Revenge Of the Trades - Industry Trend or Event

The workhorses of publishing are taking to the Web, where mainstream media stumbled. Their strategy: Build b-to-b exchanges.

THEY HAVE NAMES LIKE NATIONAL Hog Farmer and Home Textiles Today. They're accused of being too cozy with the industries they cover, which supply the advertising. Their reporters don't appear on Charlie Rose. No wonder trade publications are often viewed as the dowdy stepsisters of consumer magazines, reliably churning out useful but dull copy while their glamorous siblings get all the attention.

That may be true on newsstands, but things are different on the Internet. Splashy mainstream media sites are going out of fashion -- witness the layoffs at Salon.com and the recent erasure of Word, the pioneering literary Web site. Months ago, focus shifted from media to business-to-business, where marketplaces continue to pop up in dozens of industries. Now, as b-to-b is losing its luster, the latest thinking is that content will separate the exchanges that make it from those that don't. And that's where trade publications enter the scene.

Trade magazines are classic "verticals": With reams of in-depth, industry-specific editorial content, they appear better equipped than consumer magazines to exploit the opportunities on the Internet. By marrying compelling content with product information and putting it on the Web, trade publishers are transforming themselves online into b-to-b exchanges. They hope readers will eventually go a step further than they can with a print product -- and click the Buy button.

Take Cahners Business Information, which publishes 144 trade magazines ranging from Variety and Publishers Weekly to Home Textiles Today and Semiconductor International. Its parent company, Reed Elsevier, has promised to spend $1 billion on Internet efforts in the next three years. Cahners, with revenues of $882 million last year and a total circulation of 7 million, has already spent $379 million on its Internet strategy. This week it plans to announce a new division, Cahners Digital, which will unify the company's Internet ventures.

Still to be sorted out is the mix of revenues that will make b-to-b exchanges profitable. So far, marketplaces haven't generated much in the way of transactions; what revenue they pull in comes mainly from advertisers. Subscription models haven't worked for the few content sites that have tried them. And most media sites have found that advertising doesn't pay the bills. But that may not hold true for b-to-b sites: A recent study by Jupiter Communications found that the fastest-growing segment in online advertising is b-to-b.

Figuring out the portal business takes time, and New York-based Cahners, which has 5,000 employees, is late to the game. VerticalNet, an Internet-only b-to-b company, has been plugging away since 1995. It's built an audience of 1 million registered users for its industry-specific sites and reports revenues of $53.6 million in the second quarter of this year, compared with $3.6 million in the second quarter of 1999.

New York-based Primedia, another strong player in trade magazines with titles like Coal Age and Internet Telephony, has spent the last seven months restructuring its business to beef up its Internet presence. VNU USA, the New York publisher of Adweek, Billboard and the Hollywood Reporter, has also ramped up its spending on the Internet as it prepares to develop portals and faces increased competition from newcomers like Inside.com, the media news site. Hundreds of others clog the b-to-b space as well.

"Frankly, Cahners had sat out the first go-round in the Internet revolution," says Jonathan Taylor, executive editor of Cahners' Variety.com. "We had a significant presence, but we really let some other people make some sufficient noise."

Since May, Cahners has shelled out $378.5 million to make two acquisitions to boost its Internet strategy: CMD Group, a publisher of construction market data, and eLogic, an application service provider for media companies. Cahners won't say how much of the $1 billion its parent company is investing in the Internet will go to Cahners' properties, but "it's a huge number," according to Tad Smith, who heads up Cahners' Internet efforts. "We're spending a lot. We're spending like we really want to win, because we do."

Cahners Digital will roll out between four and seven new vertical exchanges this year in entertainment, media, publishing and interior design, adding to the four portals it already has in electronics, construction and manufacturing. The company will also significantly expand Variety.com.

Cahners also has hired a high-profile CEO to lead the company: Marc Teren spent eight years guiding interactive ventures at Disney and the Washington Post Co. before arriving at Cahners in February.

Analysts note some downsides of trade publishers getting into the marketplace business. "The marketplaces have been so tempting, they've gotten so much press," says Pierre Mitchell, research director of e-commerce at AMR Research. "Cahners is thinking, 'Let's get into the marketplace game. Let's have the definitive one-stop shopping place.' The problem is, is a publishing company genetically poised to be a b-to-b marketplace?"

Getting loyal readers of Metalworking Digest to click from an article to a marketplace where they can solicit bids and seal deals seems a natural way to expand revenues. But implementing that back-end commerce capability is daunting. There are issues of inventory management, payment and logistics, to name a few -- any of which can be deal breakers.

Explains Michael Hagan, Vertical-Net COO and co-founder: "You can shove 100KB of D-RAM [computer memory] in a FedEx box. But if you're delivering steel or food ingredients or agricultural feed, the area of fulfillment is many times more complex. We have not attacked those industries, but we plan on getting involved in them." The company has equipped each of its 57 Web sites to conduct transactions, but so far it has focused its commerce efforts in industries, such as electronics, in which online transactions are less complicated. VerticalNet will likely form partnerships with logistics providers and other firms when it tackles complicated areas like the chemical industry.

To avoid the technological, customer service and design problems that have plagued so many commerce sites, Cahners says it will pursue partnerships with companies that have expertise in critical back-end functions. Earlier this year, Cahners joined Aspect Development to create a marketplace, Manufacturing.Net. Cahners provides the content; Aspect provides the commerce capability and product databases. "We view e-commerce as a critical part of our business," Smith says. "The fact that our portals have to have e-commerce is essential."

But despite all the talk about transactions, advertising looks like the main revenue engine for b-to-b portals over the next few years. VerticalNet launched with an advertising-supported model and is increasingly focusing on commerce. Still, it generated just a sixth of its online revenue from commerce fees in the second quarter of this year. Many of the deals triggered online end up being consummated offline.

Will online portals cannibalize these publishers' core business, their print products? No way, according to Tim Andrews, president of Primedia's b-to-b Internet unit: "A strong presence on the Web will allow us to generate readers for print," he says, and the portals will greatly increase the company's reach.

Well-established, offline publishing businesses have resources that a pureplay like VerticalNet can't tap. Primedia CEO Tom Rogers points out that his company can promote its sites in its print publications, and sell ads on its portals using its existing sales force.

Analysts note that trade publishers could play it safe and capitalize on their valuable content by syndicating it to other companies that have online marketplaces. Primedia, Cahners and others syndicate some of their editorial content, but the companies aren't for such a modest Web presence. Says Andrews, "We're reinventing trade publishing for this century."

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