BusinessWeek’s billion-dollar boo-boo

A poor piece spreads bogus news about Amazon's Goodreads acquisition

Bloomberg BusinessWeek makes itself look silly today, running a speculative piece on how much Amazon paid for its latest acquisition, Goodreads.

Here’s the headline:

Amazon likely paid $1 billion for Goodreads

This is all kinds of sloppy. Look, it’s fine to run back-of-the-envelope numbers when harder ones aren’t available. But if you’re going to do so, you better make sure that your methodology isn’t obviously bogus. You really have to make sure you don’t slap a headline on it that implies you have reporting backing up numbers you came up with yourself. Many, many more people will read your headline than will ever read even the first paragraph of your story and the misinformation like this tends to spread like kudzu.

BusinessWeek’s methodology is just nonsense, as Anil Dash notes in the piece’s comments section:

Here’s how the numbers play out. LinkedIn is the heavyweight champ in this category. Based on its current market valuation and 202 million active accounts, investors are valuing it at $95 per user. Instagram is at the bottom of the spectrum, despite the hysteria over its $1 billion sale to Facebook. At the time of the deal, it had 35 million users, meaning Facebook paid just $29 per Instagrammer.

Much of the social market, however, has settled neatly in between those two points. Facebook has a running value of $58 per user, while Pinterest and Twitter are right around $50 a head, based on recent financing rounds and network statistics.

Working with that range, Goodreads’s 16 million users at $55 each would add up to a sticker price of $880 million.

Looking at user numbers without looking at what those users do is useless. Facebook’s U.S. users spend an average 6.5 hours a month on the site and visit 40 times. Goodreads users visit twice a month on average. LinkedIn has much deeper pockets to go after than Goodreads does.

But the story is worse than it looks too. BusinessWeek has changed the headline of the original piece (without noting it did so) now to what it should have been in the first place: “Rampant Speculation: How Much Did Amazon Pay for Goodreads?”

But it also has changed the text of the story and it’s meaning to make the piece look less embarrassing—without disclosing to readers that it did so.

Here’s the original as I read it a few hours ago:

Of course, that’s an overly simple, back-of-the-envelope estimate. Any decent I-banker would try to push that valuation on two fronts: the growth rate of the network and its potential for monetization.

And here’s the changed text, as it reads now:

Of course, that’s an overly simple, back-of-the-envelope estimate. A lot more goes into a deal than the number of users, and if the acquisition was considered material, Amazon would have had to disclose the purchase price. The boundaries of materiality are squishy, but $1 billion would probably qualify.

BusinessWeek is hardly the only news organization to do these kind of writethrough Web non-corrections. It’s not okay.

And that added context—that such a big number would almost certainly have to be disclosed—is just one more reason this piece should never have made it through BW’s editors.

To top it off, AllThingsD’s Kara Swisher now reports that Amazon paid just $150 million for Goodreads.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , ,