More than most other entrepreneurs, BuzzFeed CEO Jonah Peretti has been the trendsetter of the past decade in digital media. Now, he is learning what it takes to build a sustainable media business.
Interviews with more than two dozen people involved in BuzzFeed provide an inside look at how the company founder preferred to study how people shared articles and videos in the internet age than concentrate on making money, sometimes frustrating employees and investors. People close to him say that focus reflected the cerebral personality of Mr. Peretti, who was far more interested in experimentation and big ideas than in short-term profits.
BuzzFeed’s failure to hit internal targets and subsequent layoffs have resulted in CEO Jonah Peretti focusing more on the business side of BuzzFeed. He says the company is looking at acquisitions and won’t need to raise money again.
Now, after BuzzFeed missed its revenue targets last year and laid off 100 of about 1,600 employees, Mr. Peretti has shifted course. After initially allowing key divisions like news to hire quickly with little oversight, he has tightened controls over hiring. He has introduced measures to track how ad campaigns perform, an important way of showing marketers how effective it is to advertise on the site. And he has embraced “programmatic” ads sold through automated auctions, after years of eschewing the ad format in favor of more customized ads that were harder to scale.
“The early days were very much about ‘grow as much as possible and get as big as possible’,” said Mr. Peretti in an interview with The Information at BuzzFeed’s New York headquarters. “Now the focus is about building a sustainable model.”
Mr. Peretti admits the company—last valued at $1.7 billion—could have shifted course faster, but he adds that it’s easy to say so in hindsight.
“We could have had programmatic sooner and we didn’t because we were a little too long in that early startup mindset,” he said. “And maybe we were a little ideological so that certain things spread across the company to make people think we were anti-banner-ad for religious reasons, rather than strategic.”
BuzzFeed Chairman Ken Lerer says the layoffs at the company—in areas like advertising and marketing in the U.S. and various parts of the business in the U.K.— had a big impact on Mr. Peretti’s thinking. “Until then, Jonah had been very proud of the fact that for a whole bunch of years he never had to lay anyone off,” Mr. Lerer said. “The layoffs affected him deeply, and I think it was a sort of an awakening and eye-opener for him.”
Mr. Peretti says BuzzFeed this year is on track for double-digit growth and it has no plans to raise money again. In fact, digital media acquisitions “could be a good path for BuzzFeed,” Mr. Peretti said. He declined to comment on which companies BuzzFeed is considering.
Mr. Peretti’s focus on experimentation reflects his innate fascination with technology, media and why certain things go viral, say people who know him. In 2005, he helped found Huffington Post, whose signature idea was signing up celebrities to write blog posts. In 2006, he started BuzzFeed to experiment with ways to get people to share content. In BuzzFeed’s early days, he was most in his element sitting with the editorial team joking around and riffing about why one post or the other went viral, several current and former employees said.
Ashley McCollum, a longtime employee who is now general manager of Tasty, BuzzFeed’s cooking channel, remembers everyone hovering around their laptops after one of the first big quizzes, “What City Should You Live In,” took off, getting 23 million views. “We all thought ‘Hey, this one happened to be a hit,’” she said. “But Jonah spent a lot of time dissecting why.”
This curiosity in what makes a piece of content go viral often transcended considerations of how best to make money from the content, say former employees. They cite how BuzzFeed dealt with its early videos that were designed to look like entertainment but were actually ads—so-called branded content, a key part of BuzzFeed’s advertising strategy.
In June 2014, the company released the “Dear Kitten” spot for Purina, featuring an older cat—voiced by video chief Ze Frank—giving advice to a kitten. The spot generated 10 million unique views in the first week. And it sparked a series of similar pieces for Purina.
While BuzzFeed got a lot of press coverage for the series, some former employees who were there at the time said the company didn’t put enough thought into how to make money from it.
“They were getting tens of millions of views but there was nothing built into the contracts to require that brands pay more if they hit certain metrics,” said a former employee.
Also, since BuzzFeed didn’t provide metrics to outsiders as to how this kind of ad contributed to a company’s sales, it had a difficult time winning over some advertisers, said two of the former employees. Mr. Peretti and Mr. Frank were more focused on understanding why one video would do well on Facebook or Pinterest, for example, the former employee said.
