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Professor Felix Oberholzer-Gee prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as th e basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

F E L I X O B E R H O L Z E R - G E E

BuzzFeed—The Promise of Native Advertising

Advertising people love advertising, but everyone else hates advertising.1 Gerry Graf, former chief creative officer at Saatchi & Saatchi

You can trick people into clicking, but you can’t trick them into sharing. Melissa Rosenthal, director of Creative Services at BuzzFeed

Jonah Peretti, a 40-year-old entrepreneur, was staring at his monitor. People loved to share a humorous list titled “77 Facts That Sound Like Huge Lies, But Are Actually Completely True.” Published only five days ago, 785,000 individuals had viewed the list. More importantly, the post had also attracted 5.9 million “social views.” BuzzFeed, Peretti’s digital media venture, garnered these impressions when a person discovered the post on Facebook or Twitter. He clicked on the list. “If you put your finger in your ear and scratch, it sounds just like Pac-Man,” was the first fact on the list. “Maine is the closest U.S. state to Africa,” and “Hippo milk is pink” were others. What was it about this list that made people want to share it? Was it its humor (“Betty White is actually older than sliced bread”)? The random facts (“There are more fake flamingos in the world than real flamingos”)? Learning and discovery (“A strawberry isn’t a berry but a banana is”)?

Peretti had been thinking about how ideas spread on the Internet for more than a decade. It was a tough nut to crack. BuzzFeed, the company that Peretti founded in 2006, was built on the premise that it was possible to reliably produce content that would go viral. Every day, the company’s 200 reporters and editors composed hundreds of lists, news stories ranging from politics to business and entertainment, quizzes, and videos, hoping readers would share them. More often than not, they failed. But when they were successful, the numbers were impressive. “21 Pictures That Will Restore Your Faith in Humanity” reached an audience of more than 10 million. BuzzFeed’s content – humorous, clever, and often irreverent – had dramatically gained in popularity. In 2013 alone, traffic tripled.

BuzzFeed’s popularity was not lost on advertisers. In close collaboration with the company, they created native advertising campaigns for the site. Native ads were similar in look and feel to editorial content. Amazon, for example, posted a quiz titled “What Childhood Book Are You?” It asked readers a series of multiple-choice questions (“What is your favorite food,” “Pick your superpower”), returning at the end of the quiz the title of a children’s book that matched the reader’s personality. Many brands created their own listicles. Pepsi had “14 Clever Ideas You Wish You Had Thought Of

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First”; GE posted “Famous Geeks Hanging Out In The 1900s”; and Intel featured “10 Of The Coolest Pieces Of Tech To Ever Debut At The International Consumer Electronics Show”.

Peretti was pleased with advertisers’ growing interest in collaborating with BuzzFeed. At the same time, he observed how native advertising opportunities had exploded in the past few years. By 2014, virtually every publisher offered them. Similarly, clever lists and funny videos had become ubiquitous. In a sea of seemingly similar web content, did BuzzFeed have a sustainable competitive advantage? Had he solved the mystery of how ideas spread?

Viral Content

Peretti experienced the rush of virality first-hand as a graduate student at MIT. When Nike offered a new customizable sneaker, he ordered a pair with the word “sweatshop” stenciled onto

them. Nike canceled his order, explaining that his design included “inappropriate slang.”2 Peretti’s witty exchange with the Nike customer service representative, which he shared with some of his friends, went viral. A few weeks later, he debated a Nike spokesperson about its labor practices on television. Peretti was hooked: “I like to think about human psychology, how and why people share ideas and content.”

In his first job as director of research at the New York Eyebeam Art and Technology Center, a nonprofit organization dedicated to the arts and new media, Peretti set out to produce “contagious media.” In one project, he created a telephone hotline that played a pre-recorded rejection message.

The idea was for women to give out the number to unwanted suitors.3 The service spread rapidly as women passed on the number. In his web experiments, Peretti began using ForewordTrack, a program that allowed him to record how information spread on the web. In collaboration with Duncan Watts, then a faculty member at Columbia University and a current scientific advisor to BuzzFeed, ForwardTrack informed what Peretti and Watts came to call “big-seed marketing”. Peretti explained:

The standard model of virality comes from epidemiology. It all starts with patient zero. A virus continues to spread as long as its reproduction rate is greater than one. But on the Internet, there is no one patient zero. Instead, messages spread from many small groups that form at the same time. On Facebook the median size of such a group is only ten friends.

