Jason McCabe Calacanis had an enviable problem. Advertisers eager to reach niche audiences were banging on his door. But the CEO of Weblogs Inc., a collection of 90 blogs, didn't have enough front-page space to sell them. Calacanis huddled with investors to devise a plan to scale up the business. Instead, on Oct. 6, he sold Weblogs to America Online Inc. () for a reported $25 million.
AOL is hardly the first mainstream media company to plunge into interactive Web journals known as blogs. Over the past year a who's who of major publications (including BusinessWeek) have launched their own. Within a day of the Weblogs deal, Gawker Media, which operates a smaller stable of sites, agreed in a partnership with Dutch publisher VNU to launch five European-language versions of its gadget blog, Gizmodo. The two deals come six months after The New York Times Co. () paid $410 million for About.com, a collection of some 500 niche sites similar to blogs.
Why the push? While few blogs generate much revenue, they introduce a new, promising micromedia model. Blogs are cheap, easily updated, and can focus on a niche market with passionate followers -- an advertiser's dream. Toronto's Globe & Mail has dispatched a blogger-reporter to Pittsburgh to cover a single hockey star, 18-year-old rookie sensation Sidney Crosby. "You can build a massive Web site and audience around one hockey player," says Dave Morgan, CEO of TACODA Systems Inc. an advertising-technology company. What's more, blogs feed word-of-mouth on the Web. Comments on blogs can provide advertisers with feedback, and they circulate quickly among readers.
But for all their promise, blogs are just getting started as an ad platform. While Calacanis is now mum on numbers, in July he celebrated after Google-placed ads on his sites topped $2,739 in one day, which would add up to $1 million over a year. Those ads are a big part of Weblogs' business -- but $1 million is barely a rounding error for major media companies. Calacanis' frustration has been that he can't expand fast enough to meet advertiser demand without making large investments in technology and staff.
So he's is counting on AOL to give him the resources and freedom to run a blog empire from his base in Santa Monica, Calif. The former publisher of the Silicon Alley Reporter has proven adept at quickly zeroing in on target audiences and hiring part-time bloggers from all over. Jim Bankoff, the AOL exec who negotiated the deal with Calacanis, wants Weblogs to develop loads of new blogs, including sites with audio and video channels. "Micropublishing is the next wave," he says.
The question is whether the blog industry will spring from big media or upstarts. Nick Denton, the founder of Gawker, predicts media companies will stifle new models that challenge their core business. "Big media is remarkably resistant to change," he says. Calacanis' Santa Monica blog factory looks to be a prime test case.
By Stephen Baker in New York