If nothing else, BuzzFeed could have done more to promote the spots to other advertisers, said Andy Wiedlin, BuzzFeed’s former chief revenue officer.
“I think we should have made that proof that brands could get TV-type reach if they created great content and suited it appropriately on Facebook,” he said.
But Mr. Peretti and Mr. Frank didn’t want to be an agency that just created splashy ads. They wanted BuzzFeed to be the company that brands tapped to create content that reached their audiences on the different platforms, Mr. Peretti said.
If anything, “‘Dear Kitten’ caused unrealistic expectations amongst brands,” he said. “I would go into meetings and brands would say ‘We want our Dear Kitten,’” he said. “It made people want to chase that viral hit, but it’s not a consistent way of doing marketing.”
Mr. Peretti gravitated toward product and editorial, rather than business. In the company’s early days, for instance, he sometimes suggested his own ideas for provocative posts for the entertainment side of BuzzFeed, said Summer Anne Burton, a six-year veteran of BuzzFeed who now oversees BuzzFeed Originals.
For example, she remembers a couple of times Mr. Peretti suggested lists aimed at minorities. For him it was a test to see what would draw different kinds of audiences, but Ms. Burton and others worried it would backfire. “It wasn’t offensive, but at the time we weren’t the most diverse company, so we thought it was too difficult to navigate.”
Mr. Peretti’s willingness to publish provocative and irreverent posts sometimes cost the company business, several former employees said. For example, Unilever’s brands stopped advertising on BuzzFeed after the company published a number of controversial postings about its brands, including “The Objectification of Women by Axe Continues Unabated in 2013,” insinuating that the company’s Axe Body Spray marketing campaign promoted rape culture. BuzzFeed News Editor-in-Chief Ben Smith took the post down, but Unilever stopped advertising in 2013.
The consumer products giant only started running ads again in 2016, according to two people familiar with the situation. (Mr. Smith’s removal of this and other posts prompted an internal investigation into situations where posts were removed after advertiser complaints. The investigation found that there were only three instances where posts were taken down over advertiser complaints.)
Unilever did not respond to requests for comment.
At the same time, BuzzFeed faced challenges because some advertisers were uncomfortable placing ads near irreverent content. Barry Lowenthal, a media buyer with Media Kitchen, said his clients were early to advertising on BuzzFeed, but he did have some brands, particularly in the financial services area, that didn’t want to run spots with BuzzFeed because of the irreverent tone of the editorial, he said.
As the company’s audience has grown, BuzzFeed has taken measures to make sure posts are factually correct and inoffensive—although it doesn’t ban writers from poking fun at brands that advertise, Mr. Peretti said.
“Today, lots of people see this, so we have a responsibility,” Mr. Peretti said. “This isn’t a bunch of people in Chinatown playing with the CMS [content management system],” referring to the company’s first offices in Chinatown, New York.
Mr. Peretti’s focus on experimentation and growth also meant that he paid less attention to whether different business units were sticking to their budgets. During 2014–2016, he allowed Mr. Frank and Mr. Smith to hire rapidly, going beyond the budget at times, former employees said. Mr. Peretti’s view was that the extra hiring was necessary for growth, they said.
But one former employee said BuzzFeed didn’t have processes in place to measure profitability. It wasn’t until 2016, for instance, that different business units were given profit and loss statements that allowed them to track how their costs related to the revenue they generated.
Mr. Peretti acknowledged that BuzzFeed avoided P&Ls for its various businesses so that people could experiment and grow. He said it’s hard to measure something when you don’t know what it is yet. “If you start with process and rigor, we never would have created Tasty or hit shows,” he said. “A lot of that stuff grew out of experimentation.”
The ballooning cost of the news division, in particular, prompted questions from at least one board member last year, according to two people familiar with the situation. Since being established in 2012, the newsroom has grown to 250 reporters and editors around the world.
As costs mounted, Mr. Peretti resisted following other digital news sites in charging for access through subscriptions. And he raised concerns that paywalls limited the public’s access to news.
