paul Walborsky: The first business we moved into was events. We thought, “We have this audience, we have this relationship, so we can sell them tickets.” Then we knew that this is an audience that cares about emerging technologies. So we launched a research business.
If events and research are the real money makers, what’s the role of editorial?
Paul Walborsky: Editorial is the focal point of our business model. This is where we create credibility. That is what keeps people coming back. Without our editorial content, without people writing things everyday that make readers feel smarter, we would not have a brand. We just choose not to monetize that content directly. We monetize it in different ways.
By this logic, when Gigaom uses space on a page to sell an ad, it almost represents a failure because the company itself should be able to find a better use for that same space.
Paul Walborsky: The situation in media is laughable. When we sell ad units, we are basically selling our reader relationship to someone who doesn’t care about it. The advertisers are selling a car or a trip to Vegas. If we could create enough products, we could use that space ourselves to sell that audience something that is actually meaningful to them.
That’s what we did with our research. Then other companies began doing the same.
We saw Politico Pro come out, then Business Insider came out with research.
The events business saturates quickly. There is only so much time I have and so many events I can attend.
Paul Walborsky: The events business can only grow linearly. It can’t scale. Gigaom research is our response. Technology is an important conversation for people. We believe that there are probably hundreds of thousands of enterprises that want research on emerging tech. So in that way the market for our product is exponential.
To get that large an audience, you probably have to segment it quite a bit.
Paul Walborsky: Yes. That’s about understanding your audience and creating the right bundle of products for them.
So is Gigaom re-bundling the media business by packaging these products together?
Paul Walborsky: Technology has allowed us to package products to the power of N. We have to figure out how to package different product sets to meet the needs of different people. For that you need a deep understanding of your audience.
You see it happening in Comcast and Netflix, for example. Comcast will give you a different bundle online or as a pay-per-view customer. Eventually, they will have lots of little bundles. And different people will have different value propositions as they move around. Someone on the road accessing Comcast via a mobile device might value that content differently than when they are sitting in their living room.
What other products are on the horizon? Gigaom isn’t going to try to sell tote bags and coffee mugs?
Paul Walborsky: With audiences built around verticals, like cloud computing or big data, there are ways to create conversations with our audience that are both interactive and create interesting research. Think about bringing together people around a topic, such as clean tech. Those people ask questions and give answers as part of that conversation. That conversation essentially gives you a long-form script that someone can analyze and create a research piece based on it. The important thing when you create a business is not coming up with products, it’s coming up with products that can scale and be significant to the bottom line.
There are tons of new products to be created. Our role as publishers and content creators is to test every product out there.
What products didn’t work?
Paul Walborsky: E-books. We tried that two years ago. Everyone was going to become an author. But e-books were the same as normal books: It was either boom or bust. The average e-book sold around 2,000 copies. You need 3,000 titles to sustain that business to make sure you have enough hits, especially at $1.99 a pop.
You’re also implying that advertising will continue to erode for almost all media. That’s a grim, though likely accurate, forecast.
Paul Walborsky: The number of page views will continue to grow exponentially, but ad budgets might grow at 10 percent per year at best. When you marry those two things, CPMs can only go down. Advertising is no longer going to be a high-value product. For publishers, that means you have to figure out how to drive your long-term relationships to get your audience to buy higher-margin projects from you.
Will we see a winnowing of the herd?
Paul Walborsky: Yes, if you’re a vertical audience and you don’t have other ways to make money, you’re going to go out of business. Facebook can make money on advertising even though they have really low CPMs because they have trillions of page views.
Either you have an engaged audience which you can upsell something to or you go huge. The middle ground is where it’s difficult.
It’s easy to talk about products like events and research when you’re in tech. But what if you’re in local news? What options do you have there?
Paul Walborsky: The same principles apply. When you’re talking local, you think about people who care about politics, crime, education. If you make content that’s local and relevant, you can have an engaged audience that you can sell things to. You will never be able to make Google money, but you can make it work.
You mentioned the G-word. It’s the elephant in the room for publishers. What do you think about the power Google has over internet traffic?
Paul Walborsky: All publishers should be thankful for Google because people everywhere can discover your content. However, Google has so much power that it’s scary. When they change their algorithm, your traffic changes. And you don’t know what’s in that black box of theirs. That’s a lot of power, and Google needs to use it responsibly. We have to live with them because we don’t want to get crushed. But the amount of power they wield is something the world should know about.
Gabriel Kahn is a professor at USC Annenberg School of Journalism. He co-directs the Media, Economics and Entrepreneurship program and writes often about media business models.