Content in Search of Profits - Industry Trend or Event

Most news and information sites can't seem to find the magic formula for making money. The few relative success stories offer clues.

EVERYONE KNOWS IT'S NEARLY impossible to make a profit with content on the Web.

Banner ads, e-commerce and subscriptions -- the three legs that in varying degrees support the few relatively successful content sites -- aren't cutting it for most Web content operations, and the formula for success remains elusive. With subscriptions all but discredited, e-commerce