Over the past 18 months, Mr. Smith and Mr. Peretti have started focusing more on making money from news, Mr. Smith said. Last month, for instance, BuzzFeed announced it would start asking readers for small donations at the bottom of articles. At the same time, it is considering adding some kind of subscription-based “membership programs,” Mr. Peretti said in the interview. He declined to elaborate on what those would look like.
Last summer, BuzzFeed News launched a morning show on Twitter called AM to DM, which is drawing 500,000 to 1.5 million viewers per episode. The company said the show makes money but declined to elaborate. It has launched a series on Netflix called “Follow This” and recently launched an interview show on Facebook Watch hosted by Audie Cornish from NPR’s All Things Considered.
This month, NBCU’s Oxygen network aired a five-part docuseries, “Unspeakable Crime: The Killing of Jessica Chambers,” that is based on an investigative piece by BuzzFeed News and was produced by Wilshire Studios and BuzzFeed Studios.
“The early days were very much about ‘grow as much as possible and get as big as possible’.”
In a sign of its increased focus on how it uses its resources, BuzzFeed News announced last week it was moving to a freelance model for podcasting, resulting in three layoffs. Mr. Peretti and Mr. Lerer are adamant that BuzzFeed News is an integral piece of the company’s business. Mr. Peretti said the unit was “on track” to be profitable, but declined to provide a timeline.
CEOs are often focused on big-picture trends, of course. But it helps when they have deputies who can run the business on a day-to-day basis. When it comes to operations, Mr. Peretti has had several lieutenants. From 2010 to 2014, Jon Steinberg, a former Google manager, ran the business operations and oversaw finance. The partnership worked well with Mr. Steinberg seen as the fast-moving sales guy building the business and Mr. Peretti, the visionary. However, Mr. Steinberg, who wanted to run his own company, left after Walt Disney offered to buy BuzzFeed and Mr. Peretti refused to sell, according to people familiar with the situation. Mr. Steinberg has since started his own digital media firm, Cheddar. He did not return requests for comment.
He was succeeded by Greg Coleman, a former Yahoo and AOL executive who himself left last year. Lee Brown, BuzzFeed’s chief revenue officer, took on the bulk of those responsibilities, BuzzFeed said.
Some former and current employees say other deputies may not have been as good a fit. For example, from 2012 to July of this year, BuzzFeed’s CFO was Mark Frackt, who had worked in finance at Sirius Satellite Radio and as CFO of social gaming firm Cellufun. He told Mr. Peretti that he didn’t have the right experience to be CFO if BuzzFeed planned to go public, as had been discussed as a possible option over the past couple of years, several current and former employees say.
However, Mr. Peretti had a lot of trust in Mr. Frackt and encouraged him to stay, until the two mutually decided last summer that he should pursue other opportunities.
“Mark and I were always very open about talking about those kinds of issues,” Mr. Peretti said, adding that the reason Mr. Frackt stayed on longer was to help the company navigate through all of its changes this year. Mr. Frackt didn’t return calls requesting comment.
The company is expected to announce a new CFO in October.
Similarly, Mr. Frank had a difficult time managing his video staff, which had expanded to more than 600 people through various reorganizations in recent years. In those revamps, he got oversight of BuzzFeed’s media brands, such as Tasty and Nifty, and what is now called BuzzFeed Originals, which encompassed everything posted on the BuzzFeed site such as quizzes and lists, current and former employees said.
“The organization just grew so fast, but there were no processes being put in a place or structure around it,” said one former employee. “It required someone to step back and say ‘Oh, this business is really capital intensive and maybe we should start looking at other revenue opportunities.’”
In January, Mr. Peretti announced Mr. Frank, who has created such hit shows at BuzzFeed as “The Try Guys,” and “Worth It,” would move to a newly created role of chief research and development officer.
Mr. Frank noted he built businesses that ended up making tens of millions of dollars. But he conceded that when the company’s focus shifted from innovation to setting up processes that were appropriate for a mature business, it was no longer the best fit for him.
“I think what Ze is focused on right now really plays to his strengths,” Mr. Peretti said. “He built something really huge and ran the thing he built.”
Mr. Peretti’s lack of focus on short-term profits became an issue as BuzzFeed was hit by the same market forces as many of its competitors. Advertisers are allocating more of their budgets to Google and Facebook at the expense of smaller digital media firms. BuzzFeed, like its peers, has had to find new sources of revenue.
