Facebook Inc. changed its newsfeed algorithm. You'll never believe what happened to Upworthy's traffic next.
At the end of last year, Facebook made substantial changes to the way that its little algorithmic worker bees assemble everyone's newsfeed. At the time, there was a lot of speculation that this was targeted at viral wondersites such as Upworthy, whose entire business plan seems to rest on clickbait headlines that multiply across newsfeeds like some sort of superbug.
Here's yours truly, joining in the speculationfreude:
Until 2011, entire public companies were built around gaming Google Inc.'s search algorithms, using networks of low-quality content to move themselves up the search rankings for popular terms. Then Google changed its algorithms, and those companies lost a huge chunk of their revenue overnight.
This is a recurring theme in the tech world. Last fall, Facebook Inc. changed the way its algorithms dealt with Facebook pages, which had the effect of de-emphasizing content from businesses. Those businesses had often spent a great deal of time and money building up their Facebook pages, offering people discounts or free merchandise to "like" their pages on the theory that once you had a follower, you'd be able to send them free advertising forever. Then Facebook changed the rules, and suddenly those followers were worth a lot less. Meanwhile, Facebook expanded its advertising offerings, leading to suspicions that the algorithm change was aimed at making page owners pay to promote their content. (Facebook says it was trying to improve the quality of the user experience.)
Now Facebook is changing the algorithm again, and a lot of analysts think it is targeting sites such as Upworthy, which make money from getting their content to go viral on Facebook. Like others before them, those sites may end up learning, the hard way, a wise rule I heard in business school: "Never build your house on someone else's land."
When you build your business on someone else's real estate -- real or digital -- then they are probably going to get most of the profits. Airport concession stands charge a premium for what they sell, because where else are you going to go? But the airports, not the vendors, reap most of those extra profits. If those businesses suddenly get more profitable, you can bet the rent will go up to match.
And what the real-estate owner giveth, the real-estate owner can taketh away. Most of the businesses that got hosed by Google's algorithm change never really recovered.
Could the same thing really happen to Upworthy and its clickalicious headlines?
The jury's still out. But Business Insider's Nicholas Carson notes that since the change, Upworthy's traffic is, well, not up:
In November, viral-content-for-a-cause site Upworthy posted insane traffic numbers, reaching almost 90 million people around the world, according to Quantcast.
Then, in December, Facebook announced a change to the algorithm it uses to determine what kinds of updates ("stories") users see in the News Feeds. In a blog post, Facebook said it wanted to feature more "high quality" content and fewer "meme photos."
That same month, Upworthy's traffic dropped 25% -- reaching 67 million people around the world between December 1 and December 31.
Then, in January, Upworthy traffic dipped even lower -- to 48 million people.
That's a 46% traffic decline in two months.
Carlson notes Upworthy might be able to get that traffic back -- if it paid Facebook for the privilege, as Buzzfeed Inc. does. But that's going to cut pretty sharply into Upworthy's margins.
All of which reinforces what I discovered more than a year ago, when I began to poke around on Facebook ads: When you build your business around Facebook, ultimately, it's Facebook's business you're building, not your own.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
(Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter@asymmetricinfo.)
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