In 2011, Google brought the hammer down on Demand Media. The search giant changed its search algorithm and sent Demand Media’s stock plummeting. The company had built web traffic by paying an army of independent writers — including Dead Cat co-host Tom Dotan — to write low-effort posts that ranked highly on Google search results.
The kneecapping of Demand Media’s content farm was a precursor to the platform wars of the next decade. Facebook became famous for building up ecosystems — whether it was social games or video news content — only to pull the rug out from the companies trying to play to the algorithm.
Tom and I take a trip down memory lane with former Demand Media CEO Shawn Colo. He gives us a clear-eyed portrait of the company’s business strategy at the time and what brought it back down to Earth. Demand Media, co-founded by former Myspace executive Richard Rosenblatt, was for a brief moment more valuable than the New York Times, which had a content play of its own in About.com.
Demand Media offers a case study for the challenges of media businesses: if the content is cheaply made, then it doesn’t have staying power; if the content is costly to produce, then the business will have low profit margins. It’s also a potent reminder as to how the companies that were once essential identifiers of a current moment in business can disappear from our collective memory.
Colo — today the founder of investment firm 3L — identified some private companies to watch in the media business today. For his part, he has mixed feelings about the sector these days.
He’s an investor in warehouse delivery company GoPuff, which we talk about toward the end of the conversation, and telehealth company Ro.
Colo reveals that 3L’s second fund, which he’s already investing out of, is going to end up totaling between $400 and $500 million.
Colo advises us that “if you’re making money, guys, the best strategy is to make money quietly.”
Give it a listen.
Get full access to Newcomer at www.newcomer.co/subscribe
00:00:06
Welcome. Hey guys, everybody.
00:00:14
Welcome to Dead cat. This is Tom.
00:00:16
I'm here with Eric, very excited about this episode and our
00:00:19
special guest Shawn Colo from 3L, capital and excited for a
00:00:24
couple of reasons. One 3L has a lot of interesting
00:00:27
Investments that we can get into in this podcast.
00:00:30
Shawn before he was doing the VC thing with 3.
00:00:33
L was the co-founder and CEO of demand media, which is a media
00:00:38
company that very much defined, a certain era of online media
00:00:43
and is kind of been forgotten by, a lot of people so much.
00:00:46
So that when I was telling Eric and Katie how excited I was that
00:00:49
Sean wanted to do the episode and he was the former CEO and
00:00:52
co-founder of demand media, they're like, what is demand?
00:00:55
And I think we should definitely explain all of that here because
00:00:58
the story of demand to me, Beyond like I'm saying I've
00:01:01
personal residents to this thing and I can explain later in the
00:01:03
episode 4 tells a lot of what happens later on in the digital
00:01:08
media environment and very much. I think what's going on these
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days with all of these companies.
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So, very excited getting all of this.
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But Sean, first of all, thanks for joining.
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Thanks for doing this. Yeah, no.
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Thanks Tom. I love and it's always good.
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I think that to I'm surprised that Eric and Katie didn't, I?
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We have Ivory oh my God. He said the Roundup of The
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Brand's obviously I recognize some of the brands, but yeah, I
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am excited to sort of learn a little bit of the tech history.
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I mean, you know, media companies sort of responding to
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platform incentives is such a trend that we experienced over
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and over again. So now, with a lot of little bit
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of distance from it, to get sort of the unvarnished view of it.
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I'm definitely excited to hear the sorry.
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I'm good. So yeah, demand when I was
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explaining it, Eric and Katie I was explaining it as like this
00:02:02
holding company that had a lot of different sites that they had
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a little bit more familiarity with.
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But why don't you just explain like you at the outset, like,
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your co-founding of this company who you were involved with early
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days because that's interesting too.
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And like what? What was the strategy with this
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thing? Yeah, I guess I will let me I'll
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go back a little bit further than that.
00:02:22
So I was at a firm called Spectrum, Equity investors.
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I started my career as a private Equity investor.
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So this was in the late 90s. He's right, the 97 I think I
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started at Spectrum and we have to realize what was happening in
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all different forms of media at that time, right?
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And media you know we can all Define it slightly different
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ways but you know the different forms of media and the platform
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radio cable satellite, right? Yellow Pages was a form of
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media, right? Because there's a big
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advertising platform, right? So print magazines.
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So when I started my career, what was happening was the
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Telecom? Is Tre just do regulate it
00:03:01
platforms. Were opening up and you were
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seeing a lot of aggregation plays.
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I then started looking at internet businesses.
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So this thumbs like conked like 27 through Earth's are 97
00:03:12
through like early 2000. And then I started I was sort of
00:03:15
tasked with finding literate businesses that we could invest
00:03:18
in. But we had a mandate that like
00:03:20
we were investing only in in ebitda positive companies so
00:03:24
trying to find a profitable internet company and often times
00:03:27
are using leverage to like you know Engineer charts.
00:03:32
So I kind of had that was my eyelid background.
00:03:34
And so, when I, when I started looking at these two things, at
00:03:39
the same time like, okay, aired at businesses and, and Media
00:03:42
consolidation On In traditional sense, I basically just had the,
00:03:46
a little bit of a light bulb moment, which is well, okay.
00:03:49
I see all these websites that are growing and these were
00:03:52
websites like ehow.com or like dictionary.com, right?
00:03:57
And in many ways they actually had like interesting.
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Maintenance which is just that little bit of a quirk of
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History, you know, people who are really, you know, registered
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names and that figured out how to act they wanted to do
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something with them so they started creating blogs and then
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of course with the growth of search engines in the growth of
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Google, these people who were really just passionate
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enthusiasts, right? They were knowledgeable about a
00:04:18
topic sometimes. They were good writers,
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sometimes they weren't, but they were creating websites and web
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sites were getting traffic organically from Google for free
00:04:28
and that monetizing them. M with Google for free.
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So you are starting to see this class of profitable websites
00:04:36
that were emerging. And what you didn't really see
00:04:40
was the Venture capitalists, it really care about those
00:04:43
businesses for them. Like you know obviously there
00:04:44
were a number of them were they started like really scale they
00:04:47
didn't but if you were looking at a business like Trails.com
00:04:51
back then, right, which was one of the websites.
00:04:53
We ended up acquiring was of really nice business run by two
00:04:57
really smart entrepreneurs out. There weren't really Be that
00:05:00
attractive to a venture investor at the time.
00:05:03
And they also weren't really that attractive to private
00:05:05
Equity because they were also too small.
00:05:07
Do you remember when you acquired it sort of what the
00:05:09
financials look like or what wouldst, what type of business
00:05:13
that company at the time might have been doing handing to 12 in
00:05:18
revenue, and maybe it was doing like, Two or three of you.
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But, ah, yeah. Kind of symbol that was the
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profile and the business basically was this was an
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attractive domain, like, in a kind of almost not, not pretty
00:05:30
good because some people were searching for it, but it felt
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like a very safe and comfortable website as someone who was
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searching. Can't because Trails.com, you're
00:05:37
like, well, that sounds reliable.
00:05:39
Brian then. And then the content on there
00:05:41
was good enough that you were, you know, willing to come back
00:05:43
to it and because of that traffic, you know, throw some
00:05:46
banner ads on it some AdSense and, you know, you could Could
00:05:50
you could turn some, you could turn some cash with that.
00:05:52
So I started building a deck putting the thing together and
00:05:56
then that's when I met my co-founder.
00:05:58
Richard rosenblatt who, you know, was was the chair, former
00:06:03
chairman of my space. She was based in Los Angeles and
00:06:07
when we started and I started socialize this idea.
00:06:09
What have I said, we could we could go by these websites and
00:06:12
and go and build his company. You know, would love to be on
00:06:15
the board. He said, well actually this is
00:06:18
it's actually pretty interesting if You add social networking to
00:06:22
these sites because he asked the right question at the time I
00:06:24
think was like, well, okay now that you buy them, that's great.
00:06:27
But how do you grow them, right? What do you do with right?
00:06:29
What do you do differently than what they were doing right for
00:06:31
right? What do you do?
00:06:32
And so it was really, this is, you know, kind of preface book.
00:06:35
And it was like, well, if you could snap social networking
00:06:39
functionality into these sites, if you can make them social,
00:06:43
then you Dad, you have something that could really.
00:06:47
Correct, I could be where you are.
00:06:48
We talking truck? This was in 2000 and then, let's
00:06:53
see what your company and post-sex.
00:06:56
So I was probably laid out for God was working on it for
00:07:00
probably 18 months ago. It was probably four or five.
00:07:02
So Facebook at the time was really just like a college, you
00:07:06
know, coeds. Yeah, I'm and on you weren't
00:07:07
seeing anywhere near the power of what it was going to be.
00:07:10
I mean, I really don't even think it was.
00:07:11
I have to go back and went to see what Facebook actually
00:07:14
launched because I it may have actually been Been pre faced a
00:07:18
big effect, right? It might have been that.
