Influencers Transcript: Vivek Shah, CEO of J2 Global

ANDY SERWER: Hello, everyone. I'm Andy Serwer. Welcome to "Influencers," and welcome to our guest today, Vivek Shah, the CEO of J2 Global. Vivek, great to see you.

VIVEK SHAH: It's great to be here, Andy.

ANDY SERWER: So we've known each other for a long time. We've gone from print business people to digital business people. You're now, as I said, head of J2 Global. So first of all, tell us what J2 Global is.

VIVEK SHAH: So we are a portfolio of internet businesses, software and digital media businesses. We operate over 45 brands, brands like Mashable, IGN, Humble Bundle, Viper, Eye Contact, and really brands that are sort of guiding the shift from analog to digital, so where you started, right? Going from the analog world to the digital world.

We are a highly acquisitive company. We've done over 180 transactions in the 20 plus year history of the company, and we see a lot of opportunity in the shift.

ANDY SERWER: So there's so many of these companies out there, Vivek. And people probably haven't heard of all the brands that you own. What is this world like? I mean, it seems like there are thousands of these brands out there. Consumers are struggling to sort of figure out where to go, what to turn to. Talk about the ecosystem.

VIVEK SHAH: Yeah, so we look for brands that have actually survived multi decades. Because the internet business changes quickly, because innovation-- you see innovation nearly daily, brands that have shown the ability to kind of sustain through all of those periods are really attractive to us. So it all really started with me, relative to J2, with a brand called PC Mag, which was PC Magazine, which was the leading technology review publication in the print world.

We took that magazine, which was a printed magazine, turned it into a digital business, and it's thriving. And it's thriving through traditional advertising mechanisms but through affiliate commerce and lead gen and other forms of monetization. And we've done that with IGN, and we've done that with-- we're doing that right now with Baby Center which we just acquired earlier this year.

And what we're really trying to do, at least in our content businesses, is really find a business model for content. As you know, content brands can be struggling, whether they're print and even digital brands. And so what we're looking for are ways in which we can make these businesses thrive.

ANDY SERWER: I want to talk about that business model in a minute. But first, I mean, in a way, it seems like you're trying to roll up the ocean.

VIVEK SHAH: Yeah.

ANDY SERWER: Right? There are so many companies out there. Like, how do you decide what to get? You talked a little bit about something with potential. But you know, is there endless opportunity? What's your total addressable market?

VIVEK SHAH: I mean, it is endless, but the way we go about evaluating acquisition opportunities, and we-- it is a systematic and programmatic approach to sourcing, evaluating, diligencing, transacting, and then integrating these companies into ours. I mean, this is what we do. If you asked me, what is the single great competitive advantage of the company, it's that acquisition system.

And so we have the ability, I think, to see value where others don't. I think we also have the ability to create value where others can't. And whether that's because we have a business model that we can bring to the equation or we have technology or a platform that we can bring to the equation or management and leadership that we can bring to the situation, those are the ways in which we can create value.

So when we look at a situation, we look fundamentally at the company. And we sit there and say, what is it that we think we uniquely can do to make this company either work or work better. Often, it's just changing the ownership dynamic. What you find with a lot of internet businesses is that they're venture-backed. And when you get on that venture track, from that moment you take capital, you're trying to justify that valuation. And what can happen is you do unnatural things to drive revenue at any cost. And so you'll generate revenue, but you're not generating profit.

We'll look at a situation like that and say, but is there a profitable core in there? Was there a moment where there was something inside the nucleus of that business that was a quality business that has somehow been overshadowed by all of these other activities that were designed to satisfy a venture valuation? We see that a lot, and I think we're going to continue to see a lot of that in this environment.

ANDY SERWER: Well, of course, then I have to ask you about the big IPOs this year, Vivek, which is to say, you know, the WeWorks, which tried to IPO of course, Uber, and a lot of them seem to be suffering through some of the process you were talking about, which is growth at any cost, talk about profitability later. Is that sort of era of the unicorns in the view mirror right now?

VIVEK SHAH: Well, look, I'm reminded, you know, of the first internet bubble, and it was about eyeballs. And it was about reach and metrics that weren't traditional metrics of valuation and weren't traditional ways in which you could assess the value of a business. And then I think in more recent times, yeah, I think it's been a lot of top-line growth and no focused on profitability or future profitability. And so I do think the market is adjusting, both the public markets and the private markets, around demonstrating operating leverage, demonstrating the ability to generate cash flow. You may not have to do it right now, but you have to demonstrate a path to profitability and then a path to profitable growth.

