Henry Blodget's Risky Bet on the Future of News

Henry Blodget is a man who will be neither easily riled nor insulted. When, in March, he learned that a blog had labeled a section of The Business Insider, the gossipy financial website he founded three years ago, "The Hooters of the Internet," Blodget waited a couple hours before tweeting: "The Hooters of the Internet. I like that." In May, Blodget predicted on his website that within just a few years, The Huffington Post will take in over $100 million in advertising revenue—more than triple the $30 million the site says it will bring in in 2010—and that by 2015 or so, it would be generating more from advertising than The New York Times. In an endnote, he disclosed that Kenneth Lerer, a co-founder of The Huffington Post, is also an investor in The Business Insider, or TBI as it is known by its readers. "Thank you for the disclosure," someone called The Truth typed in the piece's comments section. "Unfortunately, it invalidates everything you write. You're a mouthpiece." It took Blodget less than a minute to post his response: "Thank you!," he wrote, like a fraternity pledge embracing his hazing.

When you have been vilified as publicly and intensely and for as long as Henry Blodget, you will by necessity grow the skin of a pachyderm. For the past eight years, Blodget has lived his life as a fast-typing symbol of Wall Street malfeasance: In 2002, then-New York Attorney General Eliot Spitzer accused Blodget, who was Merrill Lynch's star Internet analyst at the time, of publishing buy and sell ratings on stocks based on how much investment banking business Merrill had gotten, or hoped to get, from any given company, as opposed to the companies' underlying value. Since then, Blodget's life has been filled with ironies. The technological revolution that he championed—the Internet—triggered his downfall after Spitzer released a damning series of internal e-mails Blodget had written. He helped create one of the most spendthrift industries in history, despite his being a known penny-pincher. And not long after Blodget sought his redemption by becoming a member of the media, his old nemesis, Spitzer, tried a similar trick with plans to host a new show on CNN. Now Blodget finds himself the proprietor of a website that often makes the editorial practices of other gossip outlets look fusty and conservative by comparison.

He is betting that he knows what the future of business news looks like. If he fails, many will celebrate. But if he succeeds, it's inevitable that critics will charge—as some have already—that Henry Blodget is once again asking for trouble.

In 2008, less than a year after Blodget launched The Business Insider, Spitzer resigned over a prostitution scandal, which people imagined would be a cause for celebration for Blodget. He says he took no joy in his old adversary's fall. "I was absolutely shocked," he says. "I really thought he was on course to being President of the United States. And I was sort of feeling, O.K., I'm a step along the way up there for him. Right after it happened, I got a bunch of e-mails from friends saying, 'Wow, what goes around comes around. Amazing!' And then I got one saying, 'Well, don't think this lets you off the hook, you scumbag. He was just boning whores! That's nothing compared to what you did.' "

Blodget—being a man who puts far more value on new opportunity than old-world concepts like vendetta—tapped out an e-mail the following year to Spitzer inviting him to talk about the financial crisis on his Yahoo (YHOO) Tech Ticker online financial talk show. "Our guest today is the former Governor of New York and the man who destroyed my Wall Street career," Blodget said on the show, smiling as Spitzer chuckled. His friendly overture impressed Spitzer, who now gushes about Blodget like an old drinking buddy. "Listen, I think Henry's great," Spitzer tells me. "And the issues that led to the analyst case are not of such moral dimensions that these were people who were, you know, out killing babies."

Spitzer has reasons to offer Blodget forgiveness. The Securities & Exchange Commission, the NASD, and the New York Stock Exchange do not. An investigation found that between 1999 and 2001, Blodget had issued research reports on an Internet stock, go2.com, that were materially misleading and reports on six more Internet companies that "contained exaggerated or unwarranted claims" and/or "opinions for which there was no reasonable basis." Blodget was hit with $4 million in fines and repayments to settle the charges and was banned for life from the securities industry. His return to public life with TBI is a bit like "Shoeless" Joe Jackson pitching batting practice: He's not technically back in the game, but he has found a way into the ballpark.