00:07:20
It might have been Harvard. I vaguely remember a few friends
00:07:23
sort of making the track like investors saying oh I gotta go
00:07:26
see, you know, good Boston and see Mark campus and Richard, by
00:07:31
the way, is one of these key figures in this group of people
00:07:34
in l.a., that kind of defines this what people they called the
00:07:39
Myspace Mafia. Which was, you know, I mean
00:07:41
obviously there's the PayPal Mafia I guess now the stripe
00:07:43
Mafia but as far as La Tech is concerned.
00:07:46
Was the group of that era that kind of went off and spun out a
00:07:49
bunch of companies, demand, I guess, being an example of that
00:07:53
and then Richard sort of being kind of like the, the dawn of
00:07:56
the Myspace Mafia, right? Yeah, I'm sure I'm sure you
00:07:59
would love that description to the mid-2000s.
00:08:01
Facebook is just sort of getting going, you're bringing in sort
00:08:05
of, like, Old Guard internet. With the Myspace guy to start it
00:08:10
and then correct. And then what so, then we start.
00:08:13
So that weird. So then we raised, so then I
00:08:14
basically have free Associated 3L.
00:08:18
O wise. So letters of intent.
00:08:20
Basically we could buy two by three companies simultaneously.
00:08:23
We raise 120 million dollars to go do that and we bought one of
00:08:27
the businesses part of the, there's another.
00:08:30
But I don't want it too far off the track.
00:08:31
But part of the other part of the story I mentioned that
00:08:33
domain name and those media companies, you know, that is a
00:08:37
small web site sidereel.com. But there was also people at the
00:08:40
time, we were building portfolios of generic domain
00:08:42
names and that I also kind of you.
00:08:46
Immediate asset because people were either typing it in or
00:08:50
they're worse if you maybe had a landing page or something
00:08:52
getting indexed to Google, and then you just saw pays it paid
00:08:55
ads. Like, I don't even know if
00:08:57
that's really a thing anymore. But right, just a website with a
00:09:00
bunch of banner ads on. There was just a web site of.
00:09:02
Yeah, I picked up, I picked the search engines of kind of gone
00:09:04
away from having that, it's kind of a core business, but, but it
00:09:08
was just, it was like, five Blue Links on a page.
00:09:10
Yeah, those things work. Fritting money.
00:09:13
They were making a ton of money and that was going to be part of
00:09:16
this journey. Hurry to that.
00:09:17
That was going to be a business that we really need to.
00:09:20
And again it was sort of architect is going to be a
00:09:22
Content business and media does this but it was going to have
00:09:25
multiple elements or companies within it so almost like a
00:09:28
conglomerate type of approach from day one, right?
00:09:31
And so we bought. So there are a couple companies
00:09:33
that we bought. We bought a business called
00:09:34
enom, which is a domain name registrar.
00:09:37
The great founder depaul's to her a hug enough to found a
00:09:40
business called donuts, which is now a multi-billion dollar
00:09:42
company in the domain name space, we bought me how.com And
00:09:48
I think we bought another sort of portfolio of domain names
00:09:51
that was probably generating like 5 million bucks of cash
00:09:55
flow. So like day one the business was
00:09:57
generating. I think the profile of the time
00:09:59
as I remember it was like it was it was about a maybe 70 million
00:10:04
and Consolidated revenue and like 10 or 12 of ebitda like day
00:10:08
one from. Yeah.
00:10:09
Yeah. Which is kind of Unthinkable
00:10:11
these days for scaling up a business.
00:10:13
What I want to get to eHow and how How you guys kind of scaled
00:10:18
the content for for these sites because it's one thing to just
00:10:21
have a popular domain. Yeah that people are going to
00:10:23
and there's links on it but you know the As I understood it the
00:10:27
strategy with e. How is that you guys were trying
00:10:30
to have content on there? That was the stuff that people
00:10:33
were searching for. And so the content that was on
00:10:36
the site was optimized for the most searched for terms on
00:10:39
basically Google and so explain a little bit to me because in a
00:10:44
second I want to get to content farming and my Yes, exactly.
00:10:48
Right, right. So and I'm going to, I'm going
00:10:50
to give the founders now of tastemade, which is Larry
00:10:53
Fitzgibbon. Steve the Kid, Joe Perez, they
00:10:55
were part of this founding team at demand.
00:10:57
Now we give them their due because basically in addition to
00:11:01
the social networking platform elements of these websites, we
00:11:04
also had to sort of look around and say, have the hell else, are
00:11:07
we going to grow these like, what are they sites?
00:11:09
Like what? And I think one of the things
00:11:11
that we realized early was that again, kind of back to That that
00:11:17
we used to call it like the most beautiful business model because
00:11:19
it was like, you know, content was low cost or free, so you
00:11:23
didn't have to pay for Content, you had, you got free traffic,
00:11:27
and you have free monetization, right?
00:11:29
So it was like, the really the most beautiful business ever,
00:11:32
but so, but Larry and Joe, and Larry was Larry was formerly.
00:11:36
I see Joe was, at Myspace with Rich and Steve.
00:11:39
A kid was actually ahoo. And so we have that sort of DNA
00:11:43
the mix and those guys realized that We needed a Content
00:11:47
strategy. And so, we then sort of quickly
00:11:51
realized, oh, actually, we need to really any, how is it was an
00:11:54
easy one because it was multi category, and there was lots of
00:11:58
how-to content that we could think of creating, but if we
00:12:02
were just sitting around saying, oh well, how about this, you
00:12:04
know, how to, you know, how to do a podcast or how to do
00:12:06
whatever like that's not going to scale.
00:12:08
So we had to really figure out how it was going to scale.
00:12:11
And what we ultimately created was will become to man Studios.
00:12:16
Has, which was a platform for being a priest called pursuers
00:12:20
right writers to create, you know, articles.
00:12:25
And so that's kind of thousand high level how it started and
00:12:28
then got it to the science of it and the math of it, which was
00:12:31
well, instead of just having his open platform and having people
00:12:35
write anything, why don't we suggest what they write based on
00:12:39
the expected payback, and the math of the article.
00:12:43
So, we could say, okay, we know how to You know, how to change a
00:12:47
tire. We know, is that that article or
00:12:51
we know we did, we did some, our algorithms would sort of, you
00:12:54
know, predict that article could be, could generate a hundred
00:12:56
million dollars or a hundred dollars Revenue in 18 months,
00:13:00
right? Because of the because of the PC
00:13:04
rates, and because of the traffic that we were, we were
00:13:06
get it. And so we could, we could
00:13:08
basically reverse engineer a business model, that was fairly
00:13:11
visible in terms of dollars in and done dollars out and the
00:13:15
vast vast majority of Of traffic is coming from Google.
00:13:18
All right, vast vast, majority 90.
00:13:21
Yes, yes. And and basically, like, what
00:13:24
the genius of eHow was figuring out, is that a?
00:13:26
There's a huge amount of people online that are just searching
00:13:29
for how to do stuff. Just just at any given day,
00:13:32
people are flocking to search engines, Google specifically say
00:13:36
like, oh, how do I change my tire?
00:13:38
How do I make a flower bed in my backyard?
00:13:40
How do I write start a podcast? And so what, see, how basically
00:13:44
did is like, figure out that Says, the types of things that
00:13:47
people are searching for and contract out, essentially, two
00:13:50
people to write these articles. That's right.
00:13:54
Yes. Right, because we did, we wanted
00:13:55
to have, we wanted to be a platform for Content creators.
00:13:58
We didn't necessarily want to have, you know, Reams and reams
00:14:03
of people on our staff writing content, right?
00:14:05
And so, okay, so this is where this is where I come into the
00:14:07
mix because because it sounds been waiting for this.
00:14:10
By the way, Tom has been waiting to tell this story about.
00:14:12
Yeah I'm ready to company made. I don't see how.
00:14:15
Yeah I'm going to come clean about My history.
00:14:17
My first paid gig as a writer because I was living in LA and I
00:14:20
had no job at effort certain period of time and I needed
00:14:22
money and the thing I think I came across it on Craigslist was
00:14:26
like, write articles to make money and, you know, it was
00:14:29
through demand Studios and you go to this website.
00:14:32
And it basically tells you search around for things that
00:14:34
you are an expert on and claim an article and will pay you 15
00:14:38
bucks in article. So you can, you know, let's say
00:14:41
I was a, you know, a gardening expert and I would see an
00:14:44
article about like, oh, how to build a Our bed in my backyard.
00:14:48
I would say, oh well, I claim that article and then I write it
00:14:51
up and then I press send and I it gets taken up by an editor
00:14:56
and I think an editor is also like a paid part of this.
00:14:59
I'm gonna get paid like ten trucks.
