One of the more interesting line items in the financial statements is “cost of revenue,” which “consists primarily of amounts due to third party websites and platforms to fulfill customers’ advertising campaigns.” (An unspecified percentage of “cost of revenue” refers to the cost of maintaining BuzzFeed’s own servers.) In other words, “cost of revenue” appears to refer primarily to the money BuzzFeed is using to buy traffic from Facebook (and likely other websites too) on behalf of brands advertising on BuzzFeed.
BuzzFeed is an interesting beast because it sits at the fulcrum point between “old news” and “new media news.” BuzzFeed does have quality reporting and long form pieces, but unlike the New York Times those pieces often sit beside the latest funny cat gifs or a hilarious video of a kid after a dentist visit.
How BuzzFeed makes money has been a question that “old news” sites like the NY Times have been trying to figure out with paywalls, subscriptions, email captures etc. None of that seems to be helping slow BuzzFeed down or improve the doom of the more traditional news site economy given the large number of people who get most of their news (quality or otherwise) from Facebook.
Those of us who like to follow these things point back to info like this from 2013 when BuzzFeed was beginning to make serious money and turn heads:
BuzzFeed, for example, has an entire in-house team dedicated to buying ads that drive users to its sponsored posts. Through a program it calls “Social Discovery,” the company buys traffic from a range of sources including Facebook, Twitter, and StumbleUpon, as well as other content-marketing services. It pays to have links to its sponsors’ posts show up in Facebook users’ news feeds and to force them in front of users on StumbleUpon, for example… Peretti said the company is not buying traffic to boost its numbers or meet advertiser commitments. Its brand partners are actually beginning to use its media-buying team as an agency of sorts, asking it to package posts on BuzzFeed with a paid distribution element, too. It doesn’t pay for the ads itself to boost the number of views the content it sells to advertisers gets.
So there you go. If you’re a news site, become an agency with an in-house team to do arbitrage and market your native ads via viewers from Facebook and Twitter (as they are more than happy to take your money). Television and radio has been doing this for decades.
All this has happened before, and will happen again.