Flight or Fight? – the future of online business
Content sites have realized that layoffs are one strategy to finding the road to profitability. But will dot-coms take the bottom line too far?
So what do you know? Content on the Web may have a viable business model after all. It’s sorting through the contenders and the wannabes that has proven to be the tricky part of cracking the code of what’s real and what’s hype.
While the dot-com shakeout of 2000 continues apace, content sites are the target du jour for the pink slip brigade. Each week seems to bring news of yet more layoffs at various content sites–30 at Hollywood.com, 105 at MTVi.com, 170 at NBCi–as well as the hue and cry; and possible glee, from traditional media outlets that the commercial world of Internet content is crumbling.
OLD MEDIA WAYS
It’s easy to take the reflexive response that downsizing staff is merely a prelude to a company-wide implosion. But ask those companies left standing after such layoffs and they’ll argue that the alarm is overblown. Instead, they say, job cuts are just a necessary step “on the path to profitability.”
Yes, after years of eschewing all things traditional, Internet content sites seem to be taking a thing or two from the business practices of old media, including the need to slash costs, reduce redundancies and, perhaps most importantly, find the path to profitability more quickly and more efficiently.
“It generally takes between five to 10 years to establish a successful media brand,” says David Talbot, founder, chairman and editor in chief of Salon.com, a five-year-old news site that cut 13 employees last June. Talbot cites now-successful print titles that had less than auspicious starts. “Entertainment Weekly took more than five years to turn a profit, Vanity Fair took more than 10 years. USA Today took even longer.”
Speaking at the Internet Content East conference in New York earlier this month, Talbot was one of a number of wounded Web publishers now pointing to traditional media timelines and practices. “As an editorial delivery system, the Web is less than five years old,” argues Talbot. “None of the most significant general news sites was delivered before 1995 … so we’re talking a very early stage here.
“Does this mean that all or most Web content sites will succeed? Of course not. Web publishing is a business subject to the same economic laws that cover all businesses. But I think the best-managed, highest-quality Web media operations will be making money within the next year or two,” including, he claims, Salon.
Such an embrace of old-world ways is not surprising to Rob Lancaster, an analyst in the Internet Market Strategies group at Boston-based Yankee Group. According to Lancaster, cost cutting is the latest Web mantra.
“What we’re starting to see is that [content sites] are consolidating their marketing departments,” he says. “I think it’s creating a lot more work for some people because they’re all laying off large percentages of their staffs.”
But, he adds, “it’s just a reflection of the Internet market in general going through a life cycle. It’s reached sort of an adolescence during which it is really beginning to learn what works and what doesn’t, and what it’s supposed to look like.”
Which will likely mean more layoffs. Says Lancaster, “I think executives see layoffs as a quick and easy fix.”
For MTVi Group-part of MTV Networks and home to MTV.com, VH1.com, Sonicnet.com and now, Country.com–last month’s layoffs were meant to fix redundancies such as having individual music news staffs for each site. Following the cuts, says the group’s president and CEO Nicholas Butterworth, MTVi’s news coverage will be much more centralized.
“Like any business, we’re focusing on two components to get to profitability,” he says. The first is aggressive revenue growth, something that MTVi claims it is succeeding at, considering that it generated nearly $20 million in revenue in 1999 and is on track to double that figure this year. Now, says Butterworth, “I think it’s fair to say that we’re focusing on the other side of the equation, which is controlling our costs so that [we] can manage our growth.”
Simply translated, that means there’s no need for four reporters to cover the same music news event. “We’ve found now that we can deliver great award-winning journalism,” he says, “but we can do it more efficiently by sharing content better between our sites.”
In the meantime, much like print publishers who use centralized back-shop services, such as circulation and distribution, to serve multiple titles, MTVi is using a shared technology platform to serve each of its sites in areas such as ad insertion, rich media delivery and hosting.
“That reduces our support costs and means that we can be more efficient with our application development dollars,” says Buttervorth. “We can create applications that service all our Web sites rather than reinvent the wheel for each one.”
Integrating technology platforms and sharing content works for online networks like MTVi.com, but what if you have only one site? To that end, Salon’s Talbot espouses a variation of an old idea currently keeping many newspapers rolling: having independent sites join forces in areas such as marketing, sales and technology.
Says Talbot, “What I’m talking about is a need for those of us who aren’t related to CBS or Time Warner or AOL to think seriously about forming our own alliance of Web sites to help build traffic and share some of these back-shop costs. I do think it’s silly for all of us to keep reinventing that wheel.”
According to Talbot, Salon will have a role in putting together “a summit of sorts” to link independent sites. In the meantime, he says, Salon is also considering taking on ad sales duties for other sites while also taking a cut of the revenue generated.
SUPPORT BIG BROTHERS
To Mark Sauter, who in June saw his crime news site APB.com succumb to financial pressures, the path to profits is more direct: Find a partner that’s stronger than you.
“It’s not enough to have good content,” says Sauter, who now works as COO at Parlo.com, a foreign language education site, and served on an Internet Content East panel entitled “Consolidation and Reorientation of the Content Landscape.” “You have to be able to pay for distribution, too,” he says.
“It’s like being an outlaw biker,” explains Sauter. “One day you’re going to have to choose the Bandidos or the Hells Angels. You’re going to have to pick your big brother. And that’s the reality when you’re a little guy.”
Meanwhile, for struggling sites already connected to larger companies, Yankee Group’s Lancaster says most can expect their leash to shorten.
“What companies are finding is that brand recognition is the number one driver,” he says. “And if they can’t establish that for an Internet unit, then they’re looking to fall back on an established brick-and-mortar presence that has been traditionally sound.”
Just look, he says, at NBCi, which in August laid off 20 percent of its staff as part of a move to fold numerous brands, including Snap.com and Xoom.com, into the NBCi portal. Similarly, says Lancaster, Disney’s newly retooled Go.com has moved from serving as a general interest portal to one now dedicated to such core Disney fare as entertainment and leisure.
That trend should only continue. Says Lancaster, “Businesses last year really launched into the Web feet first … consumers were online before businesses were online, and businesses jumped into the pool before knowing if they were able to swim. Now a lot of companies are beginning to sink and are wondering why. So they’re falling back on what they know best, which is really how to
market their traditional brand.”
Instead of slashing costs, business savvy regarding all areas, from editorial to new technology, will now be key.
“Companies are going to start being a little more cautious,” says Lancaster. “They’re really going to think about how [spending is] going to effect their balance sheet and whether or not they need it yet,” he says. “They may know they’ll need something in the future, but is now the time?”
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