Blogs are cashing in

Posted Jun 27th 2006 9:45AM by Tom Taulli
Filed under: Magazines, Blogs, Google (GOOG), Yahoo! (YHOO), Apple Inc (AAPL), Time Warner (TWX)

This week, the Wall Street Journal wrote about how venture capital is starting to seep into the blogosphere ("Bloggers Find Financial Backers For Their Independent News Sites").

Deja vu all over again? Interestingly enough, back in the 1990s, there was a flood of money that flowed into content deals. Yes, some journalists were becoming dot-com multimillionaires. However, when Nasdaq collapsed, so did many of these ventures. In fact, there was a book on the topic -- Starving to Death on $200 Million – which chronicled the implosion of the Industry Standard.

So, to use an ominous phrase: is this time different? Perhaps so. Actually, the attraction of blogs is that they are fairly low cost. This makes it possible to make money from niche categories. Also, it is fairly easy to scale-up (since bandwidth is extremely cheap).

Some examples of recent financings: Alan Patricof, who invested in Apple at the start-up phase, has put his own money in PaidContent.org; True Venture Partners invested in GigaOm.com, a popular blog by Om Malik, a writer for Business 2.0 (which is a publication of Time Warner); and Mark Cuban, who sold Broadcast.com to Yahoo!, invested in Sharesleuth.com.

I interviewed Dan Burstein, who is a venture capitalist and the co-author of BLOG! How the Newest Media Revolution is Changing Business, Politics, and Culture. According to him: "Blogs are an important new media form, where the cost of developing a successful product is hugely lower than creating a traditional newsletter, magazine, or TV show.

"Several billion advertising dollars are now moving each year from traditional media to the web, where they can be more targeted, more flexible, more effective, and more measured. As this seismic shift continues, it is important to remember not just the size in aggregate dollars of the web advertising business versus traditional advertising, but to observe as well that traditional advertising revenues in traditional media businesses may command a 1x or even a 2x premium in measuring equity value, but the same dollars in web advertising revenues are likely to command a 3x to 10x premium.

"So not only are investors conscious that important new media franchises are being built, with real value for the long term, they are also conscious of the rapidly accelerating game of musical chairs that can be played with implied values and multiples as the big web franchises -- Google, Yahoo, Microsoft, AOL, News Corp, etc.--gobble up nascent web media businesses."

Tags: Blogs, Business 2.0, Business2.0, GigaOm, Google, Om Malik, OmMalik, PaidContent.org, Wall Street Journal, WallStreetJournal, Yahoo