Ad-Supported Media Businesses Are No Longer Viable

Since being founded in 2003, Mode Media, formerly known as Glam Media, had been trying to run a content-based business model that could be scaled while being profitable and relevant. After thirteen years of trying, the company finally gave up this month and abruptly shut down shop. The incident is yet another datapoint in the broader phenomenon driving the media industry: ad-supported businesses simply don’t work unless you are Facebook or Google.

Mode Media’s Financials

Brisbane, CA-based Mode Media was founded as Glam Media by Apple and NetObjects veteran Samir Arora and VC Tim Draper. It operated a media discovery engine that connected people with others based on common interests. By focusing on curated fashion and lifestyle content, Glam Media created a platform that soon became known for the large number of female audience that it attracted. To gain a wider market reach, Glam Media re-branded itself as Mode Media in 2014 and also expanded its services to include video streaming.

Mode’s content business operated by outsourcing content creation to individual journalists, writers, video producers, and other content creators. The company would certify the writer to ensure quality of content on its site. Its quality and content helped Mode remain among the leading sites in the US. But interest had been waning.

According to a comScore report for February this year, Mode Media was the tenth largest digital media property in the country with a following of 137 million unique monthly visitors. While there was still enough traction on the site, traffic was declining. A year ago, comScore had ranked Mode Media as the 7th largest digital property with 150 million unique monthly visitors. By last month, traffic to the site had fallen 26% over the year.

Mode earned revenues through advertising. It shared proceeds from the advertisements with its portfolio of more than 12,000 content creators. It was privately held and did not disclose detailed financials, but analysts estimate that it earned $90 million in revenues last year. It was estimated to earn more than $100 million in revenues this year. Mode was not yet profitable.

Overall, Mode had raised $245 million in venture and debt funding from investors including 137 Ventures, Accel Partners, Aeris Capital, BDCA Venture, Inc., DAG Ventures, Draper Fisher Jurvetson (DFJ), GLG Partners, Hercules Technology Growth Capital, Hubert Burda Media, Information Capital LLC, Mizuho Venture Capital, Silicon Valley Bank, and Walden Venture Capital. Its valuation was not disclosed, but analysts estimated that it was a member of the Billion Dollar Unicorn club.

Mode’s Turmoil

Mode had been very quiet about its troubles till recently. In April this year, co-founder and CEO Samir Arora stepped down from the leadership position. Board member Marc Andreessen also quit and the company was left in the hands of temporary CEO Jack Rotolo who had the backing of its investor Burda Media.

Mode may have had the right idea behind creating and sourcing content, but it failed to create a workable financial model by keeping in tune with the digital advertising trend. Since being founded, Mode’s core market of digital advertising had shifted to a programmatic ad model where online ad spaces were bought and sold through automated exchanges. Mode’s ad platform was soon obsolete. Mode tried to address the issue by creating native digital and video ads. But the move was expensive and maybe a little too late.

The company’s investors, especially Burda Media, was already losing faith in Samir’s capabilities. The board began to question his heavy spending, financial accounting policies, and business decisions. In the end, Samir stepped down and was replaced by Jack. But that did not help either as Mode was still draining funds. Over the past few months, Mode was looking for additional funding, but it appears that the investor interest had dried. In the absence of further funds, Mode finally had to shut down. The company closed doors without prior notice and left behind angry employees and bloggers who have not been paid. Clearly ad-based revenue models don’t work for everyone – especially content aggregators and even content producers unless there is heavy-duty, algorithmic targeting capability to get the ads in the hands of niche audiences as Facebook has shown how to do.

Looking For Some Hands-On Advice?

For entrepreneurs who want to discuss their specific businesses with me, I’m very happy to assess your situation during my free online 1M/1M Roundtables, held almost every Thursday. You can also check out my free Bootstrapping course on Lynda.com here, and follow my writings here.

Photo Credit: existentist/Flickr.com.