A reasonable initial response to the news that The New York Times company purchased About.com for $410 million is shock – after all, that’s a lot of money for a $40 million revenue business that was pretty much left for dead not four years ago. Ten times revenue? 30 times EBITDA? The bubble is back, right?
Well, not exactly. First of all, The Times did not overpay by recent standards – the company was in the bidding for Marketwatch (Dow Jones won), and if I recall correctly that company went for 60 times EBITDA. And currently, most internet companies are trading at well above thirty times EBITDA.
So one could argue that the Times got a deal, but in the end, that’s not the interesting part of the news. What’s interesting is why the Times wanted About in the first place, and the role search – and the long tail – plays in the deal.
In the past few years, About.com has remade itself through paid search – the site was massively optimized to rank well in search engines, Google in particular. The reason was pretty simple – About’s revenue is driven by AdSense, and the more optimized it was, the better the clickthrough. I have seen research reports comparing major search sites to About, and the result is pretty stunning – on average, 10-15% of clicks on search sites are paid. But on About, it’s over 20%. That’s a pretty big difference.
Many point out that much of About’s audience are one time visitors who find the site through search, and that’s true. But informed sources tell me that in fact, that’s true for nearly every well optimized site, and About’s search-derived traffic actually converts to regular readership at a higher rate than even the Times. If that’s true, that’s a good sign for the deal.
The Times saw About as an opportunity to get into the search game, certainly – lord knows news is not a very profitable business when it comes to paid search. But there’s more. About provides the Times a platform to explore microcontent without having to – necessarily – extend the Times’ brand to everything. And as I’ve told anyone who will listen to me, I think microcontent is key to winning in the Web 2.0 publishing world. When publishing folks from mainstream newspapers tell me that blogging is far too small to possibly impact their businesses, I often ask this question: Would you rather have scores of microsites with a combined revenue of $15 million, profits of $3-5 million, and a double digit growth rate, or a newspaper group with revenues of $50 million, profits of $5 million, but declining growth?
The Times actually has a profitable and growing newspaper group, and it’s much bigger than an average publisher, but my point is this: the opportunity in publishing is clearly moving down the tail, and if you want to win, you need to play down the tail as well. About.com allows the Times to do just that. About is based on Six Apart’s MT, for one, so if they want to extend the Times own brand into blogging, they’re already halfway there.
Plus, it’s no secret that the content over at About is rather uneven – some of it is downright awful. On the other hand, some of it is the best in its field. With Martin Nisenholtz* (CEO of NYTD and now SVP at the Times) and the Times at the helm, one can imagine it will only get better, which is a very good thing for advertising revenues, as well as readers.
Not to mention the fact that About allows the Times to offer its own, non-search advertisers more opportunities to play down the tail – Now the Times can sell a national auto advertiser like GM both the main Times site, as well as About’s auto enthusiast sites. Would GM make a small About buy without a Times’ relationship? Possibly, but unlikely.
Also, owning the free About.com may well give the Times some air cover should it decide to cordon off portions of its main site to subscribers – a move that has been speculated upon by many in recent months.
Lastly, About has a large audience base, and the Times (now the 12th site when combined with About) can market to that audience in new ways – including cross selling the Times itself, which still represents the lion’s share of the company’s revenues.
At the end of the day, I think this is a good move for the Times. They’ve cast their lot down the tail and with the search economy. As Martin told me when I pinged him after the deal: “We’re deep into Web 2.0 now.”
And the move is good for those of us who think blogging, and microcontent in general, is a good thing. As Rexblog put it, the Times gave us all comps to work with as we start to think of our own sites as business. By Rex’s calculations, the Times paid $18.64 a visitor and $820K a blog (if you view About’s microsites as blogs). Not bad!
More coverage:
Paid Content
Fred
NYT coverage
*(Full disclosure – I did a short consulting gig with Martin’s group last Fall, we did not discuss About or corporate M&A.)
This deal is interesting and it does seem to add up for The New York Times Company, but how well does it add up for About.com microsite editors?
NYT paid 10x revenue for a purchase price of $410 million – so annual revenues of $41 million and average monthly revenues of $3.42 million.
There are 500 “blogs” or microsites on About.com – so average revenues of $82,000 annually per blog, or $6,833 per month.
Assuming the editor gets, say, 20 percent of gross revenues (and I’m totally guessing here), the average About.com microsite is earning for its editor about $1,367 per month or $16,400 per year. Apply taxes of roughly 40 percent and the take-home pay for the site editor is just under $10,000 annually.
This is not a great living. The U.S. government defines poverty level for the average family of four to be an annual income of $18,850 or less. So we can hope that the average About.com site editor has another source of income.
Applying the typical 80/20 rule we can assume that 20 percent of the microsites are doing quite a lot better than this and the rest are not even seeing this much.