This insight had big implications for publishers and marketers. While nature depended on high reproduction rates, companies were able to directly influence the number of seeds. Writing in the Harvard Business Review, Duncan and Peretti explained:

None of the campaigns that used ForwardTrack succeeded in tipping―that is, consistently exhibiting a reproduction rate greater than 1―but by starting out with large mailing lists, all the campaigns reached an impressive number of additional people. Procter & Gamble’s campaign to promote Tide Coldwater registered a low reproduction rate of 0.041 but was initiated with such a large seed―900,000―that it still reached some 40,000 more individuals

than it would have without the forwarding capability.4

One advantage of the big-seed approach was that publishers did not need to identify influencers and other special individuals. “Editors can dispense with the probably fruitless exercise of predicting how, or through whom, contagious ideas will spread,” said Peretti.

Looking to apply his insights, he joined the founding team of the Huffington Post, an online news

aggregator and blog, in 2005.5 Peretti helped build the technology infrastructure for the organization

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BuzzFeed—The Promise of Native Advertising 714-512

and developed its strategy to drive user traffic. HuffPo, as it was commonly called, pioneered many of the features and tactics that would eventually characterize BuzzFeed. These included a close collaboration of the editorial and technology teams, and the continuous updating of content. HuffPo editors had access to a dashboard that analyzed patterns of reader interest in real time. Paul Barry, HuffPo’s chief technology officer, noted:

The editors see virality stats for every story, updated continuously, along with search engine analytics. An editor might see surprisingly good results from search keywords. She can re-edit the post to emphasize that keyword, driving even more traffic from search engines. All the editors can see each other’s dashboards. They can figure out what their peers did to drive

traffic and copy those tactics.6

While HuffPo’s mode of content production was innovative, the company relied on the sale of traditional banner ads to monetize its traffic. Co-founder and editor-in-chief Arianna Huffington wanted to build a serious journalistic enterprise, and she was not keen on taking commercial risks:

From the start, the company has been a hybrid, reflecting the best of the old and the new. For me, the best of the old meets traditional journalistic values such as accuracy and fairness. The best of the new includes transparency, interactivity, and immediacy. 7

Peretti, however, was eager to try out new advertising models.

Building Buzz

In 2006, Peretti started BuzzFeed, with Eyebeam founder John Johnson, as a side project. At first, they focused on web content that showed early signs of virality. To identify the most promising posts, Peretti began to build a network of websites that allowed him to monitor their traffic. When a story appeared to be widely shared, BuzzFeed jumped on the bandwagon and re-posted it on its own site, thus steadily building traffic. By 2014, this network consisted of over 200 sites that reached 355 million users.

To increase the availability of viral content, BuzzFeed began to build its own team of editors and reporters. Their task was to create stories that people loved to share. Light-hearted and humorous pieces proved especially popular. BuzzFeed posts tended to be rich in visuals―photos, gifs, and, increasingly, videos―and many of them came in the form of lists. There were dozens of posts about celebrities and animals. Stories about cats in particular turned out to be eminently shareable.

BuzzFeed organized its content in sections, many of which were familiar from traditional newspapers―a home page that featured the most relevant stories along with sections dedicated to news (World, Politics, Business, etc.), entertainment (Celeb, Music, Rewind, etc.), life (Animals, Food, DIY, etc.), quizzes and videos. Each section consisted of a single page that included more than one hundred thumbnails and a headline that described the content (see Exhibit 1). Proprietary software continuously moved around the pieces of content in each section, reflecting levels and trends in popularity and social lift. Readers were able to “react” to stories, classifying them as LOL, OMG, WTF, FAIL, TRASHY. “Best of” sections collected the stories that had earned the largest number of a specific designation. The “Best of LOL” page, for instance, made available more than 200 stories that readers deemed particularly funny.

While a growing number of readers visited the site directly, the majority (about 75%) found its stories on social networks such as Facebook, Twitter, a microblogging service, and Pinterest, a site

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that allowed users to store and share pictures found on the web (see Exhibit 2&3).a About 50% of traffic originated from mobile devices. Peretti said:

Because our audience shares content on social networks, BuzzFeed editors have to understand how social media is used. For example, on Twitter, things happen very quickly. If Twitter is the one-hour network, Facebook is one day, and Pinterest is one week. Slow content―a recipe, for example―will work best on Pinterest. Content that is fast and newsy will do better on Twitter. And Facebook is so big that it gets some of all of these markets. But content that does well on Pinterest never gets tweeted, and posts that do well on Twitter find no audience on Pinterest.

