About.com Finds a Niche - acquired by Primedia - Company Business and Marketing

The little content company that could fetches a nice price. Now it has to mesh with its buyer, Primedia.

IT MIGHT NOT HAVE PACKED QUITE THE wallop of the AOL-Time Warner deal, but when magazine publisher Primedia scooped up online company About.com last week, it was a powerful demonstration that at least some deep-pocketed buyers still see value in content on the Web.

Primedia will pay for About by using its own shares, which at the time the deal was announced made the price $690 million, or about a 50 percent premium on About.com's Oct.27 stock price of $23.87. Primedia shareholders, skeptical of the dotcom's value when the field is so beleaguered, saw the price as too steep and sent its already low stock price down 25 percent -- a number which undoubtedly will continue to fluctuate until the acquisition is completed. Still, ifs nothing to scoff at these days.

The terms of the deal make clear the value of the asset About CEO and founder Scott Kurnit built in just four years. About.com forecasts revenues of approximately $100 million this year. Primedia's annual revenues of $1.7 billion are in another hemisphere. And yet, under the terms of the deal, holders of relative small-fly About will end up with about 22 percent of Primedia.

Why did About turn out to be so valuable, and how did it succeed when so many others in the online content business have failed? Kurnit started with an innovative, cost-effective concept, nurtured it with frugality and kept an eye on the bottom line. [See sidebar, page 67.] He kept marketing costs down and created a workforce of 700 "guides" who worked at home and were paid according to how much revenue they generated. About.com has always had a puzzlingly low profile, but it's quietly become the seventh most-visited property on the Web, and was on track to be profitable in the first quarter of 2001, according to the company.

Of course, this deal probably never would have happened before April 14, when Internet companies were enjoying impossibly high valuations. About's stock hit a high of $101.75 March 14. In the last few months, the stock has been in the $20s and $30s -- ripe for a buyout.

While the AOL-Time Warner deal was about linking the huge, mainstream audiences that read Time Inc. publications like People, Fortune and InStyle with the mass market of 25 million AOL subscribers, this deal is about truck drivers and pet lovers.

When Kurnit founded About.com, he sought to dominate territory that many entrepreneurs would find unglamorous: the quilters and beekeepers of the world. About runs more than 700 sites devoted to every niche topic imaginable, from infertility and pagan religions to soapmaking and powerboating. Primedia is a conglomeration of hundreds of consumer and trade publications with titles like and Hay & Forage Grower and Mustang Illustrated, though it owns a few high-profile titles like Modern Bride, New York and Seventeen.

The merger of their properties is a poetic matchup of offline and online media: About.com has a thriving site on cats; Primedia has a magazine called Cats. About has a site about four-wheel drives and SUVs; Primedia has a magazine called 4 Wheel Drive & Sport Utility. About has a site on quilting; Primedia publishes McCall's Quilting, Quick Quilts, Quilter's Newsletter Magazine and Quiltmaker. They'll cross-promote off- and online ventures, offer advertisers new packages and share content.

"This will be the ultimate niche content company in an age when technology increasingly drives people to access that kernel of information they're really interested in," says Tom Rogers, who took over as CEO of Primedia a year ago with a mandate to take the company onto the Web.

The company needs this deal to kick off that migration to the Net. About wants the benefit of Primedia's big guns -- most notably its 1,600-person sales force -- to exponentially expand the number of advertisers on its sites. About.com currently has 4,000 advertisers, 60 percent of which are dot-coms. Primedia has an eye-popping 60,000 -- mostly smaller companies that relish the chance to reach niche markets -- and almost none of them are Internet companies.

Going after those niche markets of highly devoted readers may be a smarter strategy than AOL Time Warner's. The Internet, after all, is the ultimate niche medium, where audiences can be sliced up to serve individualized interests and advertising can be delivered to match those interests.

This deal is about amassing thousands of small advertisers and pairing them with the audiences that want to see their ads - a more labor-intensive undertaking than going after big brands like General Motors.

About.com recently expanded its focus with the creation of a new subsidiary to provide business-to-business content to online exchanges and industry consortia, which will fit in nicely with Primedia's trade publications. That b-to-b venture, in fact, served as the catalyst for the Primedia deal. "My first conversation with Tom [Rogers] was about meshing our b-to-b business," says Kurnit, who will stay on as CEO of About and become Primedia's chief Internet officer.

The deal's biggest challenge will be integrating the two companies. Some analysts believe it will be a tough task. "Historically, online and traditional media have not blended together as well as one would think and hope," says Mandana Hormozi, an analyst with Lazard Freres. "Some financial metrics they put out imply they'll be able to get a lot of synergies right off the bat. I think it will take longer." And training Primedia's salespeople to sell ads for dozens of Internet sites with which they have little familiarity won't be as easy as it may seem.

The alliance is the first major pairing of old and new media since the AOL merger was unveiled. Of course, this time the universe has reverted to the way we thought it was supposed to be: The old-media behemoth is buying the new-media upstart.

But it sounds like the upstart, which will account for 10 percent of Primedia's workforce if the deal is approved, is going to have influence far beyond its numbers. "I want About to transform the culture of Primedia' says Rogers. "I want the people running About to take Primedia and drive it into a whole new realm." Listen up, Primedia employees: That means checking e-mail on weekends.

Scott Kurnit Survives the Meltdown

If you want to pay Scott Kurnit a compliment, tell him he's cheap.

The 46-year-old CEO has governed About.com, the Internet company he founded four years ago, with a concept that might be considered novel at some Web ventures: We're not a real company until we have profits.

To that end, no one flies business class. The COO does not have an assistant. And members of About.com's workforce - the 700 freelancers who run the company's topic-specific sites - are paid by how much advertising revenue their work brings in.

While About competitors focused on revenues, Kurnit focused on the bottom line. Ninety percent of the marketing budget went to online advertising, not flashy television campaigns. That's why About.com managed to survive the content meltdown on the Web this year and appeal to Primedia.

Kurnit worked at some disappointing interactive ventures before he got it right, doing stints at Warner Cable's interactive TV experiment, Prodigy and News Corp.'s joint Internet venture with MCI. In 1996 he went out on his own. Kurnit's idea was to construct a network of sites on highly specific topics run by experts who would give the Web the human touch. The concept has changed very little in four years and has remained an innovative, cost-effective way to draw in large audiences. Kurnit started with just $4 million in seed money. He could have gotten more from America Online, recalls Ted Leonsis, president of AOL's interactive properties, but turned it down flat. "He said, 'You know, I think I've had enough with corporate partners. I want to do something on my own.'"

The business started in Kurnit's house, but by the time he launched an IPO in March 1999 he had 150 employees and an office in New York. He'd spent $30 million in three years, far less than some competitors. Now there are 500 employees, with franchises forming in Japan and Canada.

Kurnit has always been a little frustrated by About.com's low profile. But he's responsible for that more than anyone. He avoids the braggadocio of many Internet entrepreneurs. And he keeps his head down. Kurnit's philosophy? "Get the very best people, give them freedom and respect, and have them run like hell," he says.

He can run like hell, too. After his father founded his own advertising agency, Kurnit notes he "learned at the dinner table that if you want to [have your own business], you have to be prepared to work all the time. Because as a little kid, if I wanted to see Dad, I went into the office with him on the weekends."

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