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Blog Company Sugar Looks Beyond Ads for Profit


The fashion-oriented media outfit is cashing in on an e-commerce technology it licenses as well as a platform, OnSugar, for bloggers

You might spend some time with Sugar, the family company that owns and runs 16 blogs aimed at young women, and leave thinking its properties have the collective editorial heft of a strand of silk. Or you might see in Sugar an unusually canny media play that, with remarkable speed, attracted major advertisers—Mattel (MAT), Microsoft (MSFT), Neiman Marcus, I could go on—and diversified its revenues to a degree that most companies would envy. Since its formation four years ago, the San Francisco-based Sugar has gone from a simple blog to an ad-supported blog to a company that, according to co-founder Brian Sugar, last year derived 40% its revenues from non-advertising sources, thanks to an e-commerce technology it licenses and a platform that aspiring bloggers can use.

POP START

All this started—in the classic new-media equivalent of being discovered working at an ice cream shop—when Lisa Sugar, then 29 and employed by ad agency Goodby, Silverstein & Partners, began blogging about her celebrity obsession on a site she called PopSugar. At the time, her prior writing experience was largely restricted to e-mails and term papers. In a less classic fashion, Sugar, the company, came about a year later, when her husband, Brian, was working at a telecom company but mulling a media startup. "We basically took a lot of women's magazines and we sorted them by circulation and ad dollars," says Brian. "Glamour. Lucky. InStyle. Us. People. Bam! [We thought,] 'Let's go after that.'" They did, with $15 million from NBC Universal (disclosure: I am a paid contributor to its cable channel CNBC) and major venture capital firm Sequoia Capital.

Sugar's editorial voice skews so earnest and chipper—Lisa and Brian have both long stressed its blogs are snide-free zones—that it actually seems slightly dull by the standards of the Web. And it can't exactly go toe-to-toe with the titles Brian mentioned. Sugar's roughly $10 million of revenue last year would amount to a pretty bad single issue for People. Still, PopSugar started running ads in late 2006—Neiman Marcus bought the first ones—and PopSugar's spawn quickly proliferated: There's FabSugar (fashion), LilSugar (parenting), CasaSugar (home), GeekSugar (technology)...you get the idea. (Sugar trademarked KarmaSugar and AirSugar for future launches that would focus on volunteerism and travel, although Brian says the latter blog might also be called JetSugar.)

Its funding enabled acquisitions, most notably the shopping site ShopStyle. There, among other things, users can click on galleries of celebrity outfits to be directed to retailers' sites that sell those goods, or close replicas. Sugar gets a small fee either when a reader clicks through or when a related sale takes place, depending on how retailers' deals are structured. (Sugar also licenses ShopStyle's technology to InStyle's site, as well as those of other magazines it originally targeted.) In October, Sugar launched OnSugar, a platform on which bloggers can self-publish. OnSugar's platform enables Sugar to sell ads across all blogs published on it—and it allows users to take advantage of ShopStyle technology, thus opening additional ways for Sugar (and those bloggers) to wring revenue from the Web. Since half of Sugar's revenue last year came from non-ad sources, evidently all those clicks add up.

Still, Sugar has had growing pains. Late last year it laid off nine of its 80 or so editorial staffers. (Brian says it did so in order to hire an ad staff, since NBC Universal is no longer handling ad sales.) And Sugar's ambitions generally have forsaken the modest for the grandiose. An early investor presentation, according to reports, said Sugar would notch $15 million in revenue in 2008 and $40 million in 2009; don't hold your breath waiting for that, kids. More recently, Sugar has signaled that it foresees one day hitting $25 million in profit, with around 40% of revenues coming from non-ad sources. (Brian would not confirm or deny revenue and profit details.) That would be a tall order, even in a good economy. But subtract out some startup hubris, and Sugar suggests an interesting way forward for media.

Fine is BusinessWeek's MediaCentric columnist and Fine On Media blogger .

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