Dotdash’s Acquisition Strategy Is the Right Way To Buy Digital Media Companies

Soon after I sent out last week’s newsletter, Sara Fischer at Axios reported that Dotdash had acquired Simply Recipes and Serious Eats.

Dotdash is acquiring both properties in all-cash deals from Fexy Media, a Seattle-based food content and technology company. Fexy acquired Serious Eats, a 14-year-old blog catering to food enthusiasts, in 2015. It bought Simply Recipes, a 17-year-old family food blog and recipe site, in 2016.

While deal terms are not disclosed, Dotdash CEO Neil Vogel says the websites are “probably 3-4 times the size of anything we’ve bought to-date.”

Dotdash will be acquiring 27 people, the full editorial teams of both websites. “We’re not a publisher that cuts editorial,” Vogel said. “We’re investing in these things.”

Since January 2019, it has acquired seven different publications. This has added tens of millions of users—at least according to comScore—to Dotdash’s already large audience.

If we look under the hood, there is a really smart strategy that the team is executing. The strategy is broken down into three pieces:

• Content
• Technology
• Advertising

Let’s dig in a bit…

Content:

At its core, Dotdash is in the service journalism business. By and large, you’re not going to find news anywhere on the sites in the portfolio. Instead, you’re going to find content that is more in-line with advice and guides on specific topics.

By nature, this gives it a bit more of an evergreen feel to it versus a news business, which is dependent on new hits day-after-day. As a former SEO, there are few things I love more than evergreen content. You plant a seed today and you can eat from that tree for years to come.

This explains why it has brands like Investopedia, The Balance, The Spruce Brides, Liquor.com and others in its network. The categories these brands fit into are also pretty broad: health, finance, lifestyle and beauty & style.

Regardless of the brand, it’s so easy to envision a strategy that creates new pieces of content relevant today and a year from now.

Therefore, I can tell you without a doubt in my mind that Dotdash will never acquire a news or sports brand. Both of those are tied too directly to what’s happening today and that’s simply not the company’s mission.

Technology

The next step is to have a similar technology stack. According to a reader who used to work at Dotdash, the migration to Dotdash’s tech stack and CMS can take anywhere from 3-6 months.

But once that happens, the site is completely templatized. This allows Dotdash to spread the cost of doing new work across multiple sites. If a new template is created for one site, that same template could, theoretically, be used on other sites.

When I wrote about HousingWire expanding into a new vertical, a reader reached out and offered the following really important point:

I think that the message I take away is that if you want to launch lots of different verticals, TECH has to be a competency of the main team. Not necessarily being coding geniuses, but masters at both managing and adapting a diverse and multi-layered tech stack.

I couldn’t agree more. A big part of this acquisition strategy is finding clear cut synergies. By moving everyone to a single technology stack, Dotdash is able to more efficiently support all of the sites in the network.

On the B2B side, the company that I think about most for this strategy is Industry Dive. It now has 20 verticals and each site looks nearly the same. By relying on the same technology for all of them, the team only needs a single product & engineering team rather than separate ones for each site.

Naturally, there will likely be unique use cases; however, my guess is they get prioritized against the overall need of the entire network.

Advertising

The final part of this is the advertising. There are a couple of components that are worth looking at here.

First, Dotdash takes a contrarian approach to ads compared to other publishers. It strips many of the advertisements off the site. You can see an example in this screengrab from Dotdash’s late-2019 media kit.

This is an important approach because ads slow sites down. If you’re relying on Google to drive a disproportionate amount of your traffic, you need to accept the reality that speed is a ranking factor.

By cleaning up the site experience, Dotdash is able to speed up the site, which in turn likely helps increase traffic and generate additional ad revenue. Less is more with advertising.

Second, as my source explained, Dotdash can “standardize regular and premium ad units across the properties (most of which they build in house).”

This is fundamental to a seamless transition. Sales people want to sell what they know. If you give your sales team additional sites to sell and the ad products are very similar in nature, it’s going to be much easier to get them selling those sites as well. Additionally, your advertisers are going to feel comfortable with it as well because they know how it has worked on other sites.

Remove barriers for the sale of advertising and you’ll likely generate more revenue.

The Three Combined

When you take the three prongs of this strategy, you’ve found the right way to acquire digital media businesses.

Focus on the right content for your business, templatize the site with the same software across the various sites and standardize the ad experience so buyers and sellers understand what’s available.

The alternative to this is trying to acquire unique sites without having the underlying systems figured out. The operational burden of this makes any sort of cost synergy impossible. It could work, but your return on investment is likely to be much lower.

Pay attention to Dotdash. There’s no doubt that it’ll be announcing additional acquisitions over the coming months and years.

Don’t Count MGM Out Just Yet

Sports betting is all the rage for media companies. Any publisher that covers sports is likely expanding into offering sports betting content. It’s a way to generate what will hopefully be a considerable sum of money.