The Click Rate

On a muggy Friday afternoon in June, Blodget, 44, sits in a small meeting room next to TBI's no-frills Manhattan offices. The walls are whitewashed, guests get water in paper cups, and because the tiny square table in front of him looks like it might have been made for six-year-olds and not a six-foot-tall man, Blodget keeps his legs splayed to avoid kneeing it.

In addition to doing a good deal of "aggregation" of other media outlets' content, TBI aspires to be a newsgathering operation, one that will someday eliminate the need for publications like the Financial Times. The bullpen, where all 12 of the staff contributors sit, emits none of the familiar sounds of a newsroom—it is silent but for the clicking of keyboards and the air conditioning. There are no bellowing editors, no reporters with phones up to their ears. In fact, reporters on each "vertical" (the site is divided into several silos focused on technology and finance) share one phone, which would seem to discourage classic gumshoe reporting, and several work at two computers. Much of the content is produced by young reporters, many of whom have only ever worked at blogs, as well as modestly paid interns. The most prolific contributor of all is Blodget himself, who not only begins posting when he rises at 5 a.m. but also once had a habit of handing out crisp $20 bills to TBI reporters who delivered scoops.

Blodget and his young team have found support among the pioneers of New Media. "Henry's got incredible energy, creativity, he knows business inside out, is a first-class editor and a good businessman," says The Huffington Post's Lerer. Blodget has even found a fan in Nick Denton, the British former newspaper journalist and founder of Gawker Media, who, like his family of websites, is not known for lavishing praise on much of anything. "I'm a great admirer," says Denton, via instant message. "He has the determination of someone digging themselves out of disgrace."

While time seems to have dispersed the mob of torch-wielding villagers seeking to barbecue Blodget over his perceived Wall Street sins, a new rabble of critics has gathered, furious about what his new media venture says about the future of the news business. The big knocks can be summed up by "WTF-Businessinsider.com," a 31/2-minute videotaped rant posted online in June by a 37-year-old performance artist named Loren Feldman, whose site 1938 Media is known for skewering Internet personalities with online puppet shows. "When does embarrassment set in for any of you guys?" Feldman shouts in the video, apparently enraged by the fact that a senior-level TBI reporter had to consult Wikipedia to identify the legendary management expert Peter Drucker. Feldman sums up the criticisms, familiar to Blodget and all of his competitors: that TBI "scrapes" content, i.e., much of what the site posts is actually just repurposed news from other websites; that TBI uses gimmicks to generate Web traffic, including Web slide shows, which require viewers to click through several times. A typical recent example: "18 Awesome Wall Streeters and the Celebrities They (Apparently) Look Like."

Blodget sees nothing to apologize for. Is there really value in creating stories like "15 Ways Justin Bieber Is Taking Over the World," just because people will click on it, I ask him. "There's no question about that," says Blodget, who has a habit of listening to every question while flashing a megawatt smile. "Every minute, we're watching the click rate of every story we have on the site. Part of the job of our editors is recognizing that what we're trying to do is create content that people want to read....And I'm under personal pressure to build a self-sustaining business. Without that, we disappear."

The Scandal

Blodget grew up on Manhattan's Upper East Side, the son of a commercial banker also named Henry Blodget. He attended the exclusive prep school Phillips Exeter in New Hampshire before studying History at Yale, where he sang bass in a singing club called the Society of Orpheus & Bacchus (SOBs). Considering his prominent role in the Internet Gilded Age, it's amusing that Blodget is remembered for his parsimony. At Yale, he was often the one at the bar to order water to avoid being stuck with the check, according to his friend, Tad Low, founder of the production company Spin The Bottle. Even at Merrill Lynch, where Blodget earned as much as $12 million a year, junior analysts on his team recalled that he always seemed to be wearing the same torn red sweater on weekends. "Seriously, I think I still see him wearing that sweater around the neighborhood," says Virginia Genereux, a fellow former Merrill analyst who now lives near Blodget in Park Slope, Brooklyn.