And of course that top 20 percent are ripe for peeling away elsewhere — especially if as you point out, John, About.com derives much of its traffic from search — so it’s not necessarily even a strong brand that would draw eyeballs on its own.
Therefore, the site editors could assume that they could do just as well or better by flying solo, doing their own search marketing and optimisation and keeping all of the revenues rather than sharing them with About.com. This is especially true if they have begun to attract an audience and a following of their own.
Even if the site editors don’t optimise as efficiently as About.com, they’d be keeping the entire pot, so they could afford some inefficiency. Or they could start a subscription website and diversify away from a pure reliance on shared advertising revenues (disclosure: my company is in the subscription website business).
My calculations would change if About.com is more generous with its editors than I have assumed, but I doubt it can be substantially more generous. So I wonder how NYT will keep the independent talent it will rely upon to make About.com work?
Kind regards,
Evan Rudowski
SubHub Ltd.
Good points JBAT.
>> Now the Times can sell a national auto advertiser
>> like GM both the main Times site, as well as
>> About’s auto enthusiast sites. Would GM make a
>> small About buy without a Times’ relationship?
>> Possibly, but unlikely.
Actually, About.com has GM level advertisers on their sites, so it’s not “unlikely.” Group buying across About.com and NYT creates more efficiency, and therefore make it “more likely” I think.
Evan’s comment:
>> Assuming the editor gets, say, 20 percent of
>> gross revenues (and I
Jason said:
>> Well, almost no one does their About.com gig full-time.
>> In most cases the guides are folks who have other gigs–
>> like consultants–who do the about.com gig so they gain credibility
>> and have a bread and butter client. It is well known that
>> there are a handful of guides who make over 2-3k a month.
I guess the point is why some of these people even need day jobs. If they didn’t have to share their revenues with About.com perhaps they would already be able to make a sufficient living on their own from web publishing.
I think the question is whether aggregators like About.com will even still be necessary for the best and brightest bloggers, as easy and effective self-publishing tools become more readily available.
A big media company buying a weblog aggregator does not seem revolutionary to me. Isn’t that what big media companies have always been — aggregators of talent whose strength depended in part on their control of the means of distribution?
People are talking about this transaction being part of “web 2.0,” but in “web 3.0” — as the means of distribution become increasingly available to individuals — the aggregators aren’t really so necessary any longer, are they?
Kind regards,
Evan Rudowski
SubHub Ltd.
At my blog I was inspired by this deal to do some numbers based on blogads vs print ads. Assuming the online medium has you target audience then doing a blog ad is way way better value for money.
http://www.di2.nu/blog.htm?20050221b
John,
Your reasoning for The Times buying About.com seems sound as a purchase decision but is it the right business decision?
To paraphrase the Great Gretsky: I skate to where the puck will be, not where it is. But Big Media Companies are always skating to where the money is, not where it will be. And with talk of Web 2.0 and beyond, profit will be a moving target as it moves down the Long Tail, up the value chain or wherever.
Now this might not be such a problem for more nimble and web savvy companies, but we’re talking about the Grey Lady here. And that is where I see the biggest challenge, how does a news culture support About.com?
I seen plenty of examples where the entrenched culture has killed innovation at media companies.
Do you think NYT has a way to make it work?
I hope you don’t mind if someone who has worked with and managed About.com Guides for almost 6 years weighs in here.
“I guess the point is why some of these people even need day jobs. If they didn’t have to share their revenues with About.com perhaps they would already be able to make a sufficient living on their own from web publishing.”
The About Guide position is meant to be a part-time pursuit. While it’s true that some Guides have earned enough to quit their day jobs, that’s not necessarily a good thing. For instance, we want our Pediatricians Guide to continue working as a pediatrician. That gives the site the credibility and perspective it wouldn’t otherwise have.
“I think the question is whether aggregators like About.com will even still be necessary for the best and brightest bloggers, as easy and effective self-publishing tools become more readily available.”
Yes, anyone can start a blog and learn search optimization. But it can take a very long time for a blog to attract the kind of audience needed to generate a decent income, if it ever does. On About.com, our tools and training and geared towards creating the most relevant, search optimized content on the Web. It may take a while for the topic to ramp up, but as long as the audience grows each month, the Guide is guaranteed to make at least $500 per month.
Perhaps an even better way to put this would be that 72% of our Guides have been live on About for 2 years or more, and 38% have been around for more than 5 years. You can’t underestimate the amount you learn from being a part of a community like this. That’s a big reason why About continues to thrive.
Best Regards,
Michael Daecher
SVP Content & Guide Operations
About.com
The folks at Paidcontent are tracking a recent trend. That is, major publishers inking deals with RSS reader firms. The trend is heating up as they report the UK’s Guardian, our very own LA Times, CNET, and now major media publisher
Never really liked about.com. Now when I know how much do they earn I like them even less.
Yeah it hurts huh Marcis? good article BTW