Interview with PayPerPost VC Dan Rua

PayPerPost is an online marketing company that allows advertisers to pay bloggers for product mentions and reviews. The company has received negative press from bloggers, including myself, who consider the practice unethical. I decided it is only fair to give PayPerPost an opportunity to address these concerns and tell their side of the story.

See Also

*Jason Calacanis Interviews PayPerPost CEO Ted Murphy
*Google is working to punish paid link blogs
*The FTC enforces disclosure on paid blog posts

 

INTERVIEW WITH DAN RUA OF INFLEXION PARTNERS

Dan Rua is a managing partner with Inflexion Partners, a partner fund of Village Ventures. He is also a former partner of the east coast affiliate fund of Silicon Valley’s venture firm Draper Fisher Jurvetson (DFJ). Inflexion Partners, Village Ventures and DFJ have invested $3 million in funding PayPerPost. Dan’s venture capital blog is Florida Venture Blog.

Dan, thank you very much for taking time to talk about PayPerPost. Before we begin, for full disclosure, can you describe your relationship with PayPerPost?

Sure. I am Managing Partner of Inflexion Partners and was the lead investor in PayPerPost’s first round of venture capital. Along with investment, I joined PPP’s board of directors. I also participate in PPP’s marketplace as a blogger and a sponsor.

Can you summarize PayPerPost’s business for our readers?

PayPerPost’s marketplace is like an eBay for consumer content creators such as bloggers, videographers, podcasters and photographers. On one side of the marketplace are sponsors, for example advertisers, marketers, and content seekers, and they create opportunities that describe the content they are looking for, that is, feedback, reviews, buzz, creative, video. On the other side of the marketplace are content creators, or “Posties,” and they review those sponsored opps in an open marketplace fashion looking for topics that interest them. Once they find an interesting opp, the content creator performs the opp, like creating the requested blog post or video, and notifies PPP that they’ve done so. PPP then reviews the post against the opp requirements and PPP terms of service, e.g. disclosure required, no adult content, and handles payment. The result is a marketplace business model that delivers significant marketing ROI by leveraging the creative and intellectual talent of the masses.

For comparison, ReviewMe.com requires a full product review, full disclosure, and lets bloggers review positively or negatively. PayPerPost lets advertisers purchase casual blog mentions with specific links and anchortext, requires a positive review, and lets bloggers select their form of disclosure. Did I get that correct?

Good question, but no. You’ve summarized some of the narrow assumptions that casual observers often hear and repeat. ReviewMe and the other copycats offer a subset of what PayPerPost has pioneered, because product reviews, full disclosure and open-tone opps are all possible with PayPerPost – it all depends upon what a sponsor is looking for. For clarity, I’ll provide some more detail below.

Reviews are just the tip of the iceberg when you understand sponsored CGM is about leveraging the creative talent of the masses. An example to make it clear that reviews are a limited view, think about the talent/awareness Nike can harness by devoting their next $100,000 TV commercial budget to sponsoring 1,000 consumer generated slam-dunk video bloopers at $100 each – spread across those 1,000 blogs. No “review” of a product is involved, just creative talent. PPP has also used their marketplace for recruiting and even partner due diligence, securing dozens of feedback posts on a partner’s technology within 48 hours – something that would be impossible if diligenced manually.

Full disclosure is such a fun, loaded, ambiguous phrase. PPP competitors claim it, but then remain silent on what must be said so they can claim more than really exists. For example, is “I found this at ReviewMe” sufficient; or what about having a “sponsored” category listed in the post – how would it work with an indie movie funded via product placements? Elites demand it and then refuse to have their own Disclosure Policy. PayPerPost requires full disclosure in-post or via a sitewide Disclosure Policy. In fact, PayPerPost created http://www.disclosurepolicy.org/ to help raise awareness of the issue and help people draft their policies for direct and indirect conflicts. The Disclosure Policy framework is pretty powerful, modeled after the Privacy Policy framework designed to help everyone avoid identity theft. Like any network-effects framework, as Disclosure Policies become expected by audiences their power grows even more – particularly for transparency of the elite bloggers who have so many lucrative direct and indirect conflicts that slip by today. PPP also launched in-post disclosure badges in February. As a pioneer in the space, PPP is leading through innovation while always allowing sponsors and posties to do more than is required.

