InformationWeek

March 2, 1998

Online Content:

To make a buck on the Web, content providers are creating new business models almost every day. But so far, there's only one proven winner: the user.

By Clinton Wilder

f Thomas Publishing Co.'s forthcoming Product News Network succeeds, it could become fodder for business-school case studies of the early 21st century.

PNN, set to launch this month, is an online database of 50,000 industrial products. While competing su bscription services cost in the five figures, PNN will be 100% advertiser-supported and will cost Thomas' customers absolutely nothing.

PNN will sell not only banner ads, but also tags on specific product listings that let a manufacturer offer more detailed information on a component or a list of distributors in a viewer's region. The service hopes to capitalize on the rapid evolution of the Web from a marketing channel to a medium where actual sales can be--and are being--initiated electronically.

PNN is just the latest example of the dizzying pace of change in the world of Web content. From industrial products to sports scores to mutual-fund prices, providers are constantly grappling with choices of business models and revenue sources--and they have been ever since the Web's explosion into ubiquity three years ago. PNN's creators firmly believe they can attract enough highly targeted advertising to turn a profit on a complex, constantly updated database of arcane yet critical industrial pr oduct information. "Technology evolution always blurs the distinctions between established business models by letting you offer more to the customer for less," says David O'Connor, marketing manager at PNN, in New York.

Sales Vehicle
"Traditional ads in other media can only be indirect calls to action," says Jerry Michalski, contributing editor of Release 1.0 , an industry newsletter in New York. "You still have to travel to a store or pick up a phone. That means mass-media publications are essentially ad vehicles with content as bait. But the Net can be a sales vehicle, not an ad vehicle--a successful ad results directly in a transaction. That reshapes a lot of preconceptions about trying to move traditional content models to the Web."

In other words, business users as well as consumers can expect to see a lot more free content services. But that doesn't mean paid subscriptions will go away--far from it. Much content is well worth paying for, corporate users say, especiall y for the format and speed with which it's delivered.

Take NewsEdge Corp. in Burlington, Mass., a company formed by the just-completed merger of Individual Inc. and Desktop Data Inc. More than 90% of NewsEdge's $75 million in revenue comes from subscribers to its multitiered business news information services. The core service, NewsPage, sorts and delivers daily news grouped by hundreds of industries and thousands of subtopics.

Most of the news offered by NewsPage is available free somewhere else on the Web. So why pay? Because NewsEdge sorts, filters, organizes, and delivers the content in a way that makes it most relevant to users. The daily news feed for the topic of Internet commerce, for example, might include articles from American Banker , the Chicago Tribune , CMP Media (publisher of InformationWeek ), Journal of Commerce , Nikkei America , Reuters, and the San Jose Mercury News .

That's the way users say they like it. "We work closely wit h all of our information vendors to make sure news is delivered in the formats we want," says Mary Lee Kennedy, manager of Digital Equipment's corporate library group in Acton, Mass. "We designed our information environment for a competitive advantage, and you can't get that for free. You can't make business decisions based on information that everyone else has." Digital delivers 800,000 pages of news, market research, and technical reports to 54,000 users on its worldwide intranet; news providers include NewsEdge, Reuters, and Dow Jones.

"For a busy businessperson, so-called free information isn't so cheap," says Michael Kolowich, vice chairman and co-founder of NewsEdge. "It's hard to find, not always reliable, and not organized in the way you want. Our business is basically built on the value of saving the 30 minutes it might take to find what you need. It's like PCs--you have to look at the total cost of ownership, not just the price to bring the machine in the door."

Few Web-content bus inesses have a price range as wide as NewsEdge, which starts at $3.95 a month for the most basic single-user NewsPage service and stretches to $500,000 a year--or $250 a seat--for large corporate subscriptions that deliver custom news on intranets.

Kolowich maintains that just as there's a big difference between business-to-business and business-to-consumer commerce, so, too, are there fundamental distinctions between business and consumer content. "For consumers, news is nice to know; for businesspeople, it's need to know," he says.

There are two key motivators for business users, Kolowich adds: fear, as in the fear of calling a client and not knowing there's a tender offer for his company, and opportunity--some nugget of new information that might make your company a lot of money. "Those two factors are just not present in consumer life," he says.

Yet Kolowich still sees a place for advertiser-supported free content, even in NewsEdge's market. Ads account for only 10% of the compa ny's revenue, but that percentage is growing. "We look at ads as a supplement that allows us to penetrate markets we wouldn't otherwise be able to reach," he says. "And nothing sorts markets for advertisers more effectively than targeted topical news. But I don't believe that advertising can bear the whole cost of a content site alone. I expect more development of the hybrid revenue model."

Another successful site with such a hybrid model is financial information provider Quote.Com in Mountain View, Calif. Quote.Com was the first site to offer stock quotes and other market data when it launched in mid-1994; it was also the first to be profitable from subscriptions.

Quote.Com's site and business model have evolved considerably--subscriptions now account for only one-fifth of Quote.Com's revenue. The site offers some free content, and advertising contributes nearly one-third of total revenue. But Quote.Com derives half its revenue from selling its content to online investment sites, such as Charles Schwab and Fidelity Investments, which "private-label" Quote.Com's data and resell it to customers. The data is ultimately free to Schwab and Fidelity users, because those sites offer the data as an enticement to use their online brokerage services, a different revenue source altogether.

"We make more money distributing content for free than we do by charging for it," says Chris Cooper, Quote.Com's president and CEO. "Lowering the entry barrier is what matters the most." Quote. Com has only about 20,000 subscribers, and they pay anywhere from $10 a month to $100 a month, depending on what they get. The company also has an additional 250,000 "free" users who have completed a registration form.

But to attract buyers such as Schwab and Fidelity, Quote.Com must offer a lot more than stock quotes. "Our value is as a content aggregator; none of our data is unique to us," says Cooper. "But aggregating raw data doesn't do any good. You have to build applicati ons on top of the data that make it easy to use." Examples include a streaming-data Java applet of real-time quotes, continually updated graphics called LiveCharts, and continually updated top-10 lists of percentage gainers, most active stocks, and the like.

Rush To Judgment?
Mixed and tiered models are starting to become the norm for consumer content as well. Free vs. fee is "not an either-or proposition," says Linda McCutcheon, president of Time Inc. New Media, which she dubs "Time Inkless." She adds, "We're in such a nascent stage with online content that we'd be doing ourselves a disservice to decide that it has to be one way or the other."

Still, it's been established that Web users are willing to pay for some content--and some consensus has emerged about what type of content is worth paying for. Sites enjoying growth in subscriptions range from ESPN SportsZone to Wall Street Journal Interactive to Quote.Com.

What's the best thing to have when you're providing content that Web users are willing to pay for? To paraphrase a famous saying, it's the brand, stupid. "A bombproof, substantial brand name is a huge advantage," says Mark Mooradian, group director of consumer content at Jupiter Communications, an online-industry research firm in New York. "Brands like the Wall Street Journal or The Economist essentially say you can't get that information anywhere else."

That's why the Wall Street Journal has always had an all-subscription site with no content available free, except for a four-month trial period after its April 1996 launch. "From the beginning, we never imagined that people wouldn't pay for things that are valuable to them," says Tom Baker, business director of Wall Street Journal Interactive, in Princeton, N.J. "That affected the way we funded and designed the site--we now employ more than 100 people. Our brand is obviously a huge advantage, but it also really raises the bar of w hat people expect us to do--cover breaking business news better than anyone else."

Wall Street Journal Interactive now has more than 150,000 subscribers paying $29 a year if they already subscribe to the print edition and $49 a year if they don't. The site will be profitable "pretty soon," says Baker.

Brand is an advantage to draw users initially; many startups have bitten the dust trying to sell subscriptions on the we'll-build-a-new-brand-in-cyberspace premise. Dusty examples include business-to-business service Industry.Net and computer products information site Inquiry.com.

What's The Value?
But Web-content users won't pay for the best brand in the world unless the site delivers a perceived value. USA Today 's Web site quickly abandoned the subscription model it tried three years ago. CNN 's site charges only for a customized news service. News--even up-to-the-minute breaking news--won't at tract paying customers by itself. There are too many Web sites blasting out free news 24 hours a day, not to mention TV's CNN, MSNBC, and CNBC.

