In August, BuzzFeed announced it has secured $50 million of investment from a Silicon Valley venture capital firm, valuing the company at $850 million. The company has plans to invest in areas including an in-house incubator for technology, increasing resources to its L.A.-based video division BuzzFeed Motion Pictures, and establishing a presence in new markets including Japan, Germany, India and Mexico.
BuzzFeed started in 2006 as a website that successfully distributed shareable content including internet memes, lists and videos. BuzzFeed’s growth has been fuelled by optimizing content for mobile and social media first. Seventy-five percent of its traffic is referred by social sites such as Facebook and Twitter.
The company has developed a successful business model focused on native advertising; the majority of its revenues are derived from BuzzFeed Creative, the business unit dedicated to creating custom-branded list and video content for advertisers.
I see three implications for the company.
First, as a generalist site, BuzzFeed will face the same issues as traditional publications including declining advertising rates and an increasingly fragmented market. To counter this, the company must increase traffic at a steady rate and drive innovation with new advertising products such as native and video.
Second, an over-reliance on social media may be a liability unless the company diversifies its traffic sources. Tweaks in Facebook’s algorithm can potentially have significant effects on website traffic and subsequently ad revenue.
Finally, I expect BuzzFeed to diversify into new channels including long-form content that will open up branded advertising opportunities. This could be similar to Vice, a company that started as a small magazine in Montreal, and now has a finger in almost every type of traditional media including an online news channel and a TV show on HBO.
As BuzzFeed grows, it will face the challenge of maintaining a young start-up environment with the demands of shareholder scrutiny. Adding on levels of management and process can potentially stifle innovation and risk-taking. The company must ensure a strong set of internal values to enable an entrepreneurial culture in order to continue innovating and delivering a strong consumer experience.