After college he taught English in Japan, then moved to San Francisco and wrote what he calls a "terrible, fortunately unpublished" book about the experience while supporting himself giving tennis lessons. He had hopes of becoming a writer. "But," he writes in an e-mail, "I didn't have the passion or confidence (or skill) to make a career out of writing." In June 1992, there was an accident at his parents' home in Connecticut. "It was an electrical fire," Blodget e-mails. "The claw foot of an old brass lamp was apparently resting on the lamp's power cord...eventually the friction wore through the cord, and one night it shorted and sparked." His mother perished in the fire. (His father is still alive.)

In 1994, Blodget joined Prudential Securities' (PRU) analyst training program, then CIBC Oppenheimer, where he became the senior Internet analyst. It had become a hot field following the 1995 initial public offering of the Web browser Netscape; overnight, a company that hadn't existed two years before was valued at $2.2 billion.

In December 1998, much of Wall Street was bearish on Amazon.com (AMZN), which had been a public company for a year and was trading at $240 a share. Noting in a research report that "Amazon's valuation is clearly more art than science," Blodget set a one-year price target of $400, which was laughable to many until three weeks later, when AMZN zoomed past that mark. Blodget denies he intended the Amazon call to be a gambit for attention, as many have since interpreted it. He says he was actually responding to members of the Oppenheimer sales force, who felt like he had been unnecessarily conservative in his previous Amazon reports: "Stop being such a wuss," he says they told him, "and tell us what you really think." The call made him famous among the new breed of stay-at-home day traders, who piled into the stocks he promoted, turning his predictions into self-fulfilling prophecies.

In 1999 he became a senior Internet analyst at Merrill Lynch (MER), which had become focused on competing against Morgan Stanley (MS) and its star Internet analyst, Mary Meeker, who was attracting a huge proportion of high-tech initial public offerings. Blodget had become a media celebrity, a regular face on the ascendant financial cable network CNBC. Although the IPO boom had created a Ferrari-and-Cristal class out of the IPO nouveau riche, Blodget says he was working too hard to indulge. "I can't tell you how unglamorous it was, relative to how people probably imagine it," he says. "I was mainly sleeping in hotels or on airplanes. I was working all the time." He met his wife, Amy—with whom he has two young daughters—in 1997 at the baggage carousel at San Francisco International Airport.

In some corners, Blodget developed a reputation for rigor. "Even when he was young and inexperienced, he always struck me as someone who was incredibly wise and mature," says Richard Hanlon, a former AOL (AOL) investor relations executive and an early angel investor in TBI. "The irony is that he then goes and gets himself in trouble for something incredibly naive....He allows himself to be manipulated by his own firm."

Blodget says that if he had read only Spitzer's report and newspaper stories about the scandal, he too would have judged himself to be, in his words, "a two-faced sleazebag." And although he says that there is a context that would better explain why, for instance, he gave Lifeminders—a stock that he labeled a "POS" [piece of s—t] in an internal e-mail—a buy rating, he's legally bound from doing so, partly by his settlement with the SEC. He points out that he never suggested that investors keep more than 10 percent of their stock portfolios in the Internet sector and reminds me that his 1998 Christmas gift to his professional clients was Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds, the 1841 classic about financial bubbles through history. "One of the things I most regret is not just having the balls to downgrade all the stocks in 1999 and saying, 'You know what, as we have been saying, it probably is a bubble, we don't know when it's going to end, but it's going to end at some point, and we would rather be out now than too late,' " he says.

By August 2000, when Blodget finally downgraded stocks like eBay (EBAY), iVillage, and Webvan, they'd already fallen, respectively, 60, 88, and 86 percent from their 52-week highs. Blodget even invested $700,000 of his own money in Internet and tech funds in early 2000, which became virtually worthless after the bubble burst that year.