00:15:00
That's right to approve it essentially and then and then it
00:15:03
goes online and I collect and the thing that I found out about
00:15:07
eHow and I think, you know what helped you guys scale but also
00:15:10
maybe what, you know, gave content Farms.
00:15:12
A bad name is that the editing behind it was pretty thin.
00:15:16
Right. I mean like it was definitely a
00:15:18
pass-through sort of thing. People are not really
00:15:20
incentivized to do a great job editing stuff.
00:15:23
And what I found out was that there were a lot of like
00:15:27
articles you know it's because of the way that the algorithm
00:15:30
was written. You guys were trying to have as
00:15:32
many different articles about similar subjects to like collect
00:15:35
every single possible search term.
00:15:37
And so I would find that there would be basically, you could
00:15:40
rewrite the article. And so I would do a how-to like,
00:15:43
how to convert. This was my thing.
00:15:44
This is my racket would be like How to convert CDs to mp3s and
00:15:50
then there would be an article how to convert my CDs to mp3s.
00:15:54
And there was, How can I convert CDs to mp3s?
00:15:57
And how can I convert tapes to mp3s?
00:15:59
How to make use my computer to convert tapes MP3s?
00:16:02
Basically, you guys were incentivized to collect as many
00:16:05
different articles as possible, so that no matter what, if
00:16:07
someone searches something it comes up at the top of Google.
00:16:10
And so what I would need genius, right?
00:16:13
Right, right. Yeah brother.
00:16:14
Yeah basically it's just like masks on still wasn't.
00:16:17
Yeah. Right.
00:16:18
Right. Well boy, until until like that,
00:16:20
the algorithms are smart enough to do it.
00:16:23
I mean Tom's but basically functioning like sort of a
00:16:25
little like, computer programming.
00:16:28
You're just finding similar. Yeah, well, you know, I think
00:16:31
you guys, I mean, tell me how you guys sort of you.
00:16:33
This from the company I've never really actually talk to you
00:16:34
about this but like, you know, how are you guys filter in the
00:16:37
stuff out? Because I know that there was
00:16:39
concerns about plagiarism. You didn't want people literally
00:16:41
copying and pasting. Yeah, the same article because
00:16:43
that would probably trigger some some problems but Yes, it seemed
00:16:47
like you guys are too much of a problem with it, I mean, like,
00:16:49
it was just like anything that, you know, gets better and better
00:16:54
over time, right? So you launch these things, I
00:16:56
mean we spent a lot of time thinking about it.
00:16:59
Okay. Well how do we how do we scale
00:17:01
the editorial? You know, we've got now we've
00:17:02
got the Articles coming out, how do you scale the editing process
00:17:05
and any but I have to say one of the things that we didn't
00:17:08
really, you know, sort of spend a lot of it was spent that much
00:17:13
time thinking about the similarity between the Articles
00:17:16
per se say, because it was really much more top-down title
00:17:20
driven, right? And as long as the article did a
00:17:24
good job, right? Answering the question.
00:17:29
We thought that that was sufficient, right?
00:17:31
We never really I wish I could say we did we did but you know
00:17:35
for even from Annie how like editorial standpoint I don't
00:17:39
think we really appreciated that the algorithms, we're going to
00:17:43
change the algorithms that you know, Google algorithm from
00:17:46
2000. I mean, I'd be interesting to
00:17:48
kind of get the bachelor step but between like whatever was 97
00:17:53
and 2008. I don't know.
00:17:55
I don't know if it changed at all, but then you started
00:17:58
seeing, you know, okay? And then they started cycling
00:18:00
through and then and then I take, I think the for whatever
00:18:04
reason whether it was our IPO. You know, we had article in
00:18:07
wired, I don't know if Google really felt like it was a it was
00:18:11
a bad user experience or if they just was it's like, they lie
00:18:14
about you, or were you part of the category?
00:18:16
Like how much did you know, present content farming?
00:18:20
We wrote. So we then started just like
00:18:21
just like everything you know like when you see we have some
00:18:23
success then there's a lot of a lot of imitation.
00:18:26
Well like about.com where do they?
00:18:29
You put this like New York Times acquires about.com, right?
00:18:33
Yes, yes. So what do you remember?
00:18:35
What time period? That was just.
00:18:36
Yeah, we almost actually, we almost did a deal with the New
00:18:38
York Times you were going to do very big merger.
00:18:41
Won't part with demand media. The New York Times Really I
00:18:44
would fuck. Yeah, huh.
00:18:46
Like how Hosted it get pretty close.
00:18:49
You had already placed. Yeah, have price has deal.
00:18:52
Negotiated and and then what killed it, I think the time it
00:18:56
was just this. Yeah, I think the CEO of the New
00:18:59
York Times was Janet. I kept her locked in, but at the
00:19:02
time she just got cold feet. Last minute.
00:19:04
Didn't want to do it. Whoo.
00:19:06
So they would have been in charge or we were going to do.
00:19:09
I mean I think we were going to Verge about and demand and then
00:19:12
really have a kind of own the category.
00:19:15
Oh, so you're Going to be sort of under them, but it about
00:19:18
demand would have been. Yeah, we were going to be like
00:19:21
creating your title. I was like, it was like our
00:19:28
content was really magazine content, right?
00:19:31
I mean, disposable it was, it was not g know, I don't offend
00:19:37
any, you know, gardening journalist.
00:19:38
But it was like gardening Home Improvement, you know, the kind
00:19:41
of stuff that, you know, you could, you could time, you know,
00:19:44
you could write the top, could write it, you know.
00:19:45
And that. By the way, town would do a good
00:19:48
job Rite Aid article. You know, maybe well here's the
00:19:51
funny thing about that is that like I wrote you know, I would
00:19:55
write I made a you know like a I would tell myself I'm going to
00:19:58
do ten of these a day and if I do ten a day that's 150 bucks a
00:20:01
day, right? If I do it, five days a week,
00:20:02
but 750 dollars a week and I paid off my credit card doing
00:20:05
that. And after a month of doing that,
00:20:08
I think an editor. Finally kicked back, one of my
00:20:10
articles that was like, you know, how to take a record
00:20:13
player and convert it to mp3s and they're like, you can't just
00:20:15
plug up. Turn table into a computer.
00:20:18
And I was like, well, I don't really, like probably 40
00:20:22
articles saying, do that. Yes.
00:20:25
Quality could be a suspect. But but, you know, I think at
00:20:28
its best. Sure.
00:20:29
Right. It is someone who has an
00:20:30
Enthusiast for the category. We do a good job.
00:20:32
Yeah. And again this is early days of
00:20:34
these types of platforms and I think you go into these thinking
00:20:36
people are inherently good there you do the right thing right?
00:20:39
And they're just want to share their knowledge.
00:20:41
I mean that's really what it was about and we just thought well
00:20:43
actually people want to share the knowledge we can pay that By
00:20:46
the way, we're one of the only places like around, you know, if
00:20:50
you go back to the Huffington Post, having to post was having
00:20:52
people write for free, and then people are like, well, they're
00:20:55
not paying it and we were like, why are people giving us our
00:20:57
time? We're paying people like I don't
00:20:59
understand like what that right? What's the negative slant?
00:21:02
I'm like what we're doing right? I don't know.
00:21:04
But what was I mean if you can like put yourself back in that
00:21:07
are because I actually don't really remember specifically
00:21:08
what was the chief criticism of these sites.
00:21:11
I mean I guess quality. Maybe suspects but like whatever
00:21:13
time? Yes I mean I think over time
00:21:16
What you had was well, Google Addict started referring to his
00:21:19
like thin content and it was like duplicative content.
00:21:22
And so that then became one of the things that the algorithm
00:21:26
really started directly targeting was that you don't
00:21:29
want to have a site that, you know, ten articles on, you know
00:21:33
your topic top like you're right they want one but by the way
00:21:36
they didn't and again it was just it was a change of mindset
00:21:39
because when you think about like engagement metrics in
00:21:42
Google and search, like when you're searching for something,
00:21:44
you want to answer, right? I don't necessarily want to read
00:21:48
a 3 page article on end and the history of MP3s.
00:21:52
Tell me how to convert it right. Right.
00:21:53
We had that if you do want a true answer which Tom is saying
00:21:57
sometimes it didn't always deliver but yeah.
00:22:00
Correct. Right?
00:22:01
Yes. I mean clearly you know now
00:22:04
Google like provides these answers itself.
00:22:07
It doesn't even let you go off-site.
00:22:09
It's not even about we eventually go from okay.
00:22:11
These are to correct. Yeah to like screw it even if
00:22:14
you have a good high quality answer we don't even I want to
00:22:17
let you. Yeah, do it.
00:22:18
We're gonna do it ourselves. Yeah, which is, you know, the
00:22:22
evolution with Google explain to me the day in the office is when
00:22:26
Google changes there I'll go. Okay.