And so it may be that our time has come because for the last few years, it's been sometimes challenging to run a business in the traditional way where we're very focused on our margins and we're very focused on our free cash flow and building on our free cash flow when the market seems to be valuing revenue growth at any cost with revenue multiples. I do think we're starting to see that pendulum swing.

ANDY SERWER: I mean, do you get companies that would come in and pitch you and say, don't worry about profitability. We're just growing like crazy, and we've got all these ways to grow, right?

VIVEK SHAH: Absolutely. And then you'd go into the unit economics of the business and say, well, wait a minute. If you're spending $1 to make $0.75, at what point do you get to profitability? And often, there wasn't a good answer for that. And so those are situations you'd stay away from unless, however, there was a component to the business that was profitable. I'll give you a great example.

We bought a company called Mashable-- big technology, digital culture site. Where Mashable launched, and for much of Mashable's early history, it did very well. It was a profitable business and it was cash flowing. It then raised money at a $250 million valuation and started to move into a lot of non-core areas to the point where once they had burned through all the capital they had raised, they were losing $16 million a year.

We look at a situation like that and say, right, but there was a profitable business there once. Can we reclaim that business? And today, that business makes $8 million a year for us.

ANDY SERWER: What did you pay for that business?

VIVEK SHAH: So we paid probably under $50 million, $40 to $50 million for that.

ANDY SERWER: As opposed to the $250 valuation?

VIVEK SHAH: Correct. And we're in-- we're in it basically, you know, five times earnings, which is what we look to do.

ANDY SERWER: And how sustainable is that run rate at Mashable? I look at Mashable, quite honestly, Vivek, and I'm just-- you know, what is it? What's its consumer mission? It's got a lot of different things going on there.

VIVEK SHAH: Well, I think we've narrowed that. I think maybe the view-- the experience you had with Mashable was the older Mashable or the Mashable prior to our ownership, which is only in the last couple of years, where it was trying to do too many things and where, you know, the brand was getting stretched in ways that it didn't need to be stretched. But to answer your question on the long term, the way we look at this is, at least within our portfolio, we now have the business at a stable, strong cash flow position. I'm not looking for it to grow strong high double digits or triple digits. It doesn't need to do that. It's inside of a portfolio of businesses, each of which is-- you know, has its nice quantum of organic growth. But we drive a lot of our growth in finding the next Mashable.

ANDY SERWER: So what is Mashable today, then? What-- from a consumer standpoint, like--

VIVEK SHAH: To me, it's digital culture. It's anything that has to do with digital culture. And that's social media, that's the internet, it's Tik Tok, it's Snap, it's all of those pieces. And there's an audience for that-- understanding how to navigate digital culture, how to use these new platforms, how these platforms themselves are evolving.

ANDY SERWER: So you're kind of the digital media guy who cares about profitability.

VIVEK SHAH: Yes.

ANDY SERWER: That's kind of, like, an unusual animal, right?

VIVEK SHAH: Yes.

ANDY SERWER: I mean, not just one of these--

VIVEK SHAH: Yes.

ANDY SERWER: --guys, right?

VIVEK SHAH: Yeah.

ANDY SERWER: So do you get pitched dozens of companies every week, or what is that like?

VIVEK SHAH: Yes, so we are-- we're fairly well known as an acquirer. You can't do 180 acquisitions and $3 billion of acquisitions and not be known within both digital media and software as a buyer. So we do get a fair amount of inbound. What I will say, though, is that we're very good at tracking the companies that we think would fit into our portfolio, and we try to transact and invite them into our business ahead of them running a process. I think that generally works better for us, so it's both, right?

ANDY SERWER: Right.

VIVEK SHAH: It's us maintaining relationships with businesses. I'll give you a great example. We own a company called Ookla, which operates--

ANDY SERWER: How do you spell that?

VIVEK SHAH: O-O-K-L-A.

ANDY SERWER: Of course.

VIVEK SHAH: So you may not know the company, but I bet you know their application. So they own Speedtest, we own Speedtest. It's on 300 million devices worldwide. It has never paid for an installation. In other words, organically, individuals on-- have installed that app on their phones. It allows them to test speeds.

It was a company we got to know because it was a data provider to PC Mag in PC Mag's annual rankings of fastest mobile networks. So they would provide data for that list. So we got to know the company, and it was a company that primarily made its money through advertising. Every time you took the test, you'd see ads.

ANDY SERWER: Right.

VIVEK SHAH: And the volumes were so large that it was a reasonably good business. What we were able to do is say, but wait a minute. You have these single best crowdsourced view into the quality and status of different broadband networks around the world. You know mobile networks. You know fixed broadband networks.

This data set would be extremely valuable to the broadband industry, right? So carriers and ISPs and device makers and cell tower companies and governments, they want to understand the real life experience of people with their devices. And so today, that's a data subscription business. It's not an advertiser.

ANDY SERWER: Wait, so how does it work then specifically?

VIVEK SHAH: So we will sell to a carrier--

ANDY SERWER: Right.

VIVEK SHAH: --a real-time feed of the crowdsource data so they can understand how their network is performing within this building relative to other networks within this building. So say, for instance, AT&T versus Verizon--

ANDY SERWER: Right.

VIVEK SHAH: --on different handsets with different OS at different times of day.

ANDY SERWER: Are they getting my data, my personal data by doing it?

VIVEK SHAH: It's not personalized data. So it's aggregated, crowdsourced data. It's not personally--

ANDY SERWER: So there's no privacy concerns, you think?

VIVEK SHAH: No.

ANDY SERWER: And so let me ask you just more about--

VIVEK SHAH: And we should talk about privacy later because we view that as a big business opportunity.

ANDY SERWER: I'm sure it is.

VIVEK SHAH: Let me ask you more about the business model that you guys espouse, and it sounds like it's a mixed one, Vivek. So in other words, you're not just doing ads. You're doing lead gen, you're doing subscriptions. How does that all work? I mean, it's great to hear that because I think, obviously, advertising is just a spiral down the drain, particularly banner ads, for instance. But how do you decide what the mix is?

VIVEK SHAH: So it starts with, as a company, we value highly-recurring revenues. And so the two principle ways in which we make money are subscription, and that's understandable from a highly-recurring revenue point of view.

ANDY SERWER: Yeah.

VIVEK SHAH: And the other half is advertising, but our advertising business is different. It's not delivering impressions as much, which is sort of the traditional banner advertising that you talked about. It's generating customers. It's being able to generate actual transactions, generate leads. And we do that because we operate really endemic content businesses, right?

ANDY SERWER: Right.

VIVEK SHAH: So this is tech vertical, gaming vertical, health care vertical are our primary verticals.

ANDY SERWER: Right.

VIVEK SHAH: We're not horizontal. Most of what we do is service journalism. It's not news journalism.

ANDY SERWER: Right.

VIVEK SHAH: And we see different monetization characteristics with service journalism. And so if you look at this advertising business, because we have endemic advertisers for whom we're delivering customers, our advertising business is 90% recurring.

ANDY SERWER: Right.

VIVEK SHAH: It's the same customers. And so we love the stability that comes with that. We're not starting from zero every year in our advertising business. It's like a subscription business.

ANDY SERWER: And you know, that may not sound so sexy out there. It's not-- you don't have tons of brands that have, you know, huge name recognition. On the other hand, your stock is up 4X over the past seven years, and why is that?

VIVEK SHAH: Well, I think we're executing. So we've had 19% revenue growth over the last five years. We've had 17% earnings growth. We convert about 69%, 70% of our EBITDA into free cash flow. We take that free cash flow, and we largely deploy it for our acquisition program and then are able to continue to build on our cash flows. It's kind of a flywheel. We run our businesses for cash. We then spend that cash to buy businesses that we then optimize for cash, which, in many industries, may not seem unusual.

ANDY SERWER: Right.

VIVEK SHAH: In the industry in which we operate, it is somewhat--

ANDY SERWER: It's completely novel.

VIVEK SHAH: It--

ANDY SERWER: You guys actually like to make money.

VIVEK SHAH: Yeah.

ANDY SERWER: It's pretty crazy. Hey, Vivek, let's switch over and talk about you a little bit. As I said, we knew each other years ago-- for many years-- at Time Inc. Tell us about where you're from-- I know you went to Tufts--

VIVEK SHAH: I did.