"Holding Henry up as an example is just scapegoating," says his friend Tom Phillips, a former Google (GOOG) senior executive who is now chief executive officer of Media6Degrees, an Internet marketing firm. "He individually was one of the most honest people out there. The institutions and the whole culture were wrong."

Blodget's friends say that if the Spitzer investigation comes up in conversation, he hastens to change the subject, and he's reluctant to talk about the psychic wounds the scandal left. But in an exchange about whether he's related to a Henry Blodgett from Massachusetts who fought in the Revolutionary War, the shame leaks out. "I don't know about the guy who fought in the Revolution," he e-mails. "I do know there are some other Henry Blodgets back there whose names I inadvertently trashed, starting with one I love—my dad. I'd very much like to fix that."

From Tiger to Tipper

At his office, Blodget provides a dem- onstration of how he manages the flow of content on TBI. "For a Friday afternoon where everyone's watching World Cup, this is doing pretty well," he says of the story sitting at the top of the home page, "The 30 Most Famous Yale Students of All-Time." The Web slide show features photos of Yale alumni with biographies pulled from Wikipedia. The main illustration is an image of Claire Danes—titillating photos of women are a TBI trademark. Blodget points to a red number on his screen indicating that the Yale slide show is receiving about 400 clicks per hour. The number doesn't actually represent a whole hour's worth of data; the counter is immediately extrapolating from the clicks it's getting to estimate how much traffic the story will receive in one hour's time. This ability gives TBI editors an idea of how something is performing within a minute of posting, so they can adjust the presentation accordingly. A photo or headline could be changed, for example, to see if it improves traffic. "Maybe there's a story down the page that's doing extremely well, so we'll put it right on top and it will suddenly explode, because it's what people want," Blodget says. "We're very much reacting to what our readers want to read."

In 2007, Blodget was approached by venture capitalist Kevin P. Ryan, who had made a fortune as CEO of Internet ad firm DoubleClick, which Google acquired for $3.1 billion in 2008. Ryan felt the market was missing an East Coast technology news website and sat down with Blodget, whose most significant experience inside a news organization was three months as an assistant at CNN in the early Nineties. Blodget, Ryan, and Dwight Merriman, Ryan's VC partner, each contributed about $100,000, and in 2007 the Silicon Alley Insider was born.

Ryan and Blodget soon figured out that micropublishing—creating advertising-supported content for a very small, precise audience—didn't work economically; advertisers are more interested in reaching mass audiences than they are in pinpoint targeting. Blodget added new content and expanded the site into a collection of blogs under the TBI banner—Wall Street, tech, media, and the like. He started aggressively using search engine optimization, or SEO—essentially finding out which subject are Googled most often and writing posts about those subjects, leading to coverage of everyone from The New York Times' Paul Krugman to Tiger Woods to Al and Tipper Gore. He also raised money—about $3 million in venture capital funding in addition to another round he is completing now, and his staff has grown from 3 to 30 employees.

The strategy seems to be working: According to Blodget, his site is getting about 4 million unique visitors per month, which translates to about 2 million people. TBI counts Mercedes-Benz, American Express (AXP), and Harvard Business School as advertisers, and Blodget claims that TBI will break even this year; he hopes that display ads soon will be only one part of the company's revenue. He wants to develop a business model similar to the blog TechCrunch, which makes a significant portion of its revenue by hosting multiday conferences, a ticket to which costs almost $3,000. Blodget is also trying to launch a business-to-business subscription service that would provide companies with the kind of detailed analysis he once provided on Wall Street.