00:22:28
Well, so, so, will the, the story arc is that Google
00:22:31
because, you know, demand becomes a very successful public
00:22:34
company were born in New York Times, right?
00:22:36
Yeah, yeah, I want point at one point.
00:22:38
Yeah. Yeah.
00:22:39
That was a big headline for it. Yeah.
00:22:47
And that was a big thing, but we work of help can be added.
00:22:50
The market cap was like, close to two billion, you know?
00:22:52
And I said was we're going like two months, maybe Google change
00:22:56
the algorithm. And that unfortunately was is
00:22:59
just hard for any company. Let alone public company to
00:23:02
overcome when your way your cash flow, you know.
00:23:06
And by the way, we were profitable, I meani how was a
00:23:08
monster business at one point. I mean, I think we have one
00:23:11
point was generated text. Uh, yeah, yeah, we paid you 10
00:23:14
bucks but I think we probably made a couple hundred.
00:23:16
And on the right those are, yeah, the the structure was
00:23:19
good. Yeah.
00:23:20
But it did tell him but obviously, it wasn't
00:23:22
sustainable, you know? And, and so the, when when you
00:23:24
have that kind of a hit as a public company, you know,
00:23:28
there's no, unfortunately, not a lot, you can do a year.
00:23:29
We we went public in 2011, and it happens like that your eye if
00:23:35
you like, oh yeah, yeah, yeah. And yeah.
00:23:37
And then what you just totally gonna get like, how much meat on
00:23:40
top tell Eric it was a big deal. It was like a big deal.
00:23:43
Yeah. No.
00:23:43
It was the, you know, kind of banner l a tech company.
00:23:47
And as it went public like, I'm saying, huge headlines about it
00:23:49
being worth more than the York Times.
00:23:51
It was like, the new model for Content, there was a lot of
00:23:53
hand-wringing about like what it meant for the future of content.
00:23:56
Obviously was all Jazz time, it's not like I was close to
00:23:59
you, like pay attention to it, right?
00:24:01
Yeah. I wasn't even covering it yet.
00:24:02
And it was, you know, I started covering La Tech in 2012.
00:24:05
And so I guess that was sort of post, you know, post Fiasco and
00:24:09
as you guys were dealing with the Fallout from all of this
00:24:12
stuff, but yeah. Did you have any signaling that
00:24:15
Google was going to do? This I mean, did you guys are
00:24:17
like a drum beat that like oh you know they're rejecting the
00:24:20
algorithm and this is going to hurt all the content Farm sites.
00:24:23
No. But interestingly what happened
00:24:25
was the first algorithm change they made, we went up.
00:24:29
Hmm. Like our traffic went it was a
00:24:32
benefit to us for like two weeks, okay?
00:24:36
For three weeks and then the hammer fell and that's when that
00:24:42
that is we never really recovered from that.
00:24:45
How much resentment is there? Within those companies toward
00:24:48
toward Google because you know as I started covering Tech.
00:24:51
I remember meeting Jason calacanis who I believe he had a
00:24:54
company that was sort of in the sphere of content.
00:24:57
Yeah. Yeah.
00:24:58
Yeah. Mahalo.
00:24:59
Yeah. Hollow.
00:25:00
Yeah. Right.
00:25:00
They had some kind of user generated content stuff that
00:25:03
wasn't they? Yeah, they basically so.
00:25:06
Yeah, Jason lost, Mahalo and then copy the try to copy demand
00:25:11
try to cram prep of the content and then Lambda bad.
00:25:15
You know I didn't I was like no this model.
00:25:16
Crap. Yeah.
00:25:17
And then whatever. But Chase knowledge, its knees
00:25:19
could go ahead man. I mean is it Go does get hot or
00:25:23
Advanced a? No I mean well the good thing
00:25:25
about it, I mean I think the way we architected it was not, we
00:25:29
have couple business lines in there, right?
00:25:31
We had we had a big red domain registrar business.
00:25:35
That was a profitable profitable business.
00:25:38
We had some others other properties to that.
00:25:41
We were building that were not dependent upon the contact form
00:25:45
and they were more Head say, I thought to contribute the bill
00:25:48
that we won comedy site called cracked.com the old crap.
00:25:52
I remember when we bought the Branded and that was they were
00:25:55
doing six posts a day and there was not a volume game from a
00:26:00
Content, standpoint bouncy ruled.
00:26:01
That was like, hi Folly. But again, kind of rear virtual
00:26:05
writers room. It was very it was it was very
00:26:07
soon as good stuff. I mean you guys were sort of
00:26:09
that Innovative with like like funny or die and college humor
00:26:12
and those kind of online humors out of the time.
00:26:13
Yeah. So we had that site, that was
00:26:15
really solid and we had Livestrong.com, which was also
00:26:18
a. I think it just took good site
00:26:21
which had and a companion app called The Daily plate, which
00:26:24
literally calorie tracker app that require you, we bought a
00:26:27
lot of these businesses, right Sonique, we were requiring.
00:26:30
So I stand, that's what I spent the bulk of my time doing like
00:26:33
40. I did Livestrong, get rocked by
00:26:35
the whole doping Scandal where you guys.
00:26:36
Yeah. And but that David issues with
00:26:39
no, no. But there were issues with its
00:26:41
attached. We didn't affect strong, but
00:26:42
that happened while you owned it or yeah.
00:26:46
But in a week, That business when fine even though the doping
00:26:48
stuff. Yeah, because the business
00:26:50
wasn't, it wasn't, you know, it wasn't Lance Armstrong got Kyle,
00:26:53
it was really strong program and I remember there being stories
00:26:56
about how, you know, Livestrong had to make very clear that it
00:26:59
severed ties with Lance Armstrong that he's not
00:27:01
affiliated with the business, right?
00:27:03
Remember, if there was anything that specific time?
00:27:05
I mean I don't I mean it romantic in my memory.
00:27:08
Yeah, maybe maybe a little bit. We didn't have any and we didn't
00:27:11
have a huge branded ad sales team at the time, I'm here.
00:27:13
By the way, at the time, the people running branded ad sales
00:27:16
who were I joined Bradford and are honored eenie, huh?
00:27:19
So, yeah, Eric, maybe all the way.
00:27:21
This was like, the All-Star team like, did digital media.
00:27:24
I'm telling you that I had so many good people at this
00:27:27
company. So does this company?
00:27:28
Still trade is still exists? Or what else?
00:27:31
I was. So I died.
00:27:31
You're trying to get to the entrance.
00:27:32
All right, we were hurt you to get over the thing.
00:27:34
I like the real juice that I wanted to get about Google
00:27:37
because I know people like Jason calacanis and maybe you as well
00:27:40
sort of view this whole episode as an example of Google's, you
00:27:44
know, uncheck global Our. Oh right, well, we're going to
00:27:48
get to the core lucian's. I just want to get to the end of
00:27:50
this story and then there's the only teams we can draw about it.
00:27:53
Yeah, I'm fine. Yeah.
00:27:53
So yeah, so demand went public. The park cap continued to slip.
00:27:57
We then we ended up spinning off the domain business, which was
00:28:02
called right side and that ended up being Acquired and then
00:28:05
demand changed its name to Leaf Group which was remained, a
00:28:09
public company, sort of did okay, not so great.
00:28:11
And then they were doing all the right things try to, you know?
00:28:16
Right size the Brand's, right, size, the businesses and sort of
00:28:20
doing the things that out. And I'll go to about.com for
00:28:22
cycle, which is no dot dash. Which is actually done
00:28:24
exceptionally, well, under Neil vogel's leadership, but Neal we
00:28:29
have the same business model and I think earlier, on maybe about
00:28:32
said, you know what we're going to we're going to take down all
00:28:33
this content and willing to like rebuild.
00:28:35
Some of these Brands and put them into new categories and
00:28:38
create take the best content. Like if you took the best, he
00:28:41
how I think maybe had three or four hundred thousand articles
00:28:45
right? If you took the best 30 and
00:28:47
started a new how-to website. That would be a killer side.
00:28:50
So I think what what about did is they took, you know, the home
00:28:53
and garden stuff the and they started doing that and I think
00:28:56
they did that sooner than we did as I'm remembered out at the
00:29:00
math. And so that now is form the
00:29:03
basis for dot dash, which is now a great, a great business.
00:29:06
I mean, it's and they report numbers, it's hugely profitable,
00:29:10
the big peace in the valley so tomb and was in the process of
00:29:13
doing the same thing as Lief group.
00:29:15
We had also acquired a Marketplace called Society6
00:29:18
which was an artist Marketplace, we started doing some Commerce
00:29:20
stuff and that whole business is now owned by The Washington
00:29:24
Post. Hmm.
00:29:25
And they run it, it's still? Yeah hmm.
00:29:28
Yeah, I mean, I don't, I haven't seen I haven't really looked
00:29:30
like a button sites. A long time.