As the major social networks battled for users, the patterns of sharing evolved continuously. Peretti explained:

Today, Facebook wants more news in their News Feed, trying to steal some of Twitter’s audience. And Twitter sends emails, saying ‘Here are the best tweets of the last week’, which is really getting into Facebook’s territory. In effect, Twitter adds slower content and Facebook gets faster. The speed of social networks changes all the time. A few years ago, we published Thanksgiving-related stories for Pinterest three or four weeks before the holiday. Now we publish it a week before.

BuzzFeed found that even the smallest changes to its design could have discernible effects. Peretti remarked:

We will not show a Twitter button if someone comes to a piece of content from Pinterest because we know less than 10% of them will tweet that post. So we removed the Twitter button altogether and utilized that space to increase the size of the Pinterest button, which increased Pinterest share rates tenfold.

Learning what worked remained part art, part science. “People learn a lot through sharing inside the organization. There is continuous feedback through the dashboards that show which pieces of content go viral,” said Peretti.

Getting Serious

In the publishing world, few took the fledgling BuzzFeed serious. Peretti recalled:

When people first started noticing us, their response was similar to the way Japanese cars were perceived when they were first introduced to the U.S. People made fun of them, and they laughed, “Look at these crappy cars.” But a lot of young people said, “Awesome, I can own a car for the first time, and it gets me around.” And then, the cars got to be better and better, and now people generally consider Japanese cars to be higher quality than American cars.

In a surprise move, Peretti hired Ben Smith, a star blogger at the Washington, D.C., based site Politico, as BuzzFeed’s editor-in-chief in 2011. Smith had long been known for his ability to beat the competition to breaking news, and he did not disappoint. On only his fourth day at BuzzFeed, he was first to report that Senator John McCain would endorse his former rival Mitt Romney, a U.S. presidential candidate. A seemingly never-ending series of scooplets by Smith and his team of

a In 2014, Facebook had 330 million monthly active users in the United States. Twitter’s audience in the U.S. was 60 million, and Pinterest had 40 million users.

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BuzzFeed—The Promise of Native Advertising 714-512

political reporters elevated BuzzFeed’s reputation in political insider circles. Peretti commented: “We saw the inflection that the business took when we brought on Ben Smith. He started the political reporting, and we were a major force in the 2012 presidential election cycle. That was transformative to the business.”

Building on their success with hard news, Peretti and Smith shared the ambition to build a team of investigative reporters. Smith said:

I think we need to learn to do bigger stories. We’re great at getting incremental scoops and advancing stories, but we don’t really have the muscles of a paper like the New York Times to totally take over and drive the whole conversation, which requires a time commitment, among other things, and letting reporters work on stories and nothing else.

At the same time, Peretti and Smith had no intention of cutting back on light-hearted content. Smith said: “People love BuzzFeed’s lists and cute animals. And it’s actually harder to make the definitive cat list than it is to do most journalism. Many people are trying it, there’s much more competition.”

The hierarchy at BuzzFeed differed markedly from the social order at more traditional news outlets where journalists who contributed long-form pieces and hard news were most admired. Peretti explained:

We celebrate different approaches, different traditions of making entertaining content. We work hard to avoid having people respect only hard news. There’s hierarchy at BuzzFeed, but it exists in the sense that people who are making super entertaining content and having huge hits, people aspire to that. It’s not that no one is competitive or no one has professional pride in wanting to do better―it’s just clear that there are multiple games to play.

Smith added:

We organize content production around the social conversations on the web. If you are a political reporter, Twitter is your front page. You know that the world revolves around Twitter. No one needs to tell you that. For fun verticals, the front page tends to be Facebook. For food it’s really more Pinterest. We think about content as being produced for these different front pages, as part of the social conversation.

In general, BuzzFeed found it more difficult to achieve significant social lift with hard news

compared to funny lists.8 Jon Steinberg, president and chief operating officer, clicked on a story to call information from the company’s content management system (CMS): “This piece of content right here does well. It’s clicking 96% higher than a story usually does in this position at this time of day. But, even more important, it has a viral lift of 1.2.” Pointing to a different story, he continued:

This one here is performing 86% worse than something usually does in this position, and it’s only got a 1.1 viral lift. We may yank this proactively off the front page. Every piece of content has to compete. But it’s not all the same pool―a piece of politics, we don’t expect that to have the view rate that a piece of entertainment does. We don’t expect a politics story to compete with a cat story.