"Depth is what people want, even more than currency," says Baker of Wall Street Journal Interactive. "We have to go beyond what print or broadcast does, with the way we organize the content and offer intelligent links." Wall Street Journal Interactive's coverage of the Microsoft-Sun Microsystems legal dispute over Java, for example, contains hyperlinks to dozens of documents in previous cases cited as precedent by the two sides. "That's what makes people's eyes light up," says Baker.

Another well-established framework for the business of online content is the two-tiered model: free and subscribers-only fee content on the same site. ESPN SportsZone is the most popular online site for sports news, scores, and statistics, with some analysis and commentary available free. But timely news and scores are obtainable on USA Today Online, CBS Sportsline , CNN/SI , and dozens of other sites. ESPN knows it has to provide much more to its subscribers, which it says number in the tens of thousands.

In early February, ESPN relaunched its subscriber content with a new brand name, ESPN Insider. Instead of SportsZone's previous subscriber-only pieces of content marked with a ticket icon throughout the site, Insider is a whole new site within a site. The goal is to give subscribers more identity or community with the ESPN brand, says Jim Morouse, director of marketing for ESPN Internet Ventures.

"We've had to do much more proprietary content to keep the site compelling for subscribers," says Morouse, who joined ESPN last year after a stint as brand manager at the granddaddy of brand marketing, Procter & Gamble. Subscribers, paying $4.95 a month or $39.95 a year, get a daily E-mail message alerting them to that day's content highlights. Subscriber-only features include live broa dcasts of NBA basketball using Real Networks ' Real- Audio, analysis diagrams from former NBA coach Jack Ramsay, trivia and winners-picking contests against other subscribers, and chances to win sports-related trips. "People may want content to be free, but there are reasons why we pay to belong to clubs," says Morouse. "Subscribers are the most passionate fans, and we help them identify as such by identifying with the ESPN brand."

ESPN doesn't disclose its revenue mix, but Jupiter's Mooradian estimates it at 70% advertising, 25% subscription fees, and 5% sponsorship--of a specific game or feature, for example--and branded merchandise sales.

To date, the Web sites that pull the most advertising revenue are not in the content business. They are search engines and directories that content seekers use to locate information--Yahoo!, Excite, Lycos, InfoSeek, and others--and the highly trafficked sites of Web-technology providers Netscape Communications and Microso ft.

The classic controlled-circulation model of 100% ad support--used by many business publications, including InformationWeek --has yet to prove itself as a viable business model for the Web, though plenty of companies are trying it. "Controlled circulation is based on delivering a tightly controlled market to advertisers, and right now no Web service can say that," says NewsEdge's Kolowich. "There's too much fragmentation of the audience because the entry barriers are so low."

New Direction
Nonetheless, Time New Media has been heading in that direction. It briefly considering charging for its Pathfinder site when that site was launched in 1995. But since then, Time has followed a free-content strategy. Only in recent months has Time given that a second thought: It has just launched two premium services, Money.com Plus and EW.com ( Entertainment Weekly ) Special Edition.

Like the Wall Stree t Journal , Time, discounts its online price for print subscribers. Money.com Plus, aimed at high-end mutual-fund investors, costs $29.95 a year for subscribers to Money magazine and $49.95 for nonsubscribers; EW.com Special Edition is free to print customers, $29.95 for others. "It's a print subscriber acquisition and renewal tool that can also generate revenue online," says Time New Media president McCutcheon. Next up: a Fortune Online-based service called the Fortune Investor, spinning off from the company's Fortune magazine and aimed at high-end equities investors.

Fee or free? McCutcheon admits that Time New Media, like nearly all leading online content providers, is still experimenting around that question, feeling its way as the Web's ever-changing culture determines which information is worth paying for and which can be forsaken in favor of a free site one mouse-click away. "But it's clear that no one wants to read a print magazine online," McCutcheon adds.

So what do consumers of content on the Web want? "You have to invent a new form of journalism, like [Time founder] Henry Luce did 75 years ago with the newsweekly--and new business models to go with it," McCutcheon answers. "Almost no notion is too crazy to contemplate, however briefly. The worst thing you can do is write a five-year business plan."