00:29:32
It sold for way less than it was once worth.
00:29:34
And oh yeah, yeah, no. I mean, I think collectively
00:29:36
that the both businesses were probably 67 are really dollars
00:29:40
if I had to. Yeah, well, I mean maybe a half.
00:29:43
Yeah. So I would obviously you know a
00:29:45
big what? The first like theme here is
00:29:48
just like companies building for like the big Tech Giants and how
00:29:53
they can you were sort of like the early days of getting rocked
00:29:57
by Google. Did you ever like go to Jonah
00:29:59
Peretti and say hey this BuzzFeed idea building off like
00:30:02
Facebook is a reckless. Like I've been there before it's
00:30:06
wear when you w or Zynga or any of these Mafia will ya.
00:30:09
When you wash like the Facebook version of this play out?
00:30:12
I don't know. Did you ever send emails to be
00:30:14
having like you're an idiot? We did.
00:30:16
This already and it doesn't play out very well buckets.
00:30:19
I mean, we all understood. I think we were the first ones
00:30:23
to really bear the brunt of platform, dependency right?
00:30:27
Like and this is now, everybody is at the mercy of the
00:30:30
platform's, the platform's weren't as I mean, we sort of
00:30:35
weave. It was like, this symbiotic
00:30:37
relationship, right? We were growing.
00:30:39
And they were, they were kind of benefiting.
00:30:40
And, you know, when you look at it, you're like well, wait, why
00:30:43
would Google ever do that they make so much money off of our
00:30:46
Stuff you know like it's not economically in their best
00:30:49
interest to do it. So it was a surprise Town.
00:30:51
Answer your earlier question, we were not expecting it a change
00:30:54
and yeah I mean I think we shared a lot of War Stories
00:30:58
among all the people who are running these you know sites at
00:31:02
the time and and you know, talking this was right.
00:31:04
I mean it was a real show of Market power from from Google.
00:31:09
They never really had to explain themselves.
00:31:11
I mean they you know, they just made these jet over again it
00:31:15
course at the time. Yeah, everybody.
00:31:16
Incredibly pissed. We're all set.
00:31:18
This is ridiculous. You know, in the benefit of
00:31:21
hindsight like, you know, the platforms are trying to do what
00:31:25
they need to do in order to, you know, maintain the qualities
00:31:28
that they, you know, hold dear. So so I mean I can't, I wish I
00:31:32
could say, you know, through those guys I want to go sue
00:31:34
them. But yeah, they did what they
00:31:36
did. And we had to react to what the
00:31:41
market was giving us. And so we don't know when that
00:31:43
I'll go change happened, we Did what we thought was.
00:31:46
All right. I think we took the kite.
00:31:47
I was okay. Well if that's not the way the
00:31:48
markets going to work anymore, let's pull the content down.
00:31:51
Let's try to rebuild. Let's just try to move forward
00:31:54
but the big, the big question. Eric is really where does scale
00:31:57
fit in media? This is really kind of the fun.
00:32:00
I think one of the fundamental things that people need to
00:32:03
understand and it's hard, right? It's hard to scales.
00:32:07
Well, be you know what? How do you build something that
00:32:09
actually can can can like scale? Like how big can one thing be?
00:32:15
For you have to go enough that it drives traffic to itself.
00:32:18
Or what's the importance? Well that maybe that's the think
00:32:20
the question as investors, right?
00:32:22
So from the capital standpoint from the money coming in
00:32:25
standpoint, we want things that can scale investors are looking
00:32:28
for businesses that that have, you know, unlimited growth
00:32:32
potential, right? Like one of the early
00:32:33
Investments we made at Three L's.
00:32:35
Go puff, right? Go puff is quick.
00:32:38
Commerce company plays in a market that is so big in the
00:32:41
u.s., it can be this company cadby, it is becoming a very big
00:32:44
business. But for media, how do you play
00:32:47
it? You know, how do you do it if
00:32:49
you're in news, right? Well, how big can the New York
00:32:51
Times V will New York Times has to do have to buy things in
00:32:54
sports? That's why they think about
00:32:55
buying something like the athletic, right?
00:32:57
Like there's always these periods and you just have to
00:33:00
understand where you are in the cycles of aggregation and
00:33:03
disaggregation. And we were just earlier this
00:33:06
aggregation phase of digital media.
00:33:08
I'm going to give voice to the sort of the journalistic or
00:33:11
though the the position that I think reporters would have or
00:33:15
Our companies are built that our product oriented and there are
00:33:18
companies that are built that, see some sort of problem in the
00:33:20
market and say, we're going to Salt in like where the business
00:33:23
guys and we see there's like money to be made here and we'll
00:33:25
go higher it, like the product people.
00:33:28
And in a way the fact that this was such a torque towards where
00:33:32
the business guys versus correct, what's a great product?
00:33:35
That no matter what is going on in the world?
00:33:38
There are customers for this and so then and so.
00:33:42
So you can translate this even Beyond just like Media wrote
00:33:46
technology company, dependence to say anytime you know you're
00:33:49
building a company to solve sort of peculiarities of how sort of
00:33:54
the business landscape set up your more vulnerable that if you
00:33:58
build a company that sort of from first principles saying,
00:34:02
what's the product where service is and people are people going
00:34:05
to want your hat for a long time.
00:34:06
Very much so. And the magic is when you get
00:34:08
both of those things working together, that is the magic.
00:34:12
And unfortunately, what happens if you know the aggregation
00:34:15
Model is what you found is. You've bought a buzz, a bunch of
00:34:19
businesses that were truly good and organic on their own but
00:34:23
they just got to a certain place that they were going to really
00:34:24
get much bigger. It was really hard for them to
00:34:26
kind of think about how they were going to get much bigger
00:34:29
like a cracked or something. Dress.
00:34:30
A oh that's like a good product. But right.
00:34:33
We've hit the sort of ceiling of what the audience.
00:34:36
Exactly. Right.
00:34:36
Or that's right. The scale thing is so
00:34:38
interesting with media because it's very clear to me how demand
00:34:41
approach that which was paying people like me a couple of Bucks
00:34:45
to write articles. And if you do that in Mass, you
00:34:47
can get enough articles that there is some sort of scale
00:34:49
scale, like Advantage, you have a Workforce, a freelance work
00:34:52
force. I remember having this exact
00:34:54
conversation with Jonah at BuzzFeed like five years ago or
00:34:58
so because they were questions about them at the time, after
00:35:00
they had raised a bunch of money from NBC.
00:35:02
And, and whatever is too like, how are you going to scale?
00:35:05
BuzzFeed, you know, it can media, it's just intrinsically
00:35:08
hard to do because it's not, it's a labor-intensive projects
00:35:11
for most people and his line at the time I think was, you know,
00:35:14
this is when Food was really trying to grow internationally
00:35:16
and they were opening up, BuzzFeed Brazil and BuzzFeed UK
00:35:19
and maybe some I don't Australia or something.
00:35:22
And that was his, that was his approach is like if we can kind
00:35:25
of spin off locations and we can just produce content there,
00:35:30
that's some sort of a global scale.
00:35:31
And they've since closed, almost all of those offices.
00:35:34
I mean, business has taken a turn for the worse in many ways.
00:35:37
So doc has gotten so low that it's do it.
00:35:41
I feel like it's survived some of the market turbulence, a
00:35:43
little bit just because It's a got to like 500 million market
00:35:47
cap or something, right? I haven't looked at it.
00:35:49
Yeah, yeah. Might be lower than well
00:35:52
Enterprise Value. Yeah cash.
00:35:54
Oh yeah, Enterprise, yeah, exactly.
00:35:56
I want to get too Buzzy more specifically in a second but
00:35:58
just like in this broader topic, do you think there is an
00:36:01
approach for media to scale in a way that other tech companies
00:36:04
can? I mean, is it foolhardy to
00:36:05
expect it and by that, by that, you know, answer like is it a
00:36:09
bad VC investment is Media like just not a great you know, fit
00:36:14
for The Venture Capital. Yeah, that's really, it depends,
00:36:17
I would say you. That's why you don't see a lot
00:36:19
of Silicon Valley investors investing in media.
00:36:23
It is hard. It's they do from time to time.
00:36:25
And every once in awhile, they did, you know?
00:36:26
Because sometimes there are things that do kind of break
00:36:29
out, or their platforms, or, you know, things, you know, there
00:36:32
are some things that can rise above the levels that they need
00:36:35
to be for people to generate the returns they do.
00:36:38
But it's hard. I mean, I look at and I think
00:36:40
you guys both have hit on it, its product authenticity and the
00:36:43
labor, it takes to create At a great media experience, and you
00:36:48
can't just necessarily replicate.
