With xoJane Launch, Say Media Embarks on Transformation into a “Passion-Based Media Company”

5/31/11Follow @wroush

When VideoEgg bought its San Francisco neighbor Six Apart last fall and renamed the combined company Say Media, the reaction from many media watchers was, “Say what?” It wasn’t clear why a rich-media advertising network needed to own a blogging company, or what plans it had for Moveable Type and Typepad, Six Apart’s once-pioneering publishing platforms. And if you had stopped by Say Media’s website at any point in the last eight months, the company would still have looked pretty much like an ad network, albeit one whose technology supports sites with about 400 million unique visitors.

That all started to change in late May, when Say Media launched xoJane, an online magazine headed by Jane Pratt, the founding editor of the now-defunct women’s lifestyle magazines Sassy and Jane. The publication is built on a platform that Say Media CEO Matt Sanchez calls “TypePad plus” (the official name is TypePad for Publishers) and it’s the first home-grown property in what he describes as a “passion-based media company” that will specialize in matching niche online publications with the rich-media digital ads for which VideoEgg was known.

Say’s other big story of the spring was its acquisition of Dogster, Inc., the San Francisco-based creator of the leading pet-services sites Dogster and Catster. The Dogster sites haven’t yet been rebuilt on the Say Media platform, but as the company assimilates or launches more publications, the outlines of its media empire will take clearer shape, Sanchez says. “Right now we’re in this interesting flux period,” he says. “But a year from now it will be really evident from the outside where we are going, and you will really start to see more enablement of independent content creators and people building interesting niche media properties.”

Say Media CEO Matt Sanchez

In other words, Say Media is making a bid to join the ranks of technology-driven vertical media networks, alongside San Francisco-based rivals such as Glam Media, which owns Glam.com, Brash.com, Bliss.com, and Tinker.com; Federated Media, which supplies ads to a network of independent sites such as Boing Boing and GigaOm and also owns niche sites such as Foodbuzz; and Blinkx, which recently bought Burst Media, the advertising supplier for site like Cooks.com, Politico, and RuneScape. In some ways, these networks call to mind the big 20th-century magazine publishing empires like Time-Life, in that each publication has its own special voice and audience and subsists on ads from the big brands who want to reach those audiences. The difference this time around is that it’s not the editors and publishers who are assembling the empires—it’s the middlemen, the companies with the technology needed to package and distribute the ads.

For Say Media, xoJane is the pattern-setter. The site’s tagline is “where women go when they are being selfish,” and it’s full of first-person, mostly breezy articles with headlines like “Wear Your Pajamas Outside” and “My Spin Instructor Quit and I’m Kinda Freaking Out.” There are also big, interactive video ads for brands like Ford, BlackBerry, and Puma. Like Oprah’s O magazine, xoJane is loosely built around Pratt herself and her busy life; for instance, there’s a feature called “Jane’s Phone” featuring text messages, photos, and e-mails extracted directly from Pratt’s iPhone in real time. “I want this to be the no-bullshit women’s site,” Pratt said in an article in Say Media’s PDF-based house magazine—an assertion she backed up with a jarringly personal May 24 post about her history of miscarriages.

Becoming a publisher of passion-based sites like xoJane is a logical outgrowth of the “cost per engagement” or CPE advertising model that VideoEgg pioneered, according to Sanchez. Rather than charging advertisers by the impression, the way most ad networks still do, Say Media charges for instances of direct contact, whether that means getting a reader to explore an interactive ad, download a brochure, or sign up for an e-mail newsletter. “What CPE did was shift the accountability to us, to make sure that you only pay when we have people’s attention,” Sanchez says.

CPE-based advertising is generally more lucrative than old-fashioned CPM-based advertising that merely counts page views. The only problem with this new model is that it’s hard to get people to pay attention to an ad if the content around it isn’t relevant or compelling. “There was only so much we could do when we were an ad network that was just one of many different advertising partners that [a publisher] had,” says Sanchez. “Which was the precursor to the media-company move. If you control the content and the environment and you can think deeply about the publishing as well as the advertising side, then all of the learnings actually intersect.”

Say Media’s learning has been hard-won. Depending on how you count, Say is either Sanchez’s third or fourth media venture in the last eight years. The first one was MediaLiquid, which Sanchez co-founded with David Lerman and Kevin Sladek. It was a 2003-era network of 6,500 independent filmmakers who competed to provide non-profit organizations with low-cost public-service announcements for broadcast and cable outlets. The business failed, partly for lack of sufficient financing and partly because “non-profits maybe aren’t the best market to go after as a sole customer,” Sanchez says.