ANDY SERWER: --your background and navigating from traditional media to digital media.

VIVEK SHAH: Yeah, so I grew up in Queens. I'm a born and bred New Yorker. I was actually the first person in my family born in this country. My father came here in 1962 for college, went to Bucknell, which I always think about what it must have been like from him coming from India to go to Bucknell, and really established our family here. I went to Tufts, and I thought I was actually going to be a journalist. I was the editor in chief of some campus publications and looked at myself in that category of the media world and got my first job at Time Inc. It was on the business side. And so I stuck on the business side, really--

ANDY SERWER: Were you disappointed when you got the business thing instead of a journalist thing?

VIVEK SHAH: No, you know what, I found out that, you know, the process--

ANDY SERWER: You found out that people make more money on the business side. That's what you found out.

VIVEK SHAH: No, what I did find out was--

ANDY SERWER: I'm right about that one.

VIVEK SHAH: I-- you know, I often approach problems like a journalist. You ask a lot of questions, and you rarely take the first answer as the truth. And I think if you employ that in the context of business, you can be quite good. And I've said this. Sometimes I find that, you know, journalists make great business people because they are incredibly inquisitive, and they are really focused to get to the truth, to the fundamental truth, not to the surface truth. So went to Time Inc, and we worked together. And you know, I remember when you were managing editor of Fortune, I said this-- you know, I've said this multiple times. You were one of the first five-tool players. You could write long form. You could write short form. You probably had one of the first blogs.

ANDY SERWER: Yeah, "Street Life," remember that?

VIVEK SHAH: "Street Life," I do remember that. You did television. You did digital video. You did events. And at that time, no one was doing that, and you know that. And I would see that and say, wow, if we could create a generation of journalists that can do that, and today's journalists do do that--

ANDY SERWER: Yeah.

VIVEK SHAH: You can create a different kind of company. The other thing that the Time Inc experience taught me-- you know, we-- I don't know if you are at this. We went to the Bay Area to meet with different people to sort of get advice for Time Inc on what to do for its future, mid-2000s. And one dinner was with Marc Andreessen. And he, without missing a beat, said, burn the boats, meaning that the legacy print business, if you continue to keep that business, you'd always retreat back. You'd never be able to find your digital future.

And I remembered that, and I thought to myself, wow, you know, if I could put myself into a situation where the boats are essentially shipwrecked, which was what Ziff Davis was when I left Time Inc to acquire it with a private equity firm, which then J2 ultimately bought, which is how I arrived at J2, it was, in some ways, we had no choice. We had to forge a digital future. And I think a lot of the traditional print industry is still dealing with these challenges because the print businesses still make money.

ANDY SERWER: Tell us just quickly, like, when PC Magazine was still a magazine, I mean, you just call the guy at the printing press up and said we're done, shut her down?

VIVEK SHAH: So they were in the process of shuttering that anyway.

ANDY SERWER: Right, OK.

VIVEK SHAH: So that's what I-- it was-- anyway, I could look at the situation and said, you know what? The hard decision's been made, which is the print's not their future. And obviously, a technology publication would be the first to see the consequences of the analog-to-digital shift, right? That's-- you know, that's obvious. And so then we went in and said but now what? Just deleting one thing doesn't mean that this will magically turn into a thriving business. And that's where we sat there and we said we built an affiliate business. We built a licensing business. I learned that from Fortune--

ANDY SERWER: Yeah.

VIVEK SHAH: --where Fortune would do these lists and figure out ways to monetize lists. PC Mag would start to do these lists, and we look at ways in which we can monetize that list-- those lists. And so we're able to do that. And again, it's not just PC Mag. It's PC Mag, it's IGN, big video gaming brand. It is Everyday Health--

ANDY SERWER: Right.

VIVEK SHAH: --big in the health space. Right now, we're working on Spiceworks and Baby Center. So we keep finding opportunities that are not dissimilar to the one that started it all.

ANDY SERWER: Let me ask you about Amazon because every conversation about e-commerce, digital media has to include them. We can talk about the other tech giants too, but I want to focus on Amazon. Are they too big and too powerful?

