Inside GigaOm's VC-driven demise

Tech media eulogized one of its own on Tuesday when GigaOm abruptly announced it had run out of money and was ceasing operations after eight years. GigaOm had a big-name founder, blogger Om Malik, and loads of money ($22 million) from VC backers, and was seemingly on the march, snapping up PaidContent in 2012. According to the site, it reached 6.5 million monthly unique visitors. The company employed 75 people as of 2014, with 16 editorial staffers.

But now, GigaOm can be read as a cautionary tale of the risks of taking VC funding. Unlike ad-based media companies, GigaOm was determined to avoid the trap of digital advertising, with its associated pressure to chase low-valued pageviews. Instead, it sought to use its content to cultivate a relationship with an audience in order to sell them tickets to events and research. In addition to hosting events, the company built a research platform that was fed primarily by freelance analysts and charged users packages ranging from $299 and $5,000 a year. As of last year, according to GigaOm’s former CEO Paul Walborsky, 60 percent of its revenue came from research, with another 25 percent from events and 15 percent from advertising.

But building a media business is hard. (Just ask Say Media, which quit publishing last year and reverted to its technology roots.) Insiders said GigaOm’s website and events were profitable, but that research failed to meet its goals.

“I think there was a sense that we were not reaching research targets, but those targets were quite aggressive,” said Mathew Ingram, senior writer at GigaOm. “Investors started questioning its potential for growth or more of a return than we were able to produce.” (For his part, Malik declined to comment, saying in an email: “Way too emotional today to talk.”)

Outsiders were quick to reinforce Ingram’s narrative. Rafat Ali, an outspoken critic of VC funding, warned that backers’ expectations are often unmatched by the business realities. “Media companies get seduced by that idea that if they operate in a startup environment, that they believe the hypergrowth story,” said Ali, PaidContent founder and a former member of GigaOm’s advisory board. “That’s not the reality of the media business. Yes, the digital media business grows much faster than traditional media — but media companies are seven-to-10-year horizon games, at minimum. There’s no hockey-curve growth in B2B.”

Michael Wolf was the founding vp of research for GigaOm. In a series of tweets, he wrote that GigaOm started by trying to convert its readership to paid content. But that wasn’t workable given the expectations of the company’s VC backers. So GigaOm went after corporate deals but neglected the single subscriber in the process.

In the interview last year, Walborsky hinted at other challenges. GigaOm had tried e-books, but they required scale to succeed. Both research and events business became tougher as more rivals got into the game. After GigaOm founded its research arm, he said in a 2014 interview, “Then other companies began doing the same. We saw Politico Pro come out, then Business Insider came out with research.”

Events can be a distraction, pointed out Ali. At his new company, travel publisher Skift, he decided to narrow his focus to one conference. “It’s all in and high-touch,” he said. “It’s a lot of stress on business and management and sales. When I did my first conference, the company stopped for two months.”

There were other pressures. While GigaOm might have eschewed press release-driven coverage for deeper, insightful pieces, the competition grew up around it with an explosion of technology blogs and mainstream news outlets adding tech news coverage. GigaOm avoided news coverage and focused on niche areas of technology such as data and cloud computing.

It also can’t have helped that GigaOm was operating without its founder and a CEO for much of the past year. Malik left the company a year ago after it raised $8 million, to become a partner of the backers, True Ventures. Walborsky departed in September. The exits continued this year, with Tom Krazit leaving as executive editor at the end of February.

Ingram believes the three-pronged revenue model would have worked if given time and leeway, pointing to others like The Economist as proof. “It definitely is a Faustian bargain,” he said of VC funding. “It’s basically a shortcut to growth.”