Facebook Is Upworthy's Weakest Link

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
Read More.
a | A

It's fair to say that Upworthy is an Internet sensation. The site has only been around for a year and a half, and it had 87 million unique visitors in November from a comparative handful of posts. Yet there's a vulnerability at the heart of its business model, as Jeff Bercovici explains:

Sites like Buzzfeed and Upworthy -- and a growing number of imitators -- have all but perfected the science of producing stories that Facebook users can't resist sharing with their friends and "liking." With 1.2 billion users, Facebook offers a platform big enough to build an entire business on: Upworthy, which said it had 87 million unique visitors in November, gets more than half its traffic from the social network, while Buzzfeed, with 133 million uniques, counts on it for about one-third of referrals.

It would therefore be potentially devastating to these sites — and to the entire category of what I'll non-judgmentally label virality mills -- if Facebook did anything to make it more difficult for them to disseminate their content through its users' newsfeeds. But some people think that's exactly what it's trying to do.

Last week, Facebook said it was making new changes to the algorithm that governs what shows up in users' streams. The changes are meant to ensure users see "high quality articles" instead of just "the latest meme."

Until 2011, entire public companies were built around gaming Google Inc.'s search algorithms, using networks of low-quality content to move themselves up the search rankings for popular terms. Then Google changed its algorithms, and those companies lost a huge chunk of their revenue overnight.

This is a recurring theme in the tech world. Last fall, Facebook Inc. changed the way its algorithms dealt with Facebook pages, which had the effect of de-emphasizing content from businesses. Those businesses had often spent a great deal of time and money building up their Facebook pages, offering people discounts or free merchandise to "like" their pages on the theory that once you had a follower, you'd be able to send them free advertising forever. Then Facebook changed the rules, and suddenly those followers were worth a lot less. Meanwhile, Facebook expanded its advertising offerings, leading to suspicions that the algorithm change was aimed at making page owners pay to promote their content. (Facebook says it was trying to improve the quality of the user experience.)

Now Facebook is changing the algorithm again, and a lot of analysts think it is targeting sites such as Upworthy, which make money from getting their content to go viral on Facebook. Like others before them, those sites may end up learning, the hard way, a wise rule I heard in business school: "Never build your house on someone else's land."

Pizza Hut, which gave away free P'Zones in order to get people to like it on Facebook, might have been unhappy when the rules changed. But ultimately, it wasn't life-changing; its biggest advertising is tens of thousands of signs on highways across America, and it has a lot of assets, including its brand and its recipes.

Upworthy, on the other hand, pretty much has one asset: It is very good at getting content to go viral on social media (which mostly means getting it to go viral on Facebook). But Facebook can change the rules at any time to make Upworthy's system stop working. That means two things: first, that you've got a business model that could go away at any minute; and second, that Facebook is probably going to make you pay to keep it around. People who run airport concessions can charge a lot of money for their product, because where else are you going to go? But they don't get to keep that money; when profits go up, so does the rent. When your business strategy centers on someone else's property, you are always vulnerable to having it taken away. At best, it's likely that they, not you, are going to be making most of the money from that business model.

Unfortunately for Upworthy and its ilk, if "getting things to go viral" is your business strategy, it's hard to diversify away from Facebook. The worst part about building your house on someone else's land is that once you've done it, you're kind of stuck.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net