00:36:50
If you guys have a great podcast about business, you can't just
00:36:53
say, hey, let's go to a podcast on gardening, you just like
00:36:56
right is it doesn't really, it doesn't really flow so, but I
00:37:00
think dot dash, I think there are a couple of companies like
00:37:03
one of the the company that has I don't doesn't get a good ton
00:37:06
of coverage of people. Never really talked about it but
00:37:08
the winner. Okay.
00:37:09
Of the, from the if you look at the media business from 20 2010,
00:37:15
10 to 20 20. I guess that decade.
00:37:17
Hmm I don't know. Tom who would you think is the
00:37:19
winner and and media in that era?
00:37:23
This is going to be some like some like lateral choice that
00:37:27
I'm not going to come up with 20 10 to 20 knots.
00:37:29
Are you? I'll give you another Hint.
00:37:30
It was an l.a. company only company.
00:37:33
I don't know Snapchat that immediate area Brandt internet
00:37:37
brands which one is an interference and see that's a
00:37:40
kind of long. Yeah you know once WebMD.
00:37:44
No, but if Parts because this is Kevin.
00:37:47
How is your health History Podcast?
00:37:50
Yeah, I mean, it's it very big company.
00:37:53
I mean, it's, I think it's that one by KKR.
00:37:55
Okay. It's been recapitalize the
00:37:57
number of times in the billions of dollars and like them J2 and
00:38:02
I think dot dash are like the best of that the best media
00:38:05
companies around. Sure J2, I'm more familiar with
00:38:09
because they own a couple of sites of people have heard of
00:38:11
like IGN, and they're always kind of in the mix for You know,
00:38:14
their codes can like a stalking horse bitter when certain
00:38:16
companies are going bankrupt II can't remember who they bought
00:38:19
not lie. Think it was when they bought
00:38:20
IGN. It was one of my favorite
00:38:22
stories covering La Tech at the time, because J 2 is an online
00:38:25
began as an online, fax company correct.
00:38:28
And I think they probably still do that to a degree, but like if
00:38:32
they sold it, I think, I think they just sold it.
00:38:35
I feel like it's all that but like, you know, I remember if
00:38:37
you ever watched 30 Rock, you know, there was a joke about how
00:38:40
NBC was like a subsidiary of The sheinhardt Wig Company.
00:38:44
I was thought it was funny that IGN was a subsidiary of an
00:38:46
online fax company, like the biggest gaming site, it just
00:38:49
happens, right? Like your stubbornness.
00:38:51
Yeah, like a random facts of insurance company.
00:38:54
That's about it. So as internet brands so WebMD,
00:38:56
well, that's obviously, you know, like remains like it's of
00:38:59
a certain of a different era. It's like probably unlikely
00:39:02
e.com are right, but remains like a hugely visited site.
00:39:07
Well, if there are businesses that have done well, they
00:39:09
continue to do well, driving organic traffic from Google, you
00:39:13
know. And now Rightly.
00:39:14
So they're probably just not talking about it that loudly,
00:39:16
right? Because why would that?
00:39:18
So, what do you think about BuzzFeed then?
00:39:20
I mean, you see them going public is obviously hasn't gone
00:39:23
to well in terms of their share price.
00:39:25
I mean, what happens, I looked it up like, it's 590 something
00:39:29
market cap, it seems like yeah, the Enterprise Value is like,
00:39:33
440 is thereabouts. Yeah, and I think that's on
00:39:38
Revenue, Eric, and as we get that for you, but pretty
00:39:40
significant Revenue, right? It's like, right.
00:39:43
The multiples are under Yeah, I mean I think there are real
00:39:46
questions about whether growth continues, you know.
00:39:50
Yeah. And I think you look at a lot of
00:39:51
these companies and I don't know the ins and outs of were
00:39:54
BuzzFeed businesses today, I'm guessing they've got a pretty
00:39:57
good sized production business. That's like a fee-for-service,
00:40:00
they probably got, you know, still a decent sized media
00:40:03
business. I just I honestly don't really
00:40:06
and again as I told you guys, I've been out of the out of the
00:40:08
game, you know, for the last whatever 56 years.
00:40:11
So I mean, I think they've done is, you know, But as well as
00:40:14
they can. I mean, I don't know what else
00:40:16
they could have done, you know, and I think about some other
00:40:19
successful Investments like bar stool, which is a really
00:40:23
successful very successful Venture investment for the choni
00:40:26
group. But you know, they figured out.
00:40:28
Okay. Well, they had an angle, they
00:40:31
then figured out. Well, there's a, there's online
00:40:32
betting in Commerce, that worked really well.
00:40:36
And I just feels like the best way to play media is if you can,
00:40:39
if you're in something, if you can invest in something in the
00:40:42
sort of, you know, tens of millions of dollars.
00:40:44
Dollars and sell it in the load of medium sized, hundreds of
00:40:48
millions of dollars. Like there are still
00:40:50
opportunities to be able to do that.
00:40:52
But to think about the next Billion Dollar Plus Media
00:40:56
Company. It's really hard to I don't I
00:40:59
don't know what the formula is for it.
00:41:00
I just I don't know. I don't see it and obviously
00:41:02
BuzzFeed you know with whatever how big they are 700 million
00:41:06
Revenue I mean or whatever the numbers they're still not third
00:41:09
half third you know 400 million Enterprise Value, right?
00:41:12
So you know you'd what you would have Of to bed a bed of BuzzFeed
00:41:15
investor, if you invested at 40 million Priam and then an even
00:41:18
something like the New York Times, I mean, you're seeing a
00:41:20
lot of their growth come from like the puzzle games and there
00:41:25
is sort of an argument that, you know, some of the upside there
00:41:27
is just so, well, we'll get more into games and lesson 2.
00:41:31
Well, I thought. Yeah, what was really revealing
00:41:33
with the times two is they had this goal of getting to 10
00:41:36
million subscriptions and then when they seemed like they were
00:41:40
slowing down, it wasn't like in the realm of possibility, the
00:41:43
next couple of years, they Wire the athletic and something like,
00:41:46
hey, we reach 10 million and it's like, well, yeah, you did
00:41:48
what you had to buy those subscriptions to get there.
00:41:50
Yeah. But but they've done like the
00:41:52
New York Times did a great job with their product.
00:41:54
I think the product remains, you know top-notch.
00:41:56
Oh totally, you know the daily their dog.
00:41:58
Their you know did a good job in audio they're interactive
00:42:02
formats or amazing. The video that they're producing
00:42:04
is incredible. I'm going to just there, you
00:42:07
know, it's a high quality product I mean they've done a
00:42:10
good job, every time you probably remember that day they
00:42:12
were struggling part of it. The reason like demand was worth
00:42:16
more than New York Times. At one point it was because
00:42:17
people were just worried about the demise of print, right?
00:42:20
And so so that that point, there were probably 70% print, maybe
00:42:24
30 percent digital, maybe that 80/20, right, the newer drives
00:42:27
is worth seven. Seven point three billion
00:42:30
dollars. It is it still a tiny business
00:42:33
in the scale of it's like, you know, the most prestigious media
00:42:37
brand in the world and compared to the technology company.
00:42:41
It's still. Yeah, I knee.
00:42:43
But you That's why I think it's sort of indicative of you know
00:42:47
like great product is probably going to grow it.
00:42:49
Whatever the market rate grows, you know?
00:42:51
I mean that's that that I don't know what their Top Line growth
00:42:54
is you have to probably in that I'm guessing in the 10 to 15%.
00:42:58
I don't even know if it's that high but right there's also
00:43:01
companies like Reddit I mean, is we do we think of read it as a
00:43:04
media Cup, right? Right it right.
00:43:05
It's like oh we don't have to pay people at all to produce our
00:43:08
content. I mean, it is amazing.
00:43:10
These moderators, spend so much time doing work for, right?
00:43:14
Edit and when there is yeah, you can see it so much as like the
00:43:18
game is, can you figure out a way to make a bunch of content
00:43:21
while paying as little as possible for labor and still
00:43:24
getting the best possible content?
00:43:28
Yeah. Yeah, I mean, and then of
00:43:30
course, you've got Facebook, right?
00:43:32
So, right. Which it turns out.
00:43:34
It also is a platform company just that platform happened to
00:43:37
be apple and when they change their their rules and
00:43:39
regulations right. There you go.
00:43:41
Yes platforms, do you want it with the last?
00:43:44
Minutes here. Do you want to tell us a little
00:43:45
bit about 3L and sort of what you guys are approaching their
00:43:48
mean, you mentioned. Yeah, puff you guys were fairly
00:43:50
early on there, which I'm sure has turned out nicely so far,
00:43:53
but you know what else is kind of in the 3L portfolio and
00:43:57
thesis. I mean we've been, you know,
00:43:59
early growth. Investors were investing ten to
00:44:02
twenty five million dollars into, you know, businesses that
00:44:05
are generally between 5 and 50 million in Revenue.
00:44:08
So we're not really in the Venture business.
00:44:09
We're really in the early growth.
