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Business Insider comes clean about its business model

More hand-wringing is devoted to the future of news than just about any other problem in the world – including real ones. Business Insider’s Henry Blodget tries a bold and potentially dangerous experiment: he comes clean about the model behind his business.

MOST PRIVATE COMPANIES zealously protect details about financial and operating performance, refusing to release so much as a revenue number.

The logic for this secrecy varies. Sometimes, the information is said to be “competitive.” Sometimes it’s “confidential.”  Sometimes it’s just, “We’re private, so we don’t have to disclose that sort of stuff.”

Well, we’re a private company, and we’ve never disclosed any of that stuff, either. But I’m honestly not sure why.

So we’re going to try an experiment. We’re going to disclose that stuff. Then we’re going to see if something horrible happens to us.

If it does, we’ll probably never release the information again. If it doesn’t, maybe we’ll still never release the information again–because, you know, it’s “confidential” and “competitive” and “we’re private, so we don’t have to disclose that stuff.”

But, in any event, here goes.

Actually, before we release the info, let me add that we do have another motive here.

We’re a private company in an industry that is the subject of a never-ending stream of daily prognosticating, hypothesizing and bloviating. And some of the bloviators are often, well, uninformed.

What’s this industry?

Digital journalism.

Aka, “the future of news.”

The future of news is bright

For the past five years, as traditional news businesses have come under pressure, more hand-wringing has been devoted to the future of news than just about any other problem in the world–including problems that are actually problems. This, presumably, is because the folks who write about the world’s problems often work in the news business. And when the ship you’re on is sinking, it’s understandable why you might consider this a bigger problem than folks sailing happily along on other ships might consider it to be.

Anyway, we’re happy to tell you that the future of news is bright. And not just because companies like Bloomberg LLC, FOX News, CNNReuters, Dow Jones, and many other traditional news organizations are absolutely coining money right now (and will continue to coin it long after a handful of over-indebted newspaper companies go bust.)

The future of news is also bright because some new digital news businesses are finally becoming real.

Not all of them, of course.  (There’s always a ton of carnage at the birth of an industry).

And not wildly profitably, of course.  (We can only marvel at FOX News’ $700 million of annual operating profit.)

But real.

There’s the New York Times digital business, for example, which would be a healthy, growing ~$150 million business even if the NYT’s print paper had to be shut down tomorrow (it won’t). A $150 million digital business won’t support the ~$200 million that the print NYT spends on its newsroom, but it would support, say, a $60 million newsroom. And that’s a plenty big newsroom.

And then there’s Huffington Post, which was a $30 million business last year and should be $50+ million business this year (if AOL doesn’t blow it). You can huff all you want about how Huffington Post content isn’t as good as New York Times content, but there are already more than 25 million Huffington Post readers who don’t seem to care much about that (if they even agree).  And with an additional $20+ million of revenue to play with this year, Huffpo will likely hire a lot more New York Times staffers to go with the ones it has already got.  Huffpo, in other words, will likely keep getting better. And, eventually, as has happened with other “disruptive” business models like Huffpo’s, it may get enough better that mainstream New York Times readers decide that it’s “good enough” and make the switch.

And then there’s Gawker Media, which is a nicely profitable $25+ million business that proprietor Nick Denton thinks will be $100+ million business someday.  (We agree.)

And then, for example, there’s us.

The Top Line

Not surprisingly, in the company above, Business Insider is the puniest of the lot: We only did only $5 million of revenue last year ($4.8 million, to be precise, of which most came from advertising). And, yes, $5 million of revenue is pretty puny in general. It’s less than a single big network news anchor gets paid in a single year, for example.

But $5 million of revenue is a lot more revenue than we did three years ago ($39,495). And we’re a few years younger than those other digital guys mentioned above. And we’re on a similar trajectory.

Even though we’re disclosing all this stuff, we’re not going to be dumb enough to make a projection. But please forgive us for believing that, if we keep working hard, and we keep getting better, we can eventually get to–and beyond–where Huffpo and Gawker are today (financially). And by then, I expect, Huffpo and Gawker will have moved on to vastly more impressive things.

Business Insider revenue
Image: Business Insider

The Bottom Line

And did I mention that we were also profitable last year?


Not WILDLY profitable, mind you. In fact, the sum total of our year's worth of effort would barely--just barely--buy us a MacBook Pro: We made $2,127 in 2010.

(That's $2,127. Not $2,127,000. Or $2,127,000,000. Sadly.).

But you know what?

Making $2,127 feels about 2,127 times as good as losing money. And it makes us confident that, if we keep working hard, and we keep getting better, we'll be able to build a successful business and a truly great product someday.

(We thought that when we started, of course, or we wouldn't have started. But thinking it and actually seeing it happen are two different things).

We didn't make that profit because we're a sweatshop, by the way.

Business Insider uniques
Image: Business Insider

We're proud of the fact that we work hard

We do work hard, and we're proud of the fact that we work hard, and we do occasionally shake our heads at what often appears to be a bizarre sense of entitlement in the traditional news industry. We work hard because we like working hard and because we have to work hard to keep our readers happy.  And after some amazing growth over the last couple of years, we now have the privilege of having nearly 8 million monthly readers to keep happy. So we're going to keep on working hard.But, thanks to our generous sponsors and partners, we are, at last, able to reward our hard work.

