Rapidly Digitizing, Old-Line Companies Are Putting New Pressures On Internet Startups

Not every company born on the Internet is Amazon. Some are Mashable and BuzzFeed and Blue Apron. And for that distinction, CEOs of traditional media companies, grocery retailers and other members adjusting from the pre-digital days can be thankful.

In fact, one of the most significant trends shaping global business now is that virtually every industry has become digital in a huge way and at  pace that is only accelerating. Internet startups are helping create that transformation, to be sure. But things are looking better as well for old-economy companies that are executing digital overhauls of their operations in attempts to protect existing markets and customers – and sometimes capture new ones.

Consider how Kroger, Food Lion and other supermarket chains are expanding into home delivery of groceries and other items, and some are experimenting with assembling kits of meal ingredients and dropping them off at customers’ homes at well. If the latter strategy sounds a lot like the one created by meal-kit startups such as Blue Apron – that’s the point.

As a result in part of how traditional grocery brands are punching back, Blue Apron is experiencing corroding sales, and co-founder and CEO Matt Salzberg has stepped down from the top job. The New York-based startup is searching for a new CEO just a half-year after its initial public offering in June, as its stock price declined by about 70 percent from the IPO price.

“the black hole created by Google and Facebook continues to suck in every piece of advertising revenue online that isn’t nailed down.”

Salzberg is blaming production difficulties for his own difficulties – he will stay on as executive chairman – but there’s no question that proliferating competition from supermarket chains that are punching back, as well as from other internet delivery start-ups, has soiled Blue Apron and brought its business model into question.

And Blue Apron is struggling even before the entire, nascent home-delivery sphere feels the impact of whatever Amazon is doing to do with the Whole Foods Market brand that it just acquired.

Meantime, while more traditional media companies such as News Corp.’s Wall Street Journal and the New York Times have made progress on digital subscriptions even as their print circulations fade, some of the online-only publishers that turned the industry upside down have themselves begun running into problems, including Mashable, Buzzfeed and Vice Media.

There’s turbulence in the digital-media world in part because of online-ad sales pressures that make it difficult for publishing upstarts to live up to lofty expectations. Competition is intensifying. For one thing, digital media companies such as Mashable are having difficulties scaling up some lines of business, such as creating custom content for brands.

And the black hole created by Google and Facebook continues to suck in every piece of advertising revenue online that isn’t nailed down, tightening their dominance on the market and boosting competition among everyone else for what is left.

So Mashable, which is buzz-worthy for its articles on popular culture and technology, agreed to sell itself to trade publisher Ziff Davis for $50 million, according to the Wall Street Journal, only a fraction of the $250 million valuation it received in its last investment round in March 2016.

BuzzFeed CEO Jonah Peretti has bid adieu to President Greg Coleman and also has laid off about 100 employees, or about 6 percent of the workforce of the digital publisher. Revenues in 2017 fell an estimated 15 percent to 20 percent short of Peretti’s target of $350 million. And it now looks as though prospects for a 2018 IPO have become remote.

And Vice Media just placed two top executives on leave after sexual-harassment allegations were reported against them in a New York Times investigation that detailed treatment of women at the company.

In publishing and food delivery, online startups exploded old paradigms, created new industries and became existential threats to old ones. But as they have matured, some of the fresh players are running into unexpected resistance – including from traditional giants that are fighting back.

SHARE
Dale Buss

Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.

PARTNER CENTER