By David Johnson | @TurnaroundDavid
On Monday many in the journalist and tech communities were dismayed to learn that technology website GigaOm is shuttering. According to a note posted by company management, the company has exhausted its funding and is unable to pay creditors. The failure of GigaOm, which had raised $22.3 million in funding and which had been producing among the best tech writing to be found since 2006, highlights the vulnerability of venture-backed companies that fail to develop viable business models.
That vulnerability is of particular interest to media companies, as the venture community has been particularly receptive to making large bets in the space recently. The underpinnings of this enthusiasm is probably best exemplified in a recent Ben Thompson article that addresses the many ways in which BuzzFeed (which received a $50 million investment from VC firm Andreessen Horowitz in August) is upending the operating assumptions of its more traditional media competitors (such as the New York Times).
While Thompson is absolutely correct in pointing out the profit opportunity for a company that recognizes the implications of fundamental change in an industry, BuzzFeed and others like it are only one part of the story of the change overtaking media companies. I find the rearguard actions of established media companies to be more instructive (see here and here). Regardless, the common theme is that the ground is shifting, and just as the business models of established media companies are being thrown into disarray, their younger VC-backed competitors must navigate a path to profitability with few reliable guides.
In this environment, as the failure of GigaOm has aptly demonstrated, success will require much more than an aggressive management team and VC funding.