Editorial content on BuzzFeed’s home page often achieved significant social lift. In 2014, the mean lift for editorial posts was 1.6, and the 90% percentile attained a lift of 2.0. As BuzzFeed honed its editorial strategy, its audience grew steadily, from about 250,000 unique monthly visitors in early

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714-512 BuzzFeed—The Promise of Native Advertising

2007 to more than 150 million by 2014 (see Exhibit 4). Predictably, investors and advertisers took note. In a fourth round of venture funding, the company raised $19.3m in 2013, bringing the total to $46 million. New Enterprise Associates, Lerer Ventures, Hearst and Softbank were among the

investors.9 While the company did not release detailed financial information, it confirmed that it was profitable in 2013 and 2014. Observers speculated that BuzzFeed’s sales reached $60m in 2013 and

were expected to double in 2014.10

Online Advertising

Marketers had long recognized the power of word-of-mouth, David Ogilvy’s “manna from heaven.” The phenomenon became even more important with the rise of social media and e- commerce because Internet-savvy consumers relied less on information provided by companies. Instead, they conducted their own research, much of it online. The classic marketing funnel, which understood consumer decisions to depend on their initial awareness and familiarity with brands, had broken open. When buying a car, for instance, the average consumer learned, through his own research, about two additional brands that were not in the initial consideration set. Almost one third

of consumers ended up buying one of these recently discovered brands (see Exhibit 5).11

In view of a more open purchasing process, companies were eager to join the online conversation. However, early attempts to engage consumers online were fraught with difficulty. Few responded favorably to banner ads, the online equivalent to print advertising. The click-through-rate on Facebook banners, for example, hovered around 0.02%, yielding CPMs (the cost-per-thousand

impressions) of only 10 cents. Publishers were left with a trickle of revenue.12 Companies’ interest in novel forms of advertising grew stronger year by year.

Native Advertising at BuzzFeed

Peretti and Steinberg, a former executive at Google, easily agreed not to join the mad race to sell banner ads. Peretti recalled:

At HuffPo I was perplexed that all our tech and product work only made us money indirectly. We would build amazing tools for editors, they would use them to generate traffic, but then we would just run banners against that traffic. It seemed like there must be a better way.

BuzzFeed allowed brands to create sponsored content, stories and lists that imitated the format and tone of the site. For example, Mini USA published a list titled “25 Places That Look Not Normal, But Are Actually Real.” The post promised, “Prepare to have your mind blown. We tip our hats to those who see things differently.” Following the 25th –ranked item on the list was Mini’s slogan: “We tip our hats to those who see things differently. MINI. NOT NORMAL.” The slogan was followed by a video that advertised the Mini.

As was typical for native advertising, sponsored stories matched the format of the editorial content. Each post was represented by a thumbnail, a headline, and a designation that read “presented by …,” which indicated the name of the brand. Sponsored content had long been a feature of the media industry. Advertorials―the word dated back to the 1940s but the practice of publishing advertisements in the form of editorial content was much older still―appeared throughout the history of advertising-financed print, radio, and television. Even prominent outlets were no strangers to sponsored content. In the 1960s, the New York Times offered op-ed space to paid advertisers. The New Yorker allowed brands to use its iconic style to promote products (see Exhibit 6).13

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BuzzFeed—The Promise of Native Advertising 714-512

In 2013, BuzzFeed ran about 50 campaigns each month at an average price of roughly $100,000. Prominent clients included GE, Virgin Mobile, Pepsi, Google, Geico, and Intel. Over one half of the top U.S. brands advertised on BuzzFeed. Some categories, including health and beauty as well as fashion, were slower to convert to native advertising.

Creating and Selling Native Advertising

BuzzFeed’s creative team worked closely with a brand’s agency to co-create sponsored content. Melissa Rosenthal, Director of Creative Services, who started at BuzzFeed as an intern in editorial and now managed a team of over 60 creative specialists, reflected on how her team developed sharable content:

It’s not an exact science, but we are often working from a small number of buckets. Is the content humorous? Does it have some sort of shock factor? Are people going to share it because it makes them look smart? Is it telling them something they don’t already know? And perhaps most important: Is there real insight? Is there truth behind it?

In Rosenthal’s experience, aligning brand aspirations and shareabililty was often a balancing act:

You can trick people into clicking, but you can’t trick them into sharing. Everything that performs well is based on a real insight, something that’s actually true. A brand might come to us and say, “We want to win back women.” But I am thinking, women were never your target. Why are you trying to win them back? The insight isn’t there, and there is no truth behind it. Are people going to buy into that? Will they share it? No, they won’t.