Along the way, however, the team saw how hard it was for the semi-professional filmmakers in its community to exchange videos via e-mail or the Web. They saw an opening for a Web-based video publishing system that would, in Sanchez’s words, “make it easy for people to add video to anything they were doing, whether that was an eBay listing or a personal blog post or whatever.” That’s how venture number two, VideoEgg, was born in 2005.

Within a couple of years, the new company was “getting all kinds of adoption” for its free, advertising-supported video hosting service, Sanchez says. But there were two problems. First, a rival called YouTube had sprung up at roughly the same time. Second, it wasn’t clear how to pay for the service. VideoEgg provided users with free video hosting in exchange for the rights to show pre-roll ads before users’ content, but there weren’t enough advertisers willing to juxtapose their ads with random user-generated videos. “Until brands found it to be a safe, effective channel to connect with their audiences, it was never going to take off,” Sanchez says. He and his co-founders thought they could solve that problem—so in 2007, VideoEgg morphed into a video advertising network (venture number three). For the sake of focus, VideoEgg shut down its video hosting service—a niche YouTube had already come to dominate. (YouTube’s founders sidestepped the advertising problem by selling their company to Google.)

Even after making the leap from hosting platform to ad network, however, VideoEgg hadn’t built a reliable revenue engine, Sanchez says. One issue was that video ads themselves still basically sucked. “People weren’t thinking about storytelling, sight, sound, richness, all of the things that brands enjoyed with TV advertising,” says Sanchez. “If you think about the way people consume media online, they see a headline that catches their attention and either they commit to a deep dive or they move to the next article, just looking for whatever is interesting. We felt like there was something in the ad model that had to reflect this media behavior.”

That led to innovations such as tickers—text ads that slide up from the bottom of the video frame, offering some type of link or interaction—and eventually to fully immersive, rich-media ads like the BMW ad on this demo page. The company’s latest version of the technology, called “Adframes Display,” lets advertisers combine video and animations with maps, games, surveys, and social media in user-initiated popup ads that work on smartphones and tablet computers as well as the desktop Web.

Having created these new ad formats, VideoEgg was able to risk switching to the cost-per-engagement pricing model. Once it had done that, it naturally had to start thinking harder about what drives engagement. And it found that things like the design of a page and the tone of its editorial content made a big difference, Sanchez says. “We were learning that things like the size of an ad relative to the content and the reading mode that people were in had a much more deterministic effect on getting someone to engage with a brand than things like behavioral targeting.”

Which brings us to business number four: Say Media. VideoEgg could have kept its ad revenue growing simply by focusing its campaigns on the sites with the highest engagement—but “that was not the only thing we were solving for,” Sanchez says. In other words, it wasn’t just that the company could help publishers do more to increase engagement by actually owning them; it was also that the niche audiences that brands wanted to reach were distributed across lots of small publications, each one lacking the resources to turn itself into an effective platform for CPE advertising. “Learning how to build beautiful, engaging platforms that people will want to spend time with and discover on mobile and tablets and the Web; using the best SEO practices to get a good-sized audience; and connecting that to marketers who really care about the community and what’s happening there—those are the things that a small publication with two million readers will struggle to solve,” Sanchez says. And those are the kinds of things Say Media’s 320 employees handle today for xoJane, whose editorial operation is still in New York.

With revenue expected to top $100 million in 2011, Say Media is profitable, according to Sanchez, and is in position to keep building or acquiring media properties without having to raise more capital. Its last round was a $15 million Series C financing in 2007, with August Capital, First Round Capital, Focus Ventures, Maveron, and WPP on board. MediaLiquid co-founder Lerman is still working with Sanchez today as Say Media’s chief technology officer, by the way, but Sladek left the team to become a helicopter pilot for the Marines.

Say Media’s overall strategy obviously takes a while to explain—which is why the Say Media website is still a hodgepodge, mixing information for publishers, media consumers, and especially advertisers and marketers. “We’re trying to show marketers the packages they can buy and the voices they can tap into to get to a scaled media program,” says Sanchez. “But we are not ‘the video advertising company’ or ‘the engagement company,’ or whatever the shorthand was before. I think that over time, Say will be understood more for the point of view and the authenticity and the passion that’s represented in the media we stand for. And it will just be assumed that we are also experts at coming up with great advertising programs around that kind of media. If that happens, then we’ve done our job.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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