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How Does BuzzFeed Make Money?

6 March 2015, 8:14 pm EST By Fergal Gallagher Tech Times
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BuzzFeed's website has no visible ads yet the business is thriving. How exactly does its native advertising model work?  ( BuzzFeed )

BuzzFeed's content is often described as clickbait. Certainly, on the surface, headlines like "25 Sassy Dogs Whose Sweater Game Is Stronger Than Yours" or "13 Celebrity Photos You Missed" look designed just to attract as many clicks as possible, but BuzzFeed doesn't actually charge advertisers by the click.

Therefore, driving extra clicks alone won't actually affect the bottom line. Instead, BuzzFeed charges clients set fees for creating custom content aimed at that client's customer base. Such has been the success of this so-called "native advertising" that it is fast becoming the business model of choice for the online news industry. How does it work?

For starters, it doesn't look like an ad. Online banner ads in 2014 only had a click-through rate of 0.1 percent, so it's clear users need to be targeted in a different manner. Although the idea is similar, native advertising is also different from advertorials, often used in magazines, where editorial staff will write an article essentially directly promoting a client's product for a fee.

BuzzFeed's native advertising pieces are styled like all its other content to fit in and not appear to the reader as blatant ads. The beauty of this idea is that the consumer will read an ad and be influenced by it without ever even noticing.

An example from the recent BuzzFeed homepage is an IBM-sponsored post entitled, "10 Myths about Young Professionals that Need to Stop." Among the 10 eye-catching GIF's dispelling the 10 "myths" are a couple of IBM logos and links to their website. Another piece detailing the "12 Times Being a Pet Parent Is Embarrassing" is sponsored by Pet Smart.

So what about all the other content, is it just filler?

Well, not really. The other content is aimed at the advertisers and also helps BuzzFeed hone its skills. The site pumps out roughly 400 stories per day and gets 150 million unique visitors per month, three-quarters of which come from social media platforms. So first and foremost, the articles bring eyeballs to the site.

But what BuzzFeed sells to brands is its ability to grow and shape what works on social. It has been producing extremely sharable content for more than eight years now and the more content it pushes out the more it discovers what does and doesn't work, thereby honing the staff's skills to create effective native advertising. Put simply, BuzzFeed is playing the numbers game to find good solutions.

So if this is the model that works, is all journalism doomed to be lists of date tips and LOLcat GIFs? No, it could actually mean the opposite to the point that Stratechery calls BuzzFeed the most important news organization in the world. The argument is that having created a profitable business model, BuzzFeed journalists don't have to worry about writing about what will sell, but instead have the freedom to write stories that people find important enough to share.

There is actually a lot of hard news content on BuzzFeed and the organization has reporters around the globe, all of which is funded by the LOLcats we love to complain about. I'm not suggesting that the New York Times is going to start splattering its homepage with top 5 lists but it is, like virtually every other news site, looking at native advertising.

BuzzFeed's business model certainly works and the evidence is clear. Just in August 2014, venture capital firm Andreessen Horowitz invested $50 million in BuzzFeed, valuing the company at $850 million.

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