BuzzFeed often took new clients through a series of exercises that helped them understand its approach. Rosenthal noted:

Sometimes they want too much branding. But people see through that. We’re trying to create enjoyable pieces of content that will relate back to the brand’s aspirations. It’s not about what you’re selling. It’s why you’re selling it. It’s not that there is a new Starbucks Frappuccino in town. When you’re going to Starbucks, it’s an experience. You’re paying $5, and sure, the drink is delicious, but you could go across the street and buy that same drink for $2. Why are you going to Starbucks? Most of our new clients eventually connect to our approach. And once they connect, they trust us.

For each program, the creative team produced multiple stories. BuzzFeed’s CMS identified the best content and headlines and displayed them with greater frequency, raising performance over time. “Our plans range from 3 to 20 posts per month. The algorithm feeds the winners and starves the losers, so we always need multiple pieces of content, and we’re constantly testing variations of headlines,” said Rosenthal. Steinberg added: “There is a lot of creativity, but once the posts are published the system takes over. We take control during takeoff, but while the thing is in the air, it is on autopilot, steered by an algorithm.”

Scaling BuzzFeed’s approach appeared challenging. Rob Norman, chief digital officer of GroupM, a media investment management group, said: “Is BuzzFeed a significant, sustainable business? Yes. But is BuzzFeed the shape of things to come? I don’t think so. Designing custom ads is a labor- intensive business, and it is difficult to do on a mass-produced scale.”14 Steinberg said: “We think a lot about how we can create additional scalability. Having this creative team is such an integral part to making the content successful. But we would like to move towards a self-serve platform over time.

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714-512 BuzzFeed—The Promise of Native Advertising

At some point, the creative agencies and the market will hopefully be ready to take on more of the creative work.”

Peretti added: “We have to prepare for a world where the agencies become increasingly familiar with the social web. But we also have the option to scale the creative process by hiring more people internally. This latter approach can achieve operating leverage by making a person at BuzzFeed ten times as productive as a peer at a competitor because of our technology, brand and reach.”

Native ads on BuzzFeed achieved CTRs between 1-3%. (Exhibit 7 provides comparable data for

Facebook). The social lift that sponsored content achieved varied widely.b A typical program attained a lift of 1.3, the 90% percentile reached 1.8. “There is no free lunch,” Watts liked to say, “but maybe you can have a cheap snack. You can make money with that. If BuzzFeed is predicting 20% of the variance in social lift and the competition is predicting 10%, they’re kicking ass.”15 CPMs on the site averaged $9, ranging from $5 for a small thumbnail without a headline to $18 for a premium placement on BuzzFeed’s home page.

BuzzFeed ran experiments to study how native advertising influenced brand perceptions (see Exhibit 8). Ron Farris, a former head of marketing at Virgin Mobile who closely collaborated with BuzzFeed, saw several avenues for native advertising to benefit brands:

Sponsored content complements typical display advertising, which now has the job of retargeting the user with promotional messaging several sites after the prospect enjoyed the branded engagement. At Virgin, our subsequent click-throughs from retargeted banner ads following native advertising campaigns are considerably higher. And if we append a targeted

flash sale to the campaign, we’ll often see lifts of 95% in phone sales.16

Successful sponsored content often resembled the voice and tone of editorial stories. “100 incredible views out of airplane windows,” a blockbuster post published in 2011, was viewed by millions. The following year, JetBlue ran the successful “The 50 most beautiful shots taken out of airplane windows.” In a similar sequence, “10 unbelievably beautiful places you’ve probably never heard of,” a sponsored story for BBC America, was followed by similar posts for Pepsi Next (“10 beautiful places in the world that actually exist”), and Campbell’s Soup (“10 places that are almost too beautiful to be real”). Finally, an editorial list titled “28 incredibly beautiful places you won’t believe actually exist” followed the sponsored stories.17

Program Management

A typical BuzzFeed client might purchase a 30-day media plan with 10 million ad impressions delivered on BuzzFeed.com and across the social web. An account manager assigned to each program was responsible for delivering the target number of impressions. Most sponsored content―about 80% for an average program―ran on the company’s site, but BuzzFeed also placed ads on Facebook and other social networks on behalf of its clients.

BuzzFeed’s own ad network―a small group of publishers with niche sites and loyal audiences―offered additional opportunities to place links to sponsored stories. “The content and tone doesn’t always match exactly,” said John Shankman, publisher of the Awl network of sites that ran links to BuzzFeed’s sponsored content. “Some of our readers might not like the native ads, but

b Social lift was the ratio of all impressions (paid and earned media) to paid media. A reader who viewed a sponsored story on BuzzFeed.com fell in the category of paid media. If she then e-mailed the story to a friend, the advertiser benefited from earned media.

