IP Democracy: MSNBC.com Acquires Loyalty with Newsvine Buy

MSNBC.com, a joint venture between Microsoft and NBC-Universal, has purchased a scrappy website, Newsvine.com, which offers its own take on "participatory journalism." Newsvine, which launced in March 2006 and is run by a handful of founders, offers visitors a continuous feed of AP stories plus a selection of "seeded" articles, blog posts and originally written news items, all of which are up for votes and comments by a rapidly expanding pool of loyal readers and contributors, around one million per month.

The more votes each news item receives, the higher its appearance on the various Newsvine pages. As Newsvine notes, the news "adjusts" based on what users find important.

Newsvine shares revenues with readers who set up personal pages and contribute original content -- 90% of ad revenue generated from the content goes to the contributor, which explains, in part, the loyalty generated by the site. (Newsvine co-founder Calvin Tang, however, warns that compensation level could change under the new owners.)

MSNBC.com towers over Newsvine, with 29 million visitors per month. Despite (or because of) its far bigger size, MSNBC.com generates little loyalty or passion among its readers. Which is precisely why MSNBC.com wants Newsvine. Charlie Tillinghast, president of MSNBC Interactive News and publisher of MSNBC.com, said "Msnbc isn't as strong in community as it needs to be."

Newsvine, for its part, gets a deep-pocketed, nearby (both companies are located in Seattle) partner that can foot the high infrastructure costs of growing the site and can pony up some cash for extra staff. Newsvine CEO Mike Davidson said "Newsvine has made do with an efficient hardware footprint and no full- time operations staff," a fact that has prompted slow-downs and outages and complaints from users.

This deal, the first in MSNBC.com's 11-year history, came cheaply for the established Internet company. MSNBC reporter Alex Johnson, who presumably got some inside information, noted that

deals for other social media sites have ranged as high as the $75 million that eBay was reported to have spent for StumbleUpon.com, which claims about 3½ times the number of users as Newsvine

Using that bit of guidance, MSNBC.com paid around $21.4 million for the site in the all-cash deal. Rafat Ali, who may have his own inside information, guesses that the price is far lower than that, around $5 million to $7 million. My own sense is that Newsvine's investors, Second Avenue Partners, which invested $1.5 million in Newsvine early on, would not have sold for as low as $7 million.

Even if the price tag is closer to $20 million, it's still a bargain for MSNBC.com, which would undoubtedly have spent that much or more in creating the traffic, buzz, utility and, most importantly, loyalty that Newsvine generates. It's good for Newsvine too. It's doubtful that the site could have grown much larger without raising more money. Even with the fattened coffers, Newsvine would have faced an uphill fight in competing with Digg.com or Reddit or the slicker, faster but more shallow "social media" giants.

Still, it's kind of a bummer to see an anti-establishment site such as Newsvine sell out. Social media, user-generated news, blogging, all of this new exciting stuff, rose to "stick it to the man," and now, of course, the "man" is writing checks to become part of the excitement. As a consequence, that loyal Newsvine community will probably want its fair share of the money for helping Newsvine "maintain the illusion" that it is "an antidote to old media," as Jeremy Wagstaff has noted.

The moral of the story is that money can't buy you love, but in the new world of Web 2.0 acquisitions, it might be able to buy you loyalty...at least for some period of time.

Posted by Cynthia Brumfield on October 8, 2007 7:31 AM to IP Democracy