VIVEK SHAH: You know, I don't-- look, I don't know if I'm qualified to answer that question. I think I can say, in the context of our business, Amazon's actually a very important partner in two ways. Number one, when we are driving transaction and getting compensated for a transaction, so that is you're reading a review, you see a Buy Now link, you click through and you go to an Amazon, Amazon compensates us for that, if that link turned into a transaction.

ANDY SERWER: Right.

VIVEK SHAH: And so in that way, they're an important retail partner for us, and they've been a good retail partner for us. We're also users of AWS.

ANDY SERWER: Right.

VIVEK SHAH: So we run a lot of our compute on AWS, and that's been positive for us. So from our perspective, they've been good to work with.

ANDY SERWER: But do they have too much power, do you think, Vivek? I mean, are they squeezing you?

VIVEK SHAH: No, I don't-- we haven't felt that. You know, we certainly haven't felt that. And look, we've been good at navigating all of the platforms. They're all important to us. Amazon is important to us. Google's vitally important to us. Google is the largest source of traffic for us--

ANDY SERWER: Yeah.

VIVEK SHAH: --and is all the instrumentation for our advertising business. And that's, by the way, probably a statement for every digital media company. They're very important to us. Apple's very important to us. When you look at the volume of traffic that is coming through iPhones and iOS devices, it's stunning. Obviously, the Android platform is the other half of that. And then you know, even Facebook-- I mean, Facebook is a source of traffic, a source of branding. Instagram as well, we do a fair amount of branded content on those platforms.

So I'm in the category of, you know, we have figured out ways in which to work with the various platforms. And I tend to find that they favor quality, and they favor premium. I tend to see that.

ANDY SERWER: Hey, the business model you were talking about, being applicable to verticals, you said, would these things work for a place like "The New York Times" and bigger news organizations like CNN?

VIVEK SHAH: You know, I've thought a lot about that and whether or not our strategy and our approach would be helpful to news journalism. And the answer is, I think, in part. I think, you know, newspapers have always gone beyond just hard news and gone into verticals. That's why we have sections of newspapers. And so I think what we're doing would work in those areas, and I think you're seeing it.

"The New York Times" acquired a company called Wirecutter. Wirecutter is in the affiliate commerce business-- recommendations and reviews and buying guides.

ANDY SERWER: But it's on the periphery of what they do.

VIVEK SHAH: But they do a fantastic job, and I think it's an increasingly important part of their profit making. But in terms of hard news, that's a little bit more challenging. And I think you'll have a handful of brands that will have the ability to command subscription revenue. I'm not sure about the rest, and that's a challenge. And so you know, I don't have the answer to that. I think societally, it's an important question because you don't want hard news journalism to suffer at all. The fourth estate is incredibly vital and important. I think we have parts of how to help with that, but the core of it is still a question mark.

ANDY SERWER: Let me ask you about being a CEO and politics. How responsible do you feel to speak out in terms of what's going on in the political realm?

VIVEK SHAH: You know, we don't-- I don't feel that I need to speak out. I feel more that I need to manage our company in a way that is consistent with the values of a responsible corporation. And so embracing diversity and inclusion, you know, understanding our environmental impact, these are things that I think in the behavior of our company I can influence the most. I also think editorially we can be influential. Now I don't-- I'll never tell the editorial teams what to do, but I'm proud of the work that they do. Take Mashable, runs its Social Good Summit every year, and it's impactful. And it's there to really frame important dialogues. It's not a moneymaker for us, but it has, I think, societal import.

We have a business called Humble Bundle. Humble Bundle gives tens of millions of dollars of money to charity. It's part of what it does. And so we are forgoing profit in our own business to be charitable, and this is a way for people in the gaming industry, both publishers and gamers, to be charitable. So I think those are the ways in which we try to influence things.

You know, I don't think our company is at the center of a lot of the social and political issues that go on. We're certainly-- I'm not called into to offer, you know, an opinion, and I'm careful because I understand that we have a diverse workforce. We have 3,100 employees. You know, not all of them think the same ways. And we have 4.6 million subscribers. We have over 1,100 advertisers. We have shareholders. We have analysts. We have our board. We have a lot of stakeholders. And what-- my promise to all of these stakeholders is that we will manage ourselves in the best way that we can, and that's where I feel like I can make the most impact.