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BuzzFeed—The Promise of Native Advertising 714-512

they’re certainly no worse than some of the banner ads that come over the exchanges.”18 Steinberg added: “We always wanted the business not to be limited by the scale of our site.” BuzzFeed paid a minimum CPM of $3 to publishers who posted the company’s sponsored links. In June 2014, however, BuzzFeed ended its ad network.

BuzzFeed used DoubleClick, an ad serving platform provided by Google, to deliver its inventory, making sure the right ad was served at the right time and avoiding overbooking. But account managers, supported by ad operations and client analysts, continued to shape each program in order to optimize CTRs and viral lift. They were aided in their efforts by a social outreach team that identified additional opportunities to encourage sharing. For example, in support of a campaign for a post about music, the social outreach team might approach the musicians to see if they were willing to tweet or share the sponsored content on Facebook.

BuzzFeed utilized remnant ad space on its own site for the most shared content from its partner publishers. Eric Harris, executive vice president of business operations, said: “Due to traffic fluctuations and spikes, we still serve some remnant even when we are close to capacity. And it’s important that what we serve doesn’t detract from the user experience.”

Talent

BuzzFeed drew much of its talent from the media and technology industries. But the company also hired independent talent. Peretti explained:

We find freaks on the Internet who are creating viral content on their own, who are successful, and we ask them to join the company. We also see people trying to copy us at other publications. Usually they are doing a terrible job, but sometimes they’re good. And we say ‘Wouldn’t you rather work at this original place?’

Smith added: “I remember hiring Rosie Gray, now a star reporter for us on foreign policy. She had covered ‘Occupy Wall Street’ for the Village Voice. We met in a Starbucks, and Rosie, wearing her nose ring, was not dressed for a job interview. Before I started to sit down she said: ‘If this is one of these news aggregation jobs, I am not interested; don’t buy me coffee. I want to be a reporter.’ I said, ‘Great! You are hired.’” Like Smith, Rosenthal, whose team of creatives had not experienced any departures, paid close attention to the ideals of job applicants: “I look for individuals who understand the scope of what we’re doing, who think similarly about creating things for a shared culture. And I care about honesty. I feel like we are entering an age of brand honesty, and the team needs to reflect that.”

Entry-level journalists at BuzzFeed earned annual salaries comparable to compensation at other publishers in the New York area, about $40,000 per year. Entry-level salaries for creatives were more variable in the industry, though were generally higher than those of their editorial counterparts.

Global Buzz

BuzzFeed opened its offices in the U.K. in early 2013. By the end of the year, it had assembled a team of more than 30. Two thirds were editorial staff, but the U.K. office also had small sales and creative teams. Six months later, the company launched Portuguese, Spanish and French editions (see Exhibit 9). The company collaborated with Duolingo, a language-learning platform on which foreign students translated web content from English into their native languages to practice their language skills. Duolingo’s ten million users provided quick translations of BuzzFeed’s posts for a modest fee.

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An algorithm combined the various translations that were then edited by native language speakers. By mid-2014, the company had also hired seven foreign-language writers and editors to publish original content in Portuguese, Spanish and French..

BuzzFeed had rejected multiple offers to partner with foreign publishers. Steinberg explained:

We didn’t know what foreign publishers would do for us. We figured we wanted to use our own publishing system because our CMS has all of these advantages. And we knew we ultimately wanted great writers and reporters. If we partnered, what would the partnering actually be? It really is like having an Apple store as opposed to selling Apple products.

Peretti added

We want to internationalize like a tech company and organically extend our technology to other countries. But in these new markets, we follow an entrepreneurial model with small teams that act like a startup to build new editions of BuzzFeed. A big local partner isn’t in line with that entrepreneurial approach.

BuzzFeed hired Luke Lewis, who had written for the Guardian and The Independent, as its UK editor. Will Hayward, previously with The Wall Street Journal in Europe, was tasked to lead the company’s sales effort. Steinberg was pleased with the integration of the UK team:

Luke had that BuzzFeed sentiment and was doing blogging there that resonated. So we brought him in as UK editor. And we sent four employees from the business team to London. They are building the system. The culture is consistent, the sense of product is consistent, and the writing style is informed by all of the editors over here. I don’t think we could have done that if we just slapped BuzzFeed on somebody else’s site. It would be much easier. I just don’t think it would work.

