Tech media companies find that rapid growth doesn’t come easy

Publishing is a tough business. And despite the buckets of venture capital that have been poured into media companies in recent years, it’s clear that not every publisher can make those investments pay off.

Two recent exits, Re/code and Gigaom, show why tech publishers need to diversify their revenue sources.

Re/code’s Code Conference is one of the best tech conferences around. And at $6,500 per ticket, it brings in a lot of cash. So it surprised many people when, on the morning of the conference’s opening day, the news broke that Vox Media was acquiring Re/code.

Naturally, the 700 or so at the event were buzzing about the deal. Re/code’s founders, Kara Swisher and Walt Mossberg, joked about it onstage. Lots of people I talked with seemed eager to hear what I thought of the Re/code news, and what I thought it meant for VentureBeat (we are competitors, after all). So here’s my take:

The acquisition came less than 18 months after Re/code got its start, and its terms were not disclosed. The conclusion most would draw from that: It’s not a win. If the investors and founders were confident they were on a rapid upward trajectory, they wouldn’t have sold so soon. If they sold it for a large amount, they would have leaked the price to someone.

Also this week, an Austin, Texas-based content farm called Knowingly announced that it was buying Gigaom’s remaining assets, which mostly amount to a URL and a bunch of archive stories that, according to sources I’ve spoken with, are still generating significant traffic. The purchase price was undoubtedly low — probably $1 million or less.

That marks an inauspicious restart for Gigaom, which abruptly shut down earlier this year — although founder Om Malik posted a hopeful note that seems aimed at stimulating the new owners’ sense of responsibility.

Taken together, you might think that these two events spell bad news for those of us in tech news who are still independent from large corporate owners. Add in the recent sale of AOL (the owner of TechCrunch and Engadget) to Verizon, and you might be wondering if tech news is viable at all.

My takeaway is different: Most publishers currently make money through advertising and conferences. Neither are especially conducive to rapid growth.

Advertising is a fickle mistress. Thanks to ad networks, there’s a lot of downward pressure on ad prices, which eats into publishers’ revenues. To offset that, or battle against it, you need scale — a really big audience — and a killer sales team. Re/code lacked the former, and Gigaom lacked the latter, so neither made much revenue in advertising.

Many publishers have, like Re/code and Gigaom, placed their faith in conferences. But conferences are hard to scale, because each one requires a lot of work. The scalability problem goes double for elite events like the Code Conference: Because it draws such high-level attendees, it is by definition a scarce resource. The only way to grow that business is by adding spin-off conferences (Code Media, Code Enterprise), but each one risks poaching attendees, speakers, and ultimately cachet from the main event.

So publishers need something else — or they need to give up on the dream of rapid, startup-like growth. In VentureBeat’s case, we grew comfortably, if slowly, on our profitable event and advertising businesses, from our founding in 2006 until 2014. (Founder Matt Marshall raised a tiny angel round early on, but the subsequent growth was entirely based on revenues.) Last summer, we took a small round of seed funding in order to build a research and information business that, we believe, will be disruptive to the current research industry, and will be much more scalable as it grows. But we’re also investing in the older businesses because they are self-sustaining and form a solid foundation for the new line of business.

Big publishers like Vox, BuzzFeed, and Vice Media have a different play. Vox is building an enormous audience through a network of interlocking sites. The end game there is to achieve publishing efficiency by using a common platform and to command high advertising revenues by selling the network to advertisers as a premium package: The Conde Nast model.

BuzzFeed makes money as an advertising agency that drives traffic to custom content it helps create; the news business adds credibility and helps with the audience, but it’s really the traffic engine that its customers come to it for.

Vice, which has raised $580 million — more than any of the others — is not strictly a tech news site. It appears to be doing something similar to what Buzzfeed does: Building a massive audience and offering advertisers services to reach that audience with custom content.

There are many other examples of tech-related media companies picking up massive amounts of funding: most recently, in January, Mashable ($17 million) and Business Insider ($25 million).

My advice to these growing, venture-funded publishers — and to our own investors and my boss — is not to place too much faith in a single business model. The media business is far from dying, but it’s fluid, and what worked last year may not work next year. The only enduring requirement: To earn, and hold on to, your readers’ trust.

As for the business, it requires adaptability and diversification, especially if you dream of startup-like growth curves.

Of course, there’s always the option of remaining small and independent. But to do that, publishers would have to stop thinking of themselves as startups. In Silicon Valley, that’s almost like giving up.