Why The Arguments That The Huffington Post Must Pay Bloggers Is Misguided: Payment Isn't Just Money

from the you-made-the-choice dept

We didn't mention the whole AOL buying Huffington Post story earlier this week, because there just didn't seem to be that much to say about it. It was an interesting deal, to be sure, and I'll be curious to watch what AOL does with the property, but, beyond that, it seemed like just another content acquisition deal. However, almost immediately after the deal went through, I started seeing some rumblings on Twitter, picking at the scab that has always annoyed a certain group of people about The Huffington Post: that it doesn't pay most of its writers. Sure enough, it didn't take long for this issue to start to spread, with the inevitable summary line of: "Hey, HuffPo became famous because all these people worked for free, and yet, they don't get a cut of the sale."

That story is now snowballing. Dan Gilmor wrote a blog post arguing that it was the "ethical" thing to do to start paying bloggers. Douglas Ruskoff said that he'd no longer blog on the site for free. And, of course, a bunch of cranky HuffPo contributors have created a whole campaign arguing that Arianna Huffington had no right to sell the site, since it was built off of their free labor.

They're all wrong.

Of course, we've been through this before. Five years ago, Nick Carr tried to argue that all the various big Web 2.0 sites like (at the time) Digg, YouTube and MySpace were really digital sharecroppers exploiting labor. As we argued at the time, this was hogwash. People were using those sites because they provided a valuable service. The reason they provided labor was because they got something of value in return -- whether it was attention or hosting or distribution or reputation.

Three years ago, we saw an almost identical controversy after AOL bought Bebo and musician Billy Bragg demanded some of the $850 million AOL paid (in retrospect, a massively bad decision). Bragg argued that Bebo made this money based on all of the "free labor" of musicians who used the site. But that ignored the fact that those musicians got tremendous value in using the Bebo platform to connect with fans and distribute their music... all for free. The folks who got to keep the money were the ones who took the actual risk. The ones who had to cover the expenses to keep the site and the service running, even when it wasn't making enough revenue. They took the risk, they should get the reward. The people who used the site did so of their own free will knowing quite well that the benefit they got from using the service was worth it to them at the time. Along those lines, if Bebo had struggled and faced bankruptcy instead of a massive buyout, would Bragg have felt obligated to give them money to keep it going? Similarly, if HuffPo had been running out of money, and Arianna had gone back and demanded that those who used the platform pay up retroactively, how would these people have reacted?

There are more ways to "get paid" than with money.

The reason that people chose to blog for free at the Huffington Post was because it's a fantastic platform for exposure. It brings traffic like no one else out there, and if you want to present something in a way that's likely to get more attention than on your own blog that no one visits, posting at HuffPo can be quite a good way to go.

And that's the point: the people who chose -- of their own free will -- to post at the Huffington Post for free did so because they clearly got value out of doing so. Otherwise, why would they have done so in the first place? To then say that the only proper thing is to pay them is completely missing the point. It's an attempt to retroactively go back and change the terms of a deal. If you wanted to get paid directly for what you write, fine, don't write for the Huffington Post. It's that simple. Go out and pitch your stories to publishers who pay freelancers. But don't go back and complain afterwards when the folks who actually did take the risk of putting together the site, financing it, organizing it, hiring the staff, buying the servers, paying for the bandwidth, and building it up so that it was such a successful platform, then get paid for their efforts.

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..........and bullshit walks! Easy as that for start-ups when it comes to making up your mind about raising additional capital. Are we in a bubble? No idea but this question keeps creeping up. Those of us who went through the bubble at the turn of the century are secretly hoping we're not in another one. Those who don't remember the last one are also worried wondering whether all the old-timers are right. One way or another, it doesn't really matter.

You'll hear multiple opinions on whether to raise money at times like this. I have a very clear opinion on this. It's based on the fact that I believe the best venture backed businesses are in it for the long haul. These are companies with a real product that add value to their customers. These are businesses generating real cashflow intent on growing to significant scale. Finally, these are businesses which will use additional money to expand. Hence, here's my take on when to take money (with focus on EU based businesses):

1. Sequoia or Kleiner are on the phone. Start negotiating, get the best deal you can get and make sure to raise the money. Say what you will but Tier 1 VC's from the US will lead to a far larger exit. Specifically the top tier funds have access to management for your businesses, access to potential partners and are likely to sit on the boards of the companies that could buy you. You'd be dumb not to take money but do so wisely.