00:44:12
It's kind of what we do and I think, We've done really well,
00:44:14
is find the right combination of things.
00:44:17
We've sort of touched on on his podcast, which is, you know,
00:44:20
great, teens, big markets, disruptive businesses and ones
00:44:26
where we really have a good understanding of the underlying
00:44:29
profitability in the unit economics of those companies.
00:44:31
So we can try to project and, you know, build our models to
00:44:36
suggest when they're going to get to cash flow Breakeven.
00:44:38
And then profitability, how do you do that model and go puff?
00:44:41
I mean people you know, it feels like we're on.
00:44:44
Another cycle of on-demand will never make money.
00:44:48
Yeah, I'm like fatigue diet because we sort of watch that
00:44:51
with Ubers and or dashes and whether, you know, yeah, those
00:44:55
are big companies, I don't know. How do you do that with a
00:44:57
doordash? I mean, with a go puff.
00:44:59
Well, first of all, when we invested in Cope of, it was
00:45:01
profitable in Philadelphia, it was generating ebitda.
00:45:05
And we, there were, there's the Nuance that now, the market
00:45:09
really appreciates, but didn't for a number of years because go
00:45:12
puff is a, it's a filly company. So, you have to like really do
00:45:16
some research to find out when the first article was written
00:45:18
about this business, but by then, they had probably already
00:45:21
raised a couple hundred million dollars.
00:45:22
They never publicized around, they didn't talk about the
00:45:25
business. It's fascinating looking back at
00:45:28
early. Go puff coverage because it's
00:45:29
mostly articles in, like the Philly Enquirer and like the
00:45:32
Philadelphia weekly, you know, very much positioning it as this
00:45:36
leg. Hey, a couple of bro, started a
00:45:38
thing where you can get hookah delivery.
00:45:39
Yeah, I mean, like, if you're making money, guys, you know,
00:45:41
the best strategies make money quietly.
00:45:43
I mean, So silly not really is you know, that's what you want
00:45:47
to be. Without any wasn't rejection
00:45:50
with go puff by the way, to kind of tell them like.
00:45:52
Yeah, you guys are building this thing, it's nice.
00:45:53
But don't go out there and like, get the Splashy TechCrunch
00:45:57
information. They they were when we made our
00:46:00
investment, they've had already gotten that religion, so and so
00:46:04
we didn't even announce it newer today.
00:46:06
And, and but the beauty of that model is, you know, it's they
00:46:09
are the inventory provider of, so they're making money on the
00:46:11
wholesale retail spread. So it's like a 7-Eleven In store
00:46:14
except that the store comes to you, right?
00:46:17
And so we've got, you know, it's just a better, it's a better
00:46:20
operating model. They can make money on
00:46:22
Advertising which they're doing now.
00:46:25
And you know, now they're Market continues to expand because once
00:46:28
you've got this footprint, you can start to add some of your
00:46:31
own products. They launched their own, you
00:46:32
know, their own white label set of products called basically,
00:46:36
they've acquired, you know, coffee businesses.
00:46:39
So now they can bring you coffee that they're that, they're
00:46:41
supplying so and not business. All about delivery efficiency
00:46:45
and orders delivered per hour and when you have a
00:46:48
point-to-multipoint distribution system, it's way better than
00:46:52
something like doordash, which is pick up one place, go to
00:46:55
another place, pick up, go to another place.
00:46:57
So would the way we look at the economics are far superior to
00:47:00
what do ashes doing. And that's why we think go puff
00:47:04
is going to be just a really big company, but we do that with all
00:47:07
of her, you know. And I mean, we try to find that
00:47:10
combination of things with all of our investments.
00:47:12
Whether it's, you know, so go Powe for chow or Roman or Daily
00:47:17
Harvest or, you know, now it fun to businesses like, you know, in
00:47:22
code or dealer policy, different markets, you know, some of them
00:47:25
are Ensure text of a delivery summer Logistics, summer
00:47:28
Telehealth, how big is fun, 2, fun 2 is going to be probably
00:47:32
between four and five hundred. We're still investing it will
00:47:34
already investing out of fun too but we're still, we should be
00:47:37
wrapping that up but in the March cool.
00:47:39
So, any any any other companies you want to bring up to us?
00:47:42
You guys doing anything in a web.
00:47:44
In crypto, we're spending some time.
00:47:46
Thinking about how web three crypto are going to influence
00:47:51
the industries of which were investing.
00:47:53
So, I mean, the short answer is, you know, know, I think we're
00:47:56
making some personal Investments and in different funds and
00:47:58
companies and things like that, but nothing nothing at the fund
00:48:01
level yet. But we've had some interns,
00:48:05
we've had some, you know, some of the team has been spending
00:48:08
time. Try to understand it.
00:48:10
Like we looked at one thing that was sort of in the crypto I
00:48:13
erase paste. Which I thought was pretty
00:48:14
interesting but obviously you know you would have loved to
00:48:17
invested in coinbase you know way that one, right?
00:48:21
So things like that and yeah board platforms, are you doing
00:48:23
anything just with sort of the market being all over the place?
00:48:27
Did you pause investing at all? Or have you just continue to
00:48:30
invest or what sort of your approach?
00:48:32
But by the way, I'm going to put one more fine, final point on
00:48:34
the demand meetings or so, or so, by the way, Richard
00:48:37
rosenblatt, and inside his sound, is the CEO of a company
00:48:40
called autograph, which is a pretty high-profile business in.
00:48:43
The Nft Marketplace since the one with Tom Burke.
00:48:46
Tom, Brady so good for those guys.
00:48:48
Do you own any of these? Not directly no through a fun
00:48:53
and I do, but yeah, correctly. Okay, now, you invested in a
00:48:56
fund do, is just gonna buy a bunch of and I've asked to do,
00:48:59
they create a crypto fund, a fund that's been investing and
00:49:02
fund managers friend. So, yeah.
00:49:04
Yeah, indirectly. But because, you know who's
00:49:06
going to pick, you know, the best ape.
00:49:08
I don't know how to do that, that's not mine.
00:49:11
Yeah, so, but no, Eric took some terms in was so, I think it's a
00:49:14
very, very in a very, very healthy part of the market right
00:49:17
now. I think there's been a lot of
00:49:19
things got pulled from. Forward last year, the last
00:49:21
quarter of the fourth quarter of last year was just massive Pace,
00:49:26
like the the investment paste, the timeline that you had to
00:49:29
make decisions. Everything got accelerated and I
00:49:32
feel like there's definitely been a little bit of a pause,
00:49:34
you know. I don't know what the numbers
00:49:35
will show in terms of like dollars invested in the quarter
00:49:37
Etc. But at least for us it feels
00:49:39
like the it's a it's a bit more normalized.
00:49:43
We're having a little bit more time to look at and evaluate
00:49:46
companies and that we do know it's been looking at Really
00:49:50
interesting. Interesting businesses and I do
00:49:51
think the video like the pricing is adjusting to.
00:49:54
I mean it's usually a little bit slower to adjust the private
00:49:57
markets it but it's something that we've always got to be
00:50:00
mindful of when you're making an investment.
00:50:02
And one of the things that we usually do in our Android and
00:50:04
processes. Just look at the five-year
00:50:05
historical trading average for multiples and so you can really
00:50:09
can look at within cycle. Okay, well, you know, suffer
00:50:11
companies, use to try to 10 other 20.
00:50:14
Now the back down to 12. I mean, so, you know, if you if
00:50:18
you kept that sort of some Rippling in terms of pricing it
00:50:22
so we'll gosh. Okay, we know the markets at 20
00:50:24
but if we pay 20 and and the you know, what's the multiples
00:50:26
collapse? You could you can get killed
00:50:28
right or takes. It's very hard for companies to
00:50:31
go through that multiple compression.
00:50:32
You gotta grow 100% for a couple of years.
00:50:34
Right. You're right.
00:50:35
Gotta play with red. So I know it's just feels like
00:50:38
it's a good time and we've bet we can see.
00:50:40
It's really interesting companies and, and it's nice to
00:50:42
have such a strong. A folio, vitarka is so when
00:50:46
starting a A media business. Should they stay away from you
00:50:53
know, they should stay with Friday.
00:50:54
I know the guy I love talking about it.
00:50:57
I mean the sort of love-hate relationship with the beauty
00:50:59
business, I mean, I so wait. I don't want to discourage
00:51:03
anybody from doing it. I mean you can do well you guys
00:51:05
can, you know, you guys can have a, you can have a good business
00:51:07
and make money be profitable and I'm happy to share like platform
00:51:12
were stories that mean, you know, you just don't you have to
00:51:15
start with that the authenticity of like, He's Brands.
00:51:18
And if you get the product side, right?
00:51:21
And it just you get that product Market fit, right?
00:51:23
Then they, you know, that's when you can start to figure out,
00:51:25
okay, well, how do we can we engine, can we use, you know,
00:51:29
some Capital to engineer thing to know?