Our newsroom salaries for full-time employees, for example (which include bonuses and benefits) are now higher than at many companies in the traditional news industry. Because the digital news business is quite different from the traditional news business, we often promote from within, and we've had the huge pleasure of watching folks who joined us as interns grow up to take leadership positions. True, we can't yet toss around the $300,000-$500,000 a year per brand-name columnists the way Huffington Post and Daily Beast are now reportedly doing. But, in future years, if we keep doing what we think we can do, we should be able to pay our top people a lot more than we do today.

Making a difference

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(We also give our folks stock options, which helps make them feel and act like they own some of the place. Which they do.)

Now, before we move on, a quick note about our profitability: It's not going to continue, at least not for the next few quarters. We raised a bunch of money last summer, and we didn't raise it to have it sit in a bank and earn nothing and get taxed by the state of New York. So we're going to invest (lose) some of it. We've been trying to invest some of it since last summer, but our revenue has come in faster than we expected, so we haven't succeeeded. Now, however, we're in a seasonally weak quarter for revenue, and we're still growing our expenses. So we're finally investing!

Also, we're thrilled with the growth of our readership in the past six months, but we're not expecting the growth to continue at this pace. As you can see from the chart above, throughout our short history, our readership has often flatlined or dropped for months at a time, and we expect it will do so again. But we're grateful to every one of the nearly 8 million uniques who stopped by last month. And we're even more grateful to the hundreds of thousands of folks who stop by every day.

The Team

We have about 45 full-timers on our team now, of which about 25 work in the newsroom, 10 in engineering, and 10 in sales and management.  Our "product" is a combination of technology, editorial, production, and advertising, so the vast majority of the company is dedicated to producing what you see every day.  We also have a large group of excellent (paid) interns and freelancers, who help in every aspect of the business.

Two years ago, when we moved into our current office on 19th Street, we had about 15 people on the team (and we were worried that the lease might bury us). Now, we're bursting at the seams.

And that's why we're excited to announce that we'll soon be moving to our new World Headquarters a couple of blocks away!

Google offices
Google's office, not ours. But we can dream!

Image: Google

Yes, we're aware of the "New World Headquarters" curse, in which companies frequently to announce moves to spectacular new campuses on the very day in which they begin to go bust. Those of you who are rooting for us will therefore be relieved to know that our new World Headquarters is just another sublet. The concrete on the floor is also an acceptable color, so we don't have to dye it (saving $8 a square foot!). And after learning what it would cost to remove some partitions, we have decided we can live with them. Also, we're not getting a water slide. Also, if we didn't move, we'd have to make even more of our folks work in the hall. And although having more of our folks working in the hall might make the old-timers among us recall the early days of Business Insider, when our World Headquarters was an elevator loading dock, the rest of us share no such memories.

The future

A few months ago, at a conference, I finally had the pleasure of meeting Pete Cashmore, an entrepreneur/editor responsible building another successful digital media business, Mashable.   At the conference, Pete and I got to lamenting the fact that building media businesses takes so much longer than building technology businesses that both of our sites cover. Every week, it seems there's some hot new technology startup that has amassed a gajillion new users in the time it takes us to put up a couple of posts.

Since Pete started building Mashable, for example, Facebook has gone from 1 million users to 600 million users, Groupon has assembled 50 million subscribers who pay it $2+ billion a year, Zynga has built games that are used by 100 million people a month, and Twitter has gone from a pet project to a platform that supports 300 million subscribers worldwide.

Measured against that growth, our 8 million uniques and Mashable's ~12 million seem pretty lame.

So when Pete and I are asked, "Is the digital news business a great business?" we have to say no--at least not in the way that Facebook, Zynga, Groupon, and Twitter are great businesses.  But they're real businesses.

(And in other ways, of course, the digital news business is a GREAT business--in ways that no technology business will ever be.  And we and our teams can also take solace in the fact that Mashable and Business Insider are two of the fastest-growing media businesses in the world.)

So, in short, as Huffpo, Gawker, EngadgetTechCrunch, Mashable, Talking Points Memo, YahooGoogle, and many other digital news businesses are demonstrating these days, the digital media business is a real business.

It's a business that, like the other new news businesses built around every new medium since the beginning of time, is different from existing news businesses. It's different in what readers/users want. It's different in how news and information is conveyed. It's different in how stories are researched and told. It's different in how content is shared, packaged, discovered, and consumed. It's different in how companies succeed. And it's different in how money is made.

But it's a real business.

And it's here to stay.

And it's only going to get bigger and better.

And that's good news. Not just for digital news businesses, but for those who actually do worry what will happen when a handful of over-indebted newspaper companies go down the drain.

Henry Blodget is chief executive and editor-in-chief of Business Insider

Reproduced in full with the pemission of Business Insider >

About the author:

Jennifer O'Connell

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