2. A tier 1 fund from Europe is interested. Find out whether there's a good fit with your businesses. I've often enough written about how to figure this out and I say to focus on the partner and not the fund when doing your due diligence. Negotiate a good deal and take the money. Tier 1 funds in Europe have learned to add value, have significantly better networks nowadays and will most likely get you bought by a US based business.

2.5. A tier 1 fund from your home country calls up. I've labeled this 2.5 because Tier 1 funds in Europe tend to only differentiate themselves based on where they are located. The rest is mostly the same. The benefit of a tier 1 locally invested in your business is the proximity. It's in your interest. You want them closer than further. If the terms are right and you have offers from abroad and locally, I'd sway towards local but the vibe has to be right. You won't be necessarily doing anything wrong taking money from a London VC verses a German VC when you are in Germany. The London VC may even be around more than the German VC. This all depends on the partner.

3. A tier 2 fund from the US calls up. Ask yourself first why they found you? Go ahead and ask. Further, research the fund and find out what they've done in the past. Have they invested in Europe before? Are they only looking to Europe because their dealflow in the US sucks? Think twice about whether they will invest the necessary time to be in Europe and invested in your business. If the deal terms are good and you are comfortable with the partner doing the deal, take the money. They can still be helpful in accessing US buyers. They are highly unlikely to open as many doors as Kleiner or Sequoia but they definitely know more people in the US than many European partners. Plus make sure you want to go to the US. They will probably eventually ask you to move the company there.

4. A tier 2 fund from outside your home region in the EU finds you. Ask yourself how the hell they found you. More importantly, if you found them, ask yourself why the Tier 1 funds from your local region aren't interested in what you are doing. Say what you will but a UK based fund prefers to invest first in the UK and then rest of Europe. A German fund in Germany and then rest of Europe, etc. Although valuations are good and the power is in your hands to some extent think twice. There are times when taking money could be detrimental to the health of your business (as well as to your equity stake). It's nice to get a higher valuation and some extra cash but make sure it doesn't ultimately cost you more than you think.

5. A tier 2 fund from your local region calls up. Again, ask yourself first why the tier 1 funds aren't interested. Don't underestimate the value of many tier 2 funds though. Maybe they aren't the best known name in the market. At the same time, maybe they are striving to become a better fund. Maybe the number two in the market will work harder than the number one for you. This may be in your interest. Maybe! Do your homework and if you are comfortable with terms, take the money. Be far more diligent in this case though. Think longer and harder about whether you really can do more with the money now or prefer to hold out a bit.

6. Some tier 3 fund you've never heard of and can't find out much about approaches you. Be really careful. There are lots of people in this business who sure won't be around in a couple years. Money from these guys can be a nightmare. At the same time, maybe your business is the nightmare and you couldn't raise money at any other time. One way or another, things aren't going right one way or another. If you need the money to survive and know you'll never get more down the road, do everything you can to raise cash now. Maybe you've just been approached by the future Kleiner or Sequoia of Europe. Maybe not.....but money talks and bullshit walks!

You'll notice a general trend from 1. through 6. above. Take the money! If you can get good terms, know how to put the money you raise to work for growth and like the partner from the funds approaching you, go for it. The getting is good right now. As a VC I'm worried about valuations and bursting bubbles, etc. but as an entrepreneur you should be optimizing for you business. Money is always good. Ignore all the crap about having too much money and being negatively swayed by this. In this post I am defaulting to the fact that I think you are a smart entrepreneur. You aren't going to raise money to get that Porsche as a company car. You're going to grow your business and become amazing. Some will say I am wrong but I'd prefer to have the cash in the bank and worry about being wrong later.

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Tuesday, February 15, 2011

Start Making Money

Why The Arguments That The Huffington Post Must Pay Bloggers Is Misguided: Payment Isn't Just Money

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