Blodget's hits-at-all-costs strategy has generated a healthy share of debate in the online media world. In March, John Carney, the managing editor of Clusterstock, TBI's Wall Street vertical, was fired, by many press accounts because his posts weren't attracting enough clicks to justify his high salary. The Thomson Reuters business blogger Felix Salmon took to Twitter to defend his dismissed friend, criticizing TBI for its click-baiting practices, specifically citing a story about American International Group's (AIG) distressed asset sales that was illustrated with two attractive women in bridal gowns making out. "Henry talks about selling high-value analysis to financial professionals, but at the same time he'll put up two girls kissing and embrace being called the Hooters of the Internet," Salmon says. "It becomes much harder to sell that kind of thing because it's all a little bit schizoid, really."

Blodget sees it as a simpler matter of being responsive to readers, something he believes the traditional media do a poor job of. "I think in 10 years people won't look at newspapers as the only model for real journalism—you'll have native companies built on the Web who have a very collaborative approach with readers and sources," he says. "Gawker and Huffington Post are both examples of companies that have had it tough and have had to be a lot more focused on what people want to read." Blodget's feelings about newspapers are no secret. The New York Times in particular rankles him, mostly over what he perceives as its attitude of entitlement and the systemic bloat that he argues should put the paper out of business. He and his investors don't see established websites like TechCrunch or paidContent as their competitors, which might explain Blodget's fixation on the Times. "I think Henry sees the real competition as established financial journalism that itself is moving away from print, like Dow Jones, Thomson Reuters (TRI), CNBC," says Hanlon. Some see TBI's coverage of the troubled print media to be less reporting than Holy War. "I remember a horrible New York Times earnings report came out, and they were all laughing about it," says Damian Ghigliotty, a graduate of City University of New York's graduate school of journalism, who left TBI after interning there for two days in 2009. (Blodget was not a party to the joking.) "It was hilarious to them that the traditional media companies were tanking. I wanted to turn around and say, 'You guys blog about The New York Times so much that it's surprising to me that if it were really going to tank next year that you guys would be laughing about it. Then what would you blog about?'"

For all of Blodget's and Ryan's ambition of replacing stodgy Old Media competitors, TBI has a ways to go before it will be considered the website of record. While TBI has had some news coups—like a rigorously reported history of Facebook—it has also published its share of scoops that turned out to be howlers. Famously, there was the item predicting that The New York Times would publish a story on Feb. 8 that would prompt New York Governor David A. Paterson to resign immediately; neither the story nor resignation followed (the Times did eventually publish an incriminating Paterson story). TBI also reported that Gawker Media intended to buy a vampire blog, only to realize later that they'd been fooled by a promotion for HBO's True Blood. "People talk about rumors all the time on Wall Street, and everywhere else," says Blodget. "I impress upon the team all the time to use their judgment and know that lots of people out there are trying to fool you. We can usually check things out very quickly, but on the other hand, let's not sit on something that will add value by introducing it into the marketplace by saying, 'Well, we'll just wait.' " After Mark Sanford's mistress' name was revealed, most news outlets refrained from publishing Facebook photos of a María Chapur from Argentina who may or may not have been the same María Belén Chapur identified as the mistress, but not TBI. Photos of the wrong María Chapur are still available on the site. TBI has also been accused of giving overly favorable treatment to Ryan's companies, such as Gilt Groupe.

Blodget concedes that TBI is not perfect. "It's not amazing yet. It's got a long way to go. But it's pretty good," he says. And if it gets great, and the world agrees, and if all that money being spent on print media finally migrates to the Internet, Blodget could end up like his pals Denton and Lerer, miles ahead of everyone else.

I ask him about the rumor that he hopes to be bought out by Rupert Murdoch or another Old Media titan. "I think that's a definite possibility," Blodget says. "I wouldn't be surprised at all if ultimately it made sense for us to combine with them. That said, we've also built an infrastructure that can support a very big business for ourselves."

Denton lays out the most optimistic scenario: "This is like the early days of cable," he says. "High—surprisingly high—startup costs. But eventually advertisers move across, and the margins are lavish for the leading players in each category. Jezebel becomes Lifetime, HuffPo becomes MSNBC, and Henry becomes CNBC." In that way, and that way only, Blodget would happily be right back where he started.

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