Competitive and Regulatory Concerns

By 2014, virtually every online publisher offered native advertising opportunities, and Peretti saw competitive pressures rise. Forbes, for instance, predicted that it would earn 30% of its ad revenue

from sponsored content.19 Industrywide, marketers expected to spend more than $3 billion on native ads. By 2017, the category was forecast to attract more than $5 billion (see Exhibit 10).c With the rise of native ad networks, BuzzFeed also faced a new type of competitor. Similar to traditional ad exchanges, these networks promised to place a brand’s sponsored content on a large number of sites. Sharethrough, a San Francisco based startup, had built the most prominent network that served more

than 200 million unique visitors each month.20 Peretti remained skeptical: “What does it even mean to have a native ad network? Native to every single site that you partner with? Just because you’re taking content and sticking it in all these different sites, how is it native to these sites?”

As native advertising took the web by storm, humorous lists and quizzes became ubiquitous (see Exhibit 11 for a list of successful posts from various publishers). Benjamin Palmer, whose firm had created one of the most successful viral advertising campaigns of all time, Burger King’s “subservient chicken”, commented: “BuzzFeed is an opinionated publication with a point of view, and their opinion is cats are funny. But if everybody starts doing that, they’re going to compromise what makes them attractive to their audience from a journalistic point a few.”21

c U.S. print ad spending stood at $32 billion in 2014.

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BuzzFeed—The Promise of Native Advertising 714-512

Steinberg agreed:

I don’t believe in long-lasting competitive advantages. Most businesses are just left to compete and continually innovate. We have an advantage right now because we have far better technology. But if we do not innovate, it will be obsolete in a matter of years. The same is true for our ad products and our style of content.

To remain in a leading position, Smith and his editors thought about re-inventing the news wire and telling “commodity stories” in novel ways, for instance by combining tweets, Instagram photos and other primary sources all in one post. In the creative department, Rosenthal explored the use of illustrations and graphics in native ads, and her team considered developing longer-form branded content. The biggest shift in BuzzFeed’s business, however, came with the increased use of video. The company had created editorial videos (“19 People Having A Worse Day At Work Than You”, “15 Horrifying Facts About Processed Meat”) for its YouTube channels beginning in late 2012. In less than a year, the channels attracted 3 million subscribers and more than a billion views. Jonathan Perelman, general manager of video, planned to take the company’s approach to branded content: “Video has always been the best storytelling medium. But few people share traditional 30-second commercials. Our ambition is to create a new market for two-minute branded videos.” Early results appeared promising. A video sponsored by Purina, the pet food division of Nestle, attracted 3.7 million views in the first three weeks. 90,000 users shared it on Facebook.

Blurring Lines

While native advertising was flourishing, critics charged that the practice confused consumers and weakened journalism by blurring the lines between editorial and paid content. Ben Kunz, vice president of strategic planning at Mediassociates, addressed the first concern:

Native advertising is a more insidious encroachment into consumer media content than any prior form of advertising. Billions of banner ad impressions may annoy readers, but they don’t misdirect users by disguising the source of the message―and this is exactly what native does. If publishers and marketers aren’t careful, they are going to poison the well of digital ad

communications by breaking consumer trust.22

The U.S. Federal Trade Commission (F.T.C.), an agency tasked with the protection of consumers, shared some of these concerns. Edith Ramirez, chairwoman of the F.T.C., explained:

The delivery of relevant messages and cultivating user engagement are important goals, of course. That is the point of advertising, after all. But it’s equally important that advertising not mislead consumers. By presenting ads that resemble editorial content, an advertiser risks

implying, deceptively, that the information comes from a nonbiased source.23

Whether native ads confused or even deceived consumers was an open question. BuzzFeed, Hearst (Cosmopolitan, Elle), and many of the leading print publishers clearly marked their native ads as “presented by…” But not all sponsored content was easy to spot. Paul Verna, a researcher at eMarketer, explained:

The lack of standardization in labeling is confusing. Recommendation widgets on CNN.com are headlined “From Around the Web,” and they typically feature news headlines that are tagged with the referring source. In some cases, the source is an editorial entity such as Forbes, but the link is actually to a sponsored post on Forbes.com. In terms of clarity of disclosure,

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714-512 BuzzFeed—The Promise of Native Advertising

these types of native ads are a far cry from the Dell or Goldman Sachs placements in The New York Times, or a Promoted Tweet on Twitter.24

