The numbers that help explain why Gigaom failed

(Updated) Gigaom abruptly failed yesterday. This was a respected organization with lots going for it, including a talented editorial staff, a slate of impressive events, and (by its own admission) a growing research business.

What happened?

A lot of the analysis I have seen centers on the growth of mobile, the decline of Web CPMs, the crazy competitive landscape, and the rise of clickbait. Tom Foremski concludes "Unless you are Buzzfeed, Gawker or Business Insider – you can't make a living as an independent publisher from ads because the traffic numbers required are out of reach."

So far, I haven't seen anyone talk about Gigaom's business and the costs associated with running a tech news site. Founder Om Malik and the company didn't reveal any details yesterday, but we can take a look at some earlier documents including Gigaom's media kit and 2014 funding announcement to flesh out the story of Gigaom the business.

First, a summary of costs for advertisers from the media kit:

Display advertising:

1. Charging $35-$45 CPMs, depending on the channel. 
2. Rates dependent on campaign duration, budget and targeting. 300x250, 300x600 and 970x250 ad units available.
3. Flipboard campaign: $55 CPM, over 1.5 million readers/month

"1-week channel takeover"

• Gigaom homepage channel (1M+ impressions per week) $22K per week - includes two sponsored postss
• Mobile channel $15k
• Cloud $8k.

Sponsored posts:

• $3,000 250-word sponsored post
• $5,000 800-word sponsored post

Event sponsorships:

• $5K–$85K, depending on branding/activity

Research:

• Annual cost for subscribers appears to be $10k (NOTE: Digiday reports a much lower cost)

Translation: Gigaom was targeting expensive corporate sponsors, mostly in the tech and business verticals -- the media kit claimed 37% of the audience had C-level job titles, 29% were in companies that had more than 1000 employees, and 53% were "IT decision makers." These numbers seem a little low to justify $45 CPMs, and it's not clear if anyone actually paid that rate (discounts could be offered, or they might have been selling unused inventory for a much lower price through ad networks). On the other hand, because the company was not in the consumer advertising space (where rates are much lower) and it's targeting a different set of sponsors, it can get more revenue for the same number of visits to the website.

In theory, Gigaom wouldn't have to hit the insanely high traffic numbers that sites such as Buzzfeed shoots for, but even $45 CPMs aren't enough. Assuming 6 million page views per month, with each page generating one impression at $45 CPMs, the monthly revenue would total just $270,000. This helps explain why Gigaom (and many other blog-based media companies) have branched into other sources of revenue such as research and events. (UPDATE: Digiday reports that only 15% of Gigaom's revenue came from advertising, compared to 25% for events and 60% for research) 

There's another set of numbers that can help explain the Gigaom story. Om posted last year when it received an $8 million funding round (bringing the total to $22 million) that the company had 70 staffers.

I've worked in tech media, and this is a huge number more often associated with mature media companies. Om didn't break out what all of these people were doing, but I know in addition to a healthy newsroom the company had an events staff and a growing research business. I would expect there would be at least 10-15 people associated with ad sales and ad operations.   

Assuming an $80k average annual salary + benefits package, the company would be paying $5.6 million/year just on staff costs. Factor in rent, expenses, operational costs, etc. and Gigaom has to be going full-bore on revenue and growth targets to generate enough cash flow to stay afloat ... or it would have to line up more funding. 

That's what Buzzfeed ($96M in funding to date, according to Crunchbase) and BI ($55M) are doing to fund their operations -- clicks and revenue simply aren't enough to scale the business, so they take VC cash. The VCs are going along with the plan, too.  
 
Gawker is a different animal: It claims growth and operations are funded by sales. I don't know if the company had early investors (Crunchbase doesn't list any) but it is taking a far different approach to making the business work.

I'm interested in learning more about Gigaom's finances and funding in the weeks ahead, but it's possible we may never know the details. The creditors now running the company are staying mum, as is Om.

If I made any mistakes or am missing part of the story, please let me know in the comments below.

UPDATE: Since this post was written, Digiday's Lucia Moses has been able to put some more numbers behind the story.