Betting on Tools that Power Blogs

While Web log entreprenuers search for a viable business model, venture capitalists are backing companies that make it all possible

By Olga Kharif

Ask David Sifry when his little San Francisco startup called Technorati will turn a profit, and he laughs contagiously. No, Technorati, which tracks Web logs, or blogs, and will soon offer blog searches, is a long way from turning a profit. But it has big-league venture-capital backers like Draper Fisher Jurvetson and Mobius Venture Capital, and they're willing to wait as blog entrepreneurs cast around for a good business model.

It may take a while. Truth is, the fledgling blogging industry's business model is closer to a question mark than a dollar sign. Sifry would be the first to admit that he's part of an industry in flux. "This reminds me of the Web in 1994," Sifry says. "It's an ecosystem that's evolving and just being built."


  Plenty of people are part of the building process. Sifry estimates that about 12,000 new blogs pop online worldwide each day. On about 10 million blogs today, writers are posting about 400,000 new items per day. That's more than 16,000 per hour. The interest is out there. The question is: How can money be made?

The independent-minded blogging community may be chagrined to see, however, that the most obvious money in blogging is in the software that helps big companies establish and manage corporate blogs, as well as software that culls data from the ever-growing blogosphere. It's much like the early days of e-commerce. While e-tailers were spending and spending to build their Web sites, e-commerce software makers were raking in the cash. To use an analogy to California's gold rush: It wasn't the miners who got rich, it was the people who sold the picks and shovels.

That's certainly where venture capitalists are putting their money. "Anybody in the industry who says people haven't figured out how to make money on blogging are being ridiculous," says Brad Feld, a managing director at Technorati investor Mobius Venture Capital in Superior, Colo.


  Sifry isn't the only entrepreneur providing blog tools. Sales at privately held KnowNow, whose customer roster includes ABC, Fujitsu, and Bank One, have doubled over the last year. Its software, which typically costs between $50,000 and $150,000, allows employees to participate in internal blog discussions, and to search and save conversations happening on internal blogs.

Blogs can be a huge time saver for big organizations, says Bill Dennehey, a process analyst at Eglin Air Force Base in Florida. The facility is using a blog-management package from Open Text (OTEX ) in Waterloo, Canada. It has allowed Dennehey to post questions in a blog that reaches other tech managers in a few minutes. In the past, he'd spend hours ending out e-mail and tracking them down. Now he can get a response as fast as they can read his message.

Software that trolls blogs looking for useful information also is getting attention. Cymfony, a startup in Newton, Mass., sells software that big companies are using to scan blogs for relevant information. A pharmaceutical company, for example, may want to look through blogs written by doctors, nurses, and patients about a new drug. Customers are paying anywhere from $30,000 to $100,000 for Cymfony's product.


  Of course, more than a few people think money can be made from content. For one reason, readership is growing. Blogging's share of Web traffic has grown from 2% in 2003, to 5% in 2004, according to Forrester Research, a tech-consulting company in Cambridge, Mass. Still, only about 200 people make a living from writing blogs, Sifry estimates. But that's expected to climb in coming years.

Some who made their fortune in print media are going after the blog market. Tony Perkins, the founder of RedHerring magazine, which became a staple of Silicon Valley's venture-capital community, is now running AlwaysOn Network, a site featuring blogs from influential people in business and technology. "It's very clear the blogosphere has become a substantial alternative media source," Perkins says.

AlwaysOn, which gets up to 200,000 unique visitors a month, recently started a $49-per-year subscription service, giving its users access to special interviews and advanced search features. The subscribers will also get four issues of a print magazine, which Perkins plans to launch in March, that will offer the best articles published on the site.


  "I believe in the power of three mediums together: live [video], ink, and online," Perkins says. Like most blog entrepreneurs, Perkins still depends on ad revenue, which has been growing at 50% a year since the company was launched two years ago, allowing AlwaysOn to stay profitable, he says.

Still, Perkins and an increasing number of Web entrepreneurs say they won't make a killing on blog advertising alone. Some believe broad sponsorships can do what simple ads can't. Take, a traditional online jobs board that subsists on site sponsorships from the likes of cell-phone maker Motorola (MOT ) and auction giant eBay (EBAY ). In April, CEO Jason Gorham also launched, a collection of blogs from people looking for work. Within a month, he'll launch 15 to 25 more blog sites for job seekers in specific industries, such as pharmaceuticals or accounting. He's betting sponsors will cross between the sites.

Will it work? Hard to say. Most blog business ideas didn't even exist six months ago. Some may fail, and one or two just may change the way the online publishing industry works.

Kharif is a reporter for BusinessWeek Online in Portland, Ore.

Edited by Jim Kerstetter

Before it's here, it's on the Bloomberg Terminal.