I’ve spoken out and said that I don’t really see many of these deals working. At the core of it, they’re advertising deals. Here’s what I wrote in February:

These are really just glorified ad deals. Sure, William Hill is going to have its personalities appear on CBS Sports content. And sure, CBS is going to look at using data from the bookmaker to make in-depth content that entices users to click over. But at the end of the day, this is just William Hill sponsoring CBS Sports. Throw in a little sponsored content when people from William Hill offer their expertise and voila, you’ve got an advertising deal.

There’s nothing really wrong with that, but the results are not going to be as great. The exception is if the media brand builds out their own product, like what Fox did in its partnership with The Stars Group. In that case, you’ve got a tighter integration, the branding is consistent from media platform to sports book and, I’d guess, the audience feels more of a connection.

Penn National, another gambling company, is tackled this need for deeper integration by acquiring a chunk of Barstool Sports with the goal of owning it outright.

The ultimate example of this is Barstool recently introducing its Barstool Sportsbook app in Pennsylvania. Bank of America’s Shaun Kelley said:

Our initial impressions are positive given the app’s ease of use and leverage of the Barstool brand to create a unique interactive experience. We think the app targets more of a casual bettor than competitors.

No one should really be surprised about this. Barstool figured out the distribution problem first and then created a product that it knew its audience would want to use. Fast forward and it’s now one of the fastest growing sportsbook apps out there. Linear commerce at its finest.

Seeing this success makes it easy to forget that this is still the first inning of a very long game. While Barstool is native to the internet in a way many of these other companies aren’t, there’s an unknown player in this space that I’m particularly interested in watching.

That’s IAC.

If we look at IAC’s list of brands, nothing sports betting jumps out. It owns Dotdash, Angie’s List, Vimeo and a variety of other websites.

And yet, it has made a $1 billion investment in gambling by acquiring 12% of MGM Resorts International’s stock. The press release/shareholder’s letter announcing it is quite informative. Here is a massive block of text that walks through IAC’s thinking:

We have a history and much experience in online commerce. So we began our analysis with a focus on a small piece of MGM, a portion of its revenue so small that it rounds down to zero: its online gaming revenue. We’ve followed the online gaming space for a while, looking for an opportunity to enter, but we were generally unsatisfied with the landscape we saw. The regulations in this $450 billion global industry, with less than 10% U.S. online penetration, have required a physical presence and geographic boundaries in each state to operate the product consumers demanded – anathema to the borderless environment in which we’ve operated our businesses. To operate true sports betting and digital gaming, a provider is currently required to partner with a local casino operator. And while we believe that regulatory environments generally catch up with consumer demand, it’s taken quite a while in this category, so we found one of the leading players operating in 7 going on 11 states by the end of 2020: MGM, which pairs a strong physical presence and brand with talented online operators in a fast-growing joint venture in online gaming. Similar to Disney’s advantages over pure-play streaming companies with an iconic brand and multiple avenues to monetize the same intellectual property between streaming, theatrical releases, merchandise, and theme parks, we believe MGM also is an aspirational brand, which could be delivered with daily accessibility and offer gaming consumers (including the 34 million M-life Rewards members) a wider range of services, both physical and digital, than any competitor. And MGM, with its highly capable joint venture partner GVC, has only just barely begun to deliver these products.

The reality is, MGM is one of the strongest gambling brands on the planet. That has to be accepted full stop. But it’s not an internet-first company.

IAC is. By taking a 12% stake in the company, you are blending together an incredibly strong gambling brand with a brand that is known for creating exceptional digital companies.

I bolded one part of the above section that is worth calling out: 34 million M-life Rewards members. MGM has a direct line of communication to each and every one of those people. That is a huge position to be in and gives MGM an incredible leg up on much of its competition.

It would be very easy for MGM to start a campaign that basically says, “download our app and start betting. Start accruing value in M-life Rewards points and when this pandemic is over, cash those points in for free stays at your favorite Las Vegas casino.” I’ve been to Vegas a few times. The Aria is gorgeous.

IAC goes on to say:

And having served nearly 15 million paying subscribers throughout IAC’s businesses last year – and an order of magnitude more customers who don’t yet pay to subscribe to our products but use free or “freemium” versions of our services – we’d love to help MGM optimize its “funnel” of M-life loyalty customers and attract new digital-first audiences. 

It’s clear to me that this is exactly what they are thinking about. The reality is, IAC has generated billions of dollars from its various digital businesses and that knowledge it has acquired can be used by MGM.

Two weeks after this announcement was made, IAC’s Chairman and Senior Executive Barry Diller and CEO Joey Levin joined MGM’s board.

Like I said at the top, this is just the first inning of a long game. Online gaming is worth $450 billion globally. And if there’s one thing IAC has demonstrated a proclivity for, it’s monetizing internet brands.