ANDY SERWER: As a leader, though, and as a highly compensated leader, do you have concerns about polarization in this country and inequality?

VIVEK SHAH: I mean, I've always had those concerns. You know, I-- you know, I grew up, you know, in a very different way than the way, you know, I get to live today. And I've seen challenges in our society where, you know, it can be a struggle-- it's not an equal playing field. It's just a fact, right? And everyone might be running the same race, but we have all very different starting points. And I think every leader needs to understand that.

I think empathy is an incredibly important characteristic of any leader. And looking for ways in which for those where the starting points are dissimilar, how do you make it an equal race? How do you ensure that? I think that's a vitally important thing for anybody to be thinking about and use any platform they have to address the issues.

ANDY SERWER: Supporting anyone for president yet?

VIVEK SHAH: You know, I don't talk about politics. And you know what, I will tell you that-- yeah, I mean, look, I think that, at the end of the day, I love that we have a political system like we do where you've got candidates from all realms who can-- and run. And it's a process where I'm enjoying seeing my children engaged. You know, they're now getting to the age-- they're still young, but they're watching. They're trying to understand the process. And as long as the process has the integrity with which it needs to have then I think things will work themselves out.

ANDY SERWER: All right, last question about politics, V. Facebook ads, they say their political ads, they'll allow lies, mistruths by candidates. What do you think about that?

VIVEK SHAH: You know, so I think we have to make a distinction. I think a lot of people need to define advertising. I think the challenge is what is most problematic are ads posing as articles that then can be amplified through the advertising system inside of social media. I think that's a problem because I think people think they're reading content, journalism. It's not ads that are clearly ads. I think that's the issue.

And so you'll remember, when we worked together, we went to great lengths to make sure people understood what's content, what's journalism, and what's an ad. And I think in these platforms, they're getting conflated. That's the issue. That I think needs to be addressed.

ANDY SERWER: Awesome. And finally, Vivek, this show is called "Influencers." So I'm wondering if you've given any thought-- you're still a young guy, but in terms of your legacy and how you'd like to use your influence on the world.

VIVEK SHAH: Yeah, I think a lot about these brands often who are struggling that we're able to revive and put on, you know, a path to long-term viability and sustainability. We employ a lot of journalists. We employ a lot of programming people. We want to see them continue to succeed. So making sure that these sometimes once-proud brands are back in the position that they need to be in means a lot to me. It means a lot to me that these have not gone by the wayside. And we both have seen brands that have diminished and are either no longer in existence or a poor version of their former selves. So I feel really strongly about that.

Also I just-- I feel like as long as we're able to make impact in some of these key pillar areas that we talked about, that will matter to me. But you know, to me, it's just-- you know, we-- we've also got to create a great experience, a great experience for all those stakeholders, right? That's what it's about. I want our employees to have a great experience. I want our shareholders to have a great experience. I want everyone involved to have a great experience with the company, and that's-- I think every company should be run that way.

ANDY SERWER: Quick follow-up question then.

VIVEK SHAH: Yeah, yeah.

ANDY SERWER: What do you think about what happened to Time Inc? Does that surprise you? Sad? Happy?

VIVEK SHAH: You know, I-- you know, it's interesting. I learn a lot from it. I think when we were at Time Inc, there were a number of ideas that we couldn't execute upon because the cash flows of Time Inc were used in other parts of Time Warner.

ANDY SERWER: I remember well.

VIVEK SHAH: And so when you're hamstrung, when the cash that you create cannot be used within your businesses and used in another business, I think you're playing with one hand-- possibly both hands-- tied behind your back. That, more than anything else-- you can talk about leadership, you can talk about, you know, when Time Inc was separated as a public company and the debt burden, and you can talk about all these things. But in the end, when you couldn't use your own cash flow to change the dynamics of your business, I think you made it nearly impossible for it to succeed in the way we would have liked to have seen it succeed.

Having said that, there's some really great brands. There's-- some are-- you know, they're scattered about now in different ownership groups. I'm really interested to see where Fortune goes and where TIME goes and Sports Illustrated goes. Those are brands that I love, that I know you love, and I hope they thrive.

ANDY SERWER: All right, we going to leave it at that. Vivek Shah, CEO of J2 Global. Thanks so much for joining us.

VIVEK SHAH: Thanks, Andy. I appreciate it.

ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.