Open-tone opps and specific-tone opps have always been a part of PPP’s marketplace, with open-tone opps being the majority. My anecdotal experience has been that some new sponsors test the system with specific-tone opps before going open-tone and I can understand why – this is a scary medium for a guy with a small marketing budget and a boss who would never understand paying bloggers to slam the company. I’ve also heard advertisers say they’d like to have a public conversation with their happy customers and will pay for doing so – sounds reasonable. If you think of every other advertising medium, marketers are used to paying for the specific message they want, including sponsor-written copy. For example, Tiger Woods doesn’t get paid to discuss pros and cons of the new Buick. With that in mind, it still surprises me how many advertisers follow Ted’s advise to go open-tone or neutral – but most of them do.

The last note I’d make as it relates to competition is that PPP’s marketplace has seen 10X-100X the number of sponsored posts of the rest of the industry combined. PPP has the most content creators and the most sponsors. As such, we measure ourselves against bringing value to those customers and their audiences instead of competitive feature-sets. If our customers tell us a competitor has something they like, we may add it, but Ted is usually a couple steps ahead.

What steps has PayPerPost taken to ensure bloggers are complying with the FTC’s requirement of “clearly and conspicuous” disclosure? Do you believe PayPerPost will satisfy the FTC?

As a marketplace for sponsors and content creators to connect, it’s unclear what responsibilities PPP has, if any, regarding FTC compliance by marketplace participants. For example, is the classifieds marketplace that connects a marketer and an ad copy freelancer responsible for compliance by those parties? I doubt it. I’m no FTC expert, but when you have internet media convergence of radio product endorsements, affiliate programs, pseudo-commercials on YouTube and movie product placements, you’ll drive yourself nuts trying to read the FTC’s mind.

That said, PPP requires full disclosure by its participants and will continue to recommend best practices and innovate tools to maximize transparency. Ted’s recent “Disclose, Disclose, Disclose” post is a good example of trying to help marketplace participants get it right. However, at the end of the day, the sponsor and content creator have the responsibility for “clear and conspicuous” disclosure to their audiences.

I would also share that the FTC has claimed they are focused on cases where product buying decisions are specifically influenced. As such, it should be interesting to watch any scrutiny of the multi-billion dollar affiliate industry. Given that affiliate pioneers like Amazon are direct sellers of product, that is, not a marketplace with no “products” like PPP, and make no mention of disclosure in their ToS and a blogger embedding an affiliate link in their blog product review only gets paid if they can convince their audience to click and buy, then you have a very direct influence to payment connection.

The PayPerPost Advertiser FAQ instructs PayPerPost advertisers about Seach Engine Optimization, Anchor Text, and Google Page Rank. This seems an awful lot like blackhat SEO… Is PayPerPost a tool for gaming Google? Is this an unethical business model?

Actually, the FAQ basically defines those terms, along with others like “blog” and “post”. PayPerPost is a marketplace for sponsoring consumer generated content. When similar organic content typically includes links, you’ll find them with sponsored content as well. Quality content is the common ground for all constituents; sponsors, content creators, audiences, SE’s and PPP. That’s one of the reasons PPP implemented their quality rating system, similar to eBay buyer-seller feedback, to encourage quality and discourage abuse.

I don’t invest in unethical business models. I do back disruptive businesses with the potential to change the status quo and disintermediate the “old guard”. Only six months into the investment, PayPerPost is definitely doing that and blogging’s “old guard” elites know it. Just as eBay PowerSelling created an entirely new cottage industry, I see PPP changing people’s lives for the better.

Can you explain Review My Post for our readers?

“Review My Post” is PayPerPost’s newest affiliate program that is open to any bloggers, not just sponsored bloggers. It’s like your typical cost-per-action affiliate badge that pays the referrer for each referee, but with a proprietary viral twist. Instead of a boring badge on the sidebar – PPP has those too – RMP provides a “Get Paid to Review My Post” badge for inclusion as flare in the footer template of every blog post. Then, any audience member who has some feedback for the referring blogger can click the RMP button, signup with PPP and get paid to share their feedback at their own blog. The result is a clear win-win-win for referring blogger, referred blogger and PPP. The referring blogger gets feedback and marketing of their blog on someone else’s blog – on PPP’s dime – and they also get $7.50 for the referral. The referred blogger gets $7.50 for the feedback post and now has access to the full marketplace of PPP opps. PPP gets a new customer.