Reader reaction to poorly labeled and misleading sponsored content could be swift. The Atlantic, for example, a publication that prided itself on thought-provoking journalism, came in for an avalanche of criticism after it published a sponsored story about Scientology. “We screwed up,” confessed the magazine. “It shouldn’t have taken a wave of constructive criticism―but it has―to alert us that we’ve made a mistake. We remain committed to and enthusiastic about innovation in digital

advertising, but acknowledge―sheepishly―that that we got ahead of ourselves.”25

To bring greater transparency to native advertising, the Interactive Advertising Bureau, an industry association, and The American Society of Magazine Editors both published guidelines that were designed to help consumers spot the difference between editorial and paid content.26 At the same time, David J. Franklyn, a faculty member at the University of San Francisco, found in his research that one-third of consumers did not care if a post was an advertisement or editorial material.27 But many took branded stories with a grain of salt (see Exhibit 12).

In late May of 2014, BuzzFeed changed the way it marked native advertising. Following Facebook and Twitter, the company replaced its labels for ad units: “presented by” became “promoted by”, and “featured partners” turned into “brand publishers”. The company also swapped the light yellow shading around the ad unit, which was difficult to see on mobile phones, with a bright yellow box around the words “promoted by” above the brand name.

A second concern in the debate around native advertising was that the practice weakened journalism by blurring the line between editorial and paid content―the separation of church and state in industry parlance. “It is largely a misunderstanding,” said Peretti, “many traditional media companies did not have their own ad agency inside the organization. When we published sponsored content, people assumed that our editors write these stories, but they are not. BuzzFeed has a strict separation of church and state.” Industry practice varied, however. At Mashable, a popular news website, editorial staff regularly helped create advertising. The practice, executives at Mashable believed, led to more effective ads and improved reporting because journalists came to better

understand the business of Mashable’s clients.28

Looking Ahead

Peretti closed the list with the 77 facts that sounded like lies. Even if he had not completely solved the puzzle of sharing on the Internet, he was proud of the progress that BuzzFeed had made in a fairly short period. For the time being, no competitor matched the company’s editorial and technological capabilities. And Peretti was excited about the company’s plans for video and international expansion. Rumors about an acquisition by Disney―reportedly for a price of $1 billion―and an impending IPO reflected the promise of native advertising and BuzzFeed’s strong position in the marketplace.29 Peretti wondered: was native advertising here to stay? How would the company be able to best scale its model? And would BuzzFeed continue to lead in an industry in which many publishers quickly imitated novel forms of content and advertising tactics?

Peretti scratched his ear. It did sound like Pac-Man. Sort of.

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BuzzFeed—The Promise of Native Advertising 714-512

Exhibit 1 BuzzFeed Home Page and “World” Section for Tablets

Source: Company document

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714-512 BuzzFeed—The Promise of Native Advertising

Exhibit 2 BuzzFeed Dashboard – “Huge Lies” Post

Source: Company document

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BuzzFeed—The Promise of Native Advertising 714-512

Exhibit 3 BuzzFeed Dashboard - “50 Worst Things” Post

Source: Company document.

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714-512 BuzzFeed—The Promise of Native Advertising

Exhibit 4 BuzzFeed Monthly Unique Visitors

Source: Company document.

Exhibit 5 Number of Brands in Consumers’ Consideration Set

Product Average Number of Brands

In initial

consideration set Added in consumers’

research phase

Autos 3.8 2.2

Personal computers 1.7 1.0

Skin care 1.5 1.8

Telecom carriers 1.5 0.9

Auto insurance 3.2 1.4

Source: David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik, “The Consumer Decision Journey,” McKinsey Quarterly 2009, Number 3: 1-11.Company documents.

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

M a y -0 7

S e p -0 7

Ja n -0 8

M a y -0 8

S e p -0 8

Ja n -0 9

M a y -0 9

S e p -0 9

Ja n -1 0

M a y -1 0

S e p -1 0

Ja n -1 1

M a y -1 1

S e p -1 1

Ja n -1 2

M a y -1 2

S e p -1 2

Ja n -1 3

M a y -1 3

S e p -1 3

Ja n -1 4

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BuzzFeed—The Promise of Native Advertising 714-512

Exhibit 6 Native Advertising in The New Yorker

Source: The New Yorker Magazine.

Note: Native Ad for The Bulletin (in 1959)

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714-512 BuzzFeed—The Promise of Native Advertising

Exhibit 7 Performance and Cost of Ads on Facebook

Ad Category Click-Through

Rate (CTR)

Cost per 1,000 Impressions

(CPM)

Banner

0.02% $0.10

Inline “like”

0.03% $0.19