|
All the content that's fit to sell
by J.K. Riggin
I, for one, was disappointed.
Y2K was a non-event. E-tailers more or less hit their Christmas targets and nothing blew up.
E-commerce is becoming a legitimate business and one can almost sense the excitement beginning to fade. Jeff Bezos is among the first and most successful e-commerce visionaries, but the reality is that he's just a shopkeeper. And despite the fact that he runs the best store on the Internet, Amazon.com (AMZN-Nasdaq) must still negotiate the same inventory, shipping and pricing challenges that face every mail order catalog and department store from here to Freeport, Maine.
One of the great things about e-commerce is that you can separate customers from their money more rapidly -- and with more convenience -- than ever before. But the problem is that they only have so much money. So what do the nearly 100 million current Web surfers do in the meantime?
They distract themselves with a rapidly growing selection of freely available content... everything from news of Al Gore's latest gaffe on The Drudge Report to stock quotes to Pokemon paraphernalia. And as the Web joins the telephone and the television as a must-have consumer appliance, the price for all of this content is targeted banner advertising, email addresses and, in some cases, subscription fees. But the companies that are doing the best job of turning content and traffic into profits are not who you might think.
Lust vs. Greed
Ah, yes... we've been waiting for this one. In a January IPO filing, Hef's daughter Christie is leading an effort to spin off Playboy.com (ticker symbol to be PBOY) from Playboy Enterprises and re-tool the institution for the Web. The company plans to make its money through advertising, sponsorships, e-commerce offerings (from both proprietary Playboy Store products and affiliate programs with other e-commerce sites) and subscription fees.
Sounds familiar, doesn't it? Remember Thestreet.com (TSCM-Nasdaq)? With a high-profile May, 1999 IPO, TheStreet.com preys on greed instead of sex and earns its keep through sales of advertising and Web site subscriptions. Playboy.com's IPO filing boasts traffic of more than 100 million page views and 16 million unique visitors in November, 1999 -- impressive numbers for a startup. For December, 1999, Thestreet.com claimed 27 million page views and 2.2 million unique visitors. With a universally recognized brand and unlimited nudie pics, this is a slam dunk, right?
Not so fast. The story peters out once you look behind the curtain. Playboy.com claims to have just over 37,000 paying subscribers to its three-year-old Playboy Cyber Club. Thestreet.com claimed 50,000 paying subscribers in its IPO filing and currently has 94,000. Can anyone say red flag?
But here's the real problem -- Playboy currently charges US$15 to US$35 CPM (or per thousand impressions) for banner ads; Thestreet.com is charging US$47 to US$75 CPM. Oops. Apparently, Playboy doesn't value its demographics as highly as other fledgling Web content plays.
By practically giving away what should be precious advertising, it's no wonder Playboy.com isn't making a profit yet. According to its IPO filing, the company had revenues of US$6.6 million for the first three quarters of 1999, and a net loss of US$7.2 million for the same period.
The bottom line is that greed may trump lust in the race to monetize eyeballs on the Web. Despite the fact that net pundits love to point to porn as the great testing ground for e-commerce and advertising, the Playboy.com business model and Web site appear to be plagued by a premature case of erectile dysfunction. To succeed, Playboy's aging brand will have to devise its own form of Viagra to extract money from a new generation of men for whom free porn is just a mouse click away.
Good tidings from Dulles
Don't let the Playboy.com tease get you down. The much-heralded deal between AOL (AOL-NYSE) and Time Warner (TWX-NYSE) -- besides creating a company worth more than the economic output of Russia -- is the big bang Internet-based content providers have been waiting for to sort out issues of broadband access, streaming video and standardizing advertising values.
This deal, more than any other event in the brief history of cable modems, validates the technology as a viable residential broadband technology. DSL may be technologically superior, more scalable, and more flexible for consumers and businesses. But AOL's ease of use, combined with Time Warner's Road Runner cable network, means more broadband for more people. And that means more customers for a more technologically sophisticated breed of content.
And item number one on the technological sophistication list is streaming video. With the merger, AOL and Time Warner have locked it up. Together, they have the platform (AOL) and the brands (Time Warner's HBO, CNN and more) to beat lethargic competitors. And don't forget Netscape and AOL Instant Messenger, the premier software products for Web browsing and instant messaging. The more customers use these technologies, the more reliable they become.
Time Warner failed to fully leverage its media assets on the Web and, as we all know, this is AOL's sweet spot. Various estimates have the new colossus outdistancing Yahoo by 15 to 20 percent as the new most popular Web property. This will not only help AOL/Time Warner wring more advertising dollars out of their vast stable of content, it also will help to raise and standardize the overall market for Internet advertising... providing a nice updraft for the entire content sector.
Engineers of content
Last September, I told you about Vignette (VIGN-Nasdaq) when it was just south of US$60; the stock is now over US$180. The software company provides the tools to build complex Web sites and manage content, databases and e-commerce transactions. Vignette's performance is directly attributable to the rapidly growing demand for content management software.
Enter Ondisplay (ONDS-Nasdaq), with its strong December IPO. Despite volatility in the aftermarket, there is still room for incremental movement if you get in at under US$100. Beware in June, however, when lockup agreements expire and new shares flood the market. If you want to get cute, swoop in then and grab the diluted shares. This is a solid company.
Ondisplay provides a package of applications that help operators of complex Web sites to manage increasingly sophisticated content. Like Vignette, demand for Ondisplay's wares continues to grow, and the company has tripled its year-to-year revenues.
The best play of the moment in this sector is Merant (MRNT-Nasdaq). Currently they announced a deal with Allaire in January that got lost in the AOL/Time Warner shuffle. The deal integrates Merant software technology with a new Linux version of ColdFusion (a Web application server).
And Merant has been around. The company has been developing enterprise applications since 1976 and now is focused on enabling those applications to take advantage of the Internet, especially helping complex Web sites manage their content. With US$370 million in annual revenues and a new Internet-focused strategy, the company is poised for increasingly rapid growth in this sector.
On the IPO track, keep an eye on Neuromedia to come out later in the year. The company provides server software that enables Web operators to create and deploy something called a "virtual representative," an online sales and customer service function that can dynamically interact with customers via real-time, natural language queries. Neuromedia already has more than 90 customers, including Charles Schwab, DaimlerChrysler AG and Oracle. The company closed its second round of financing last October.
The Content Brokers
Infospace.com (INSP-Nasdaq) went public in December, 1998, with CEO and Chairman Naveen Jain among the first of several Microsoft executives to jump ship for Internet IPO riches. InfoSpace.com provides content and commerce services to Web sites and Internet appliances. InfoSpace.com's content is built around its nationwide yellow pages and white pages directories, but also includes maps, directions, autos, homes, you name it.
As one of the first content syndicates, Infospace.com stock has been very popular through the end of year run-up. The company's year-to-year revenues have increased fourfold. The problem is that even if Infospace.com can continue its torrid growth, it will be a US$10+ billion company with US$100 million in sales. Like Broadvision (BVSN-Nasdaq) and Vignette in the software services sector, watch Infospace.com as the bellwether for content brokers.
The sleeper in this space is InfoUSA (IUSA-Nasdaq). The company provides data on consumers and businesses. InfoUSA owns databases of more than 12 million businesses and 195 million consumers in the United States and Canada. In December, InfoUSA.com raised US$10 million in financing from Trident Capital, a venture capital firm specializing in B2B.
Plans for the subsidiary notwithstanding, InfoUSA is profitable. With a US$.29 EPS, and a market cap of only about US$580 million, the company's stock price has tripled in December, from US$5 to US$15, and it's not done.
The middleman is alive and well
A lot of smart people said the Internet would kill off the middleman and that we would have something call "frictionless commerce." Please.
Friction is what pays the bills, and iSyndicate is a very intelligent example of that. The privately-held (for now) company matches content providers with Web site operators seeking continuously updated information.
Since the beginning of 1999, iSyndicate has quadrupled the number of sites (140,000) for whom it packages content. The company has made it all work by building powerful databases to pull real-times data feeds from more than 500 content sources, and then repackage the content according to Web site operators' individual needs. All told, iSyndicate's affiliate network reaches nearly 10 million unique users each month.
The company has raised US$18 million in venture capital, and counts InfoSpace.com and Vignette among its investors. Watch for an IPO by this summer.
Not your father's content
The limp Playboy.com offering is the poster child for old media companies that just don't get it. We're all operating in Internet time now. If you don't feel like paying for the Wall Street Journal, you can still find cutting edge business news for free from a myriad of sources on the Web. And syndication doesn't mean re-runs of Gilligan's Island and Seinfeld anymore. The Internet is like the classic variety show exploded into 500 directions. The companies that do the best job of connecting their customers to the highest quality and widest range of content ultimately will win.
|