00:51:32
Do we want to buy a? If you guys have an audio
00:51:34
business is their video business that maybe is a JC are
00:51:36
complementary in, right? You can start building a
00:51:38
building a business like that. Actually another business one of
00:51:42
the more successful businesses, I think of the last decade to
00:51:45
its skiff. I think, I think interesting,
00:51:47
you've done a Really good job. Rifat is a smart product
00:51:52
oriented. That's the, the travel focused
00:51:54
Media Company. Yeah, they always put them in
00:51:56
the same category. I used to have Eric and I both
00:51:59
were at the information and I feel like they have groups
00:52:01
frequently as like, you know, category-specific loyal.
00:52:05
Subscriber base media differences.
00:52:08
Is it private? Do you know it?
00:52:09
It's you have a guest on private, how much it's worth.
00:52:13
I don't know how much it's worth but all I could say is it's
00:52:15
good, you know, like it's good. They've raised some money.
00:52:19
I think people investors in the company will make money.
00:52:21
What do you do, you know, do you know, do you think your view on
00:52:24
what the information is worth? I haven't seen the numbers
00:52:26
lately. I don't know.
00:52:28
It's a good question. Yeah, they're never going to
00:52:30
sell so it's, I don't know. It's hard to guys value to it.
00:52:34
I mean, I see I feel like they've done well, I mean, I
00:52:37
again, they built a good product that people like and they're
00:52:40
growing a lot these days is a big investment from the top
00:52:43
right on a. Yeah, on hiring yeah, borders.
00:52:45
But see the problem is so but here's the challenge, here's
00:52:47
what you don't want. See you don't want to see
00:52:49
businesses that then raise too much money, right?
00:52:51
Because if they raise, and this is the, this is the part of the
00:52:55
challenge in this business is you grow a business, and then
00:52:58
you feel like you have to raise money to keep growing it.
00:53:01
But sometimes you do, if you obviously need the capital, but
00:53:03
then you might raise too much and you might be at, too high, a
00:53:06
price and then you're in a trap, right?
00:53:08
Because now you're like, how do I justify this price?
00:53:11
What do I do with the money? And then, of course, the next
00:53:14
round. I mean, just look at, look at
00:53:15
the look at the financing progression for BuzzFeed Right,
00:53:19
we raise money at a billion five.
00:53:20
Now we got to get, we got to think about how do we make this
00:53:22
thing worth five billion, you know or vice?
00:53:25
I mean oh yeah so these companies are now there are you
00:53:27
get you get trapped because investors will give you the
00:53:31
money but it's really hard to kind of.
00:53:33
As I said like it's hard to figure out how to scale.
00:53:35
Vice has been such a disaster writing, the it's complicated.
00:53:38
I mean, they've clearly, you know, they actually own their
00:53:39
own have six to seven hundred million in Revenue which that's
00:53:43
without doing a, you know, a ton of Acquisitions like, BuzzFeed
00:53:45
has to do their revenue comes from lightly different avenues
00:53:49
like affiliate because they own, you know, a cable network.
00:53:53
But the funny thing about Vice to Me, Maybe funny isn't the
00:53:56
right word is that, you know, they raise money from tpg.
00:53:59
So there's, you know, you want to talk about like you can raise
00:54:01
the money. It's like, well there's a huge
00:54:03
amount of caveats that you get raise money from a tpg and all
00:54:06
the terms that they put in which is really come back to bite them
00:54:09
now. I mean, there are cases from
00:54:11
slicing tbg back in the game with Puck didn't Puck raise
00:54:13
money from that, we do we know that yet they say, yeah, GPI is
00:54:17
the, is the back. Sure of it but you know how much
00:54:20
money have they floated to public maybe like less than 100
00:54:23
million like, you know, with with Vice they were, you know,
00:54:26
meeting valuations that like four and a half billion.
00:54:29
I mean it was it was I'm saying it e and and they have all these
00:54:32
like, you know, this essentially debt.
00:54:35
I mean, it's Venture debt. Like they're gonna have to pay
00:54:37
this off and they're not profitable, so it's really messy
00:54:40
for them. It's hard.
00:54:41
Yeah, again, it's because it's go back to.
00:54:43
It's hard to scale, you know, branded media businesses.
00:54:46
But but I Would, by the way. Hey, Eric.
00:54:48
I would never, I never refer to companies as a disaster because
00:54:51
I now heart fake. Yeah, I know how hard it is to
00:54:54
build Rises and people work hard every day to try to make them
00:54:57
better, right? And so you know, sometimes
00:55:00
businesses don't go as well as you think, but I always you
00:55:02
know, I was try to keep it positive and be like sure o
00:55:06
entrepreneur and protein and yeah it's my job pointy.
00:55:10
I do - yeah. Yeah.
00:55:12
Yeah. Tweets though.
00:55:25
You know, we're just, we're just optimizing for anger on Twitter.
00:55:28
So, well, done there. I mean, do you think there are a
00:55:31
lot of, like fake views out there or just sort of the idea
00:55:34
that like, media companies that aren't in the subscription
00:55:36
company subscription business? But are in still sort of the
00:55:40
audience? Business.
00:55:42
Like how? Now that you're away from it.
00:55:44
Like, do you think they have a pretty clear?
00:55:46
I'd send some of what their actual like engagement in an
00:55:51
audience's? Or I don't know in your heart.
00:55:53
You have a view of how real the internet is.
00:55:56
Oh well. Like if Facebook, you know, who
00:56:00
should be the expert in this can just like change overnight?
00:56:03
Like the video, you know, how their views on like video
00:56:06
consumption anything? I don't know.
00:56:07
I'm just always paranoid that there are a lot of like Because
00:56:11
even the biggest most established Media Company, some
00:56:14
of their practices around views. I find super questionable.
00:56:19
It's complete bullshit, right? So a ton of ore shipments of the
00:56:22
audience size is? Yeah I know I yes there's a lot
00:56:26
of crap that goes into whenever I see first of all if somebody
00:56:30
comes in with a slide and show me how big their their
00:56:32
audiences, I just I never really I don't even look at it right,
00:56:36
show me how many email addresses you have and she'll be like time
00:56:40
on site like jelly. The engagement metrics and
00:56:44
that's how I'll I can sort of tell you how, you know, how real
00:56:48
the audience is. Yeah, that's where the momentum
00:56:50
is with the media. Now, like I work at, you know,
00:56:52
Insider now which as, you know, for the longest time was the
00:56:55
traffic website. You know, they were all about
00:56:57
telling people how much, you know, page views, different
00:57:00
articles had, and in the last few years, have switched over to
00:57:02
subscription so they could prove actual value and have one
00:57:06
stainable Revenue so that's, that's where yeah, I mean, yeah,
00:57:09
I know, like, people have been that's why the New York, Tesla
00:57:11
subscription dozens, right? So yeah.
00:57:13
If you could build a subscriber base and serve them.
00:57:15
Well, that's the best way of. I mean, I was really the only
00:57:19
way I guess truly can build a Dependable lie business because
00:57:21
otherwise you depend you are really and on Google's, when I
00:57:24
Facebook and and you just, you know, worked for those clicks.
00:57:29
Yeah. Right.
00:57:30
All right, son. Well, thanks so much for doing
00:57:32
this. And this has been very, like I
00:57:33
said, very personally fulfilling to me.
00:57:35
I feel like I've been able to go full circle from from working
00:57:39
for you. I'm so glad you are ordering.
00:57:41
You will, I was at the LA Business Journal to.
00:57:43
Now, speaking to you, not as an equal, but as someone who can
00:57:47
maybe speak the same language? Yeah, no.
00:57:49
I well I think it was cathartic for me, too, so I enjoyed it
00:57:53
great. It's always good to talk about
00:57:55
demand. And by the way, I apologize to
00:57:57
anyone out there who took my advice on converting records to
00:57:59
CDs and play their phonograph directly to their computer.
00:58:02
Apparently, you can't do that. Yeah.
00:58:04
And there was a day by the way that I think you guys Adam and
00:58:07
announced that you were getting rid of low quality content just
00:58:10
in one Fell Swoop. Up the leading like 100
00:58:13
articles or something. I think all of my work that I
00:58:15
spent during the summer, 2009 is gone.
00:58:18
There you go. Yeah, with washed away in that
00:58:20
rightfully so, yeah. So well, when I also read
00:58:23
underweight way back, so no one will ever find those articles.
00:58:26
Okay, there we go. That's right.
00:58:27
Yeah, that, well, we'll have to. All right, let's get trivia that
00:58:30
away. Sean, thanks so much for
00:58:30
joining. Thank you so much.
00:58:32
Thanks, guys. Goodbye, goodbye.
00:58:46
Goodbye, goodbye, goodbye, goodbye.
00:58:49
Goodbye.