Mr. Peretti’s big bet on creating custom videos for brands, which differentiated BuzzFeed from its competitors, proved expensive and hard to scale.
Meanwhile, relying on social media platforms to distribute BuzzFeed content has proved a losing bet, thanks to Facebook’s continuous changes to its algorithm. The number of views a BuzzFeed video would typically get on Facebook has shrunk to 1 million to 2 million from 4 million to 6 million in the heydey of 2016, according to data from video analytics firm Tubular Labs.
For years Facebook executives had told BuzzFeed that they would figure out a way to help publishers make money from having their content on the platform, according to a person familiar with the discussions. But BuzzFeed executives felt they never followed through. Mr. Peretti said that Facebook’s algorithm change late last year confirmed his belief Facebook wasn’t going to change.
“Toward the end of last year when I saw them sort of double down on this thing that they had tried five times, I was like, okay, they are just incapable of valuing content.” Mr. Peretti said. “We can’t really depend on Facebook.”
All these challenges came to a head late last year, when it became clear BuzzFeed was going to fall short of its revenue targets for the year. The company finished the year with about $300 million in revenue, 15 to 20% short of its internal targets.
Late last year, Mr. Peretti unveiled his “Nine Boxes” strategy in an employee memo outlining the areas the company was focusing on to increase revenue. They included ecommerce, programmatic ads and BuzzFeed News making TV shows for streaming services and TV networks. The goal of the memo was to provide clarity to employees about where they stood in the company’s strategy, one thing some employees had said was missing, Mr. Peretti said.
And with the clearer vision for the company has come a tighter management approach. Gone are the days when BuzzFeed executives ran their businesses without a sense of whether they were losing or making money. Weekly forecasting sessions have become routine in all of its areas of business.
Nowadays, Mr. Peretti spends more time focusing on data around the efficiency of his employees. The company has implemented processes to better track how much time people are spending on certain projects and how much it costs to produce certain types of content. Then they can compare that to how much audience and revenue those projects are generating, Mr. Peretti said.
“Being able to do that in a more universal way is something that we are making great progress on,” he said. “But that’s not something we could have done when we didn’t know what we were making for which platform.”
And while Mr. Peretti has maintained his sense of humor, he is more serious and focused on the bottom line.
“Just the other day we were joking about something and he turned to me deadpan and said ‘So how are you pacing,’” referring to her business’ revenue goals, recalls Ms. McCollum. “In general, the conversation today is more about revenue and costs.”
He holds weekly strategy meetings, which include revenue forecasting with each of his business leaders. While he is still brainstorming ideas, they are more focused on new businesses BuzzFeed could pursue. For example, he recently came up with the idea for a BuzzFeed news game show that will be on Facebook, “Outside Your Bubble.” Contestants would step outside their “bubble” and reach across the cultural divide to guess what their opponents are thinking.
Today, there are more formal processes around hiring and pay. “It feels more like a company,” said one executive at the company.
Mr. Peretti said he relented on his opposition to running banner ads sold in automated “programmatic” auctions on BuzzFeed’s site, as these ads became more common and he realized the company was leaving money on the table. “We were doing native advertising on all of these platforms, but we had all of these unmonetized page views on BuzzFeed,” he said. “So we said let’s not be ideological about it.”
Mr. Peretti has also green-lighted making shows for TV networks and movies for theatrical release. He had resisted doing so in the past because he believed the data and direct interaction BuzzFeed had with its online audience was more valuable than the money networks would pay to have BuzzFeed make shows for them. He is less concerned about losing the audience relationship now, as more programming goes to streaming services.
“Two years from now, I think digital media companies are going to be very important to driving streaming views,” he said. “So getting good at TV might be something that gets us back into data-rich streaming services.”
This kind of rethinking his beliefs, “or anchors," a concept he read about in a book by American Israeli psychologist Daniel Kahneman, is something Mr. Peretti thinks a lot about these days as he works to make sure that the company doesn’t just do things because it’s how it became successful.
“It’s about making sure you do things for strategic reasons and not religious ones,” Mr. Peretti said. “You have to always question yourself.”
—Tom Dotan contributed to this article