I’d guess that 99% of all feedback that people could share about a blog or post stays locked inside audience minds. PPP is betting that $7.50 is enough to get people sharing those thoughts more readily – which creates a nice feedback loop for blog improvement and marketing.

As you wrote in Florida Venture Blog, RMP is truly viral. By paying people for linkbacks, I could see RMP blogs quickly outstripping non-PayPerPost blogs. Do you see this happening?

I’d be delighted. Even if people start out with an RMP-only goal, once they see how easy and natural it is to provide sponsored feedback, they typically find more fun stuff in PPP’s marketplace to write about. I don’t know about you, but frequent blogging often creates writer’s block and I see PPP as a “Marketplace of Ideas”.

The LA Times reports a law firm using PayPerPost to pay bloggers to write “creative” accounts of a birth control patch killing and injuring young women. And a drug rehab clinic paying PayPerPost bloggers to make up “believable” testimonials of their rehab clinic. Is PayPerPost responsible or in any way liable for the messages of its advertisers?

I, personally, don’t like the examples the LA Times referenced, but I do know the author took a negative slant so their examples wouldn’t be representative of the marketplace as a whole. Just as eBay, Google, Yahoo and other large population sites have, sponsored blogging will always have its bell curve of model citizens, average citizens and abusers. PPP’s system is built to reward quality and discourage abuse. Unless you are going to become the thought police and decide what the long tail is allowed to talk about, you have to understand it’s a diverse world and do the best you can.

On March 9th, the LA Times writes that PayPerPost generates hundreds of thousands of dollars in monthly revenue and has over 15,500 participating blogs. This is pretty impressive! Can you confirm these numbers?

I don’t think it’s smart to share exact financials for private companies that I invest in. I can tell you that we’ve blown past the numbers referenced in that article and March will be our biggest month ever.

Where do you see PayPerPost in one year?

Still working hard to bring value to all constituents. It took some time for the world to realize that GoTo/Overture’s sponsored search wasn’t the end of the Internet. In fact, sponsored search has become the engine that underpins much of what we love about Google, Yahoo and others – it is arguably the most successful Internet business model ever. I think sponsored content has the same potential as a business model, with even greater potential to change people’s lives. Instead of all the rewards flowing only to a central gatekeeper like Google, the masses get to share in the success…

PayPerPost CEO Ted Murphy is recording the company’s progress through his online show, Rockstartup. The LA Times reports Ted is pitching the show to networks. What do you think of the show? Do you think it has a chance?

I’m skewed because I’m a venture capitalist. I love behind-the-scenes stories of entrepreneurial struggles and successes. I see it as a very entertaining net reality show – the first “real-time reality” show – instead of being edited and polished six months after reality. The real-time element also worries me because I don’t want to show anything that could hurt the company competitively. I think it has a great chance of connecting with people and it already has. Early interest from networks has been better than I expected, but that’s because I view networks as just icing on the cake. It has already paid for itself in recruiting, marketing and other areas of ROI.

Anything new we should look for from PayPerPost or Inflexion Partners?

I’ve backed and built a lot of companies, but PayPerPost honestly has “new things” more often than any I’ve been around. Ted is a workaholic and the team is a fun group. Therefore, there is always a big announcement right around the corner – maybe two!

As for Inflexion, our portfolio is looking pretty good with a diversified mix. I’m having a lot of fun, with a lot of passionate entrepreneurs. We came close to doing MyBlogLog, but I’m really happy about their outcome. Some of the early social media companies I’m currently following include TheGorb.com, Orangeply.com and GrooveShark.com – visionary founders behind all of them.

Thank you very much for your time, Dan. I know I asked some tough questions, so I appreciate you taking time to give PayPerPost’s side of the story. I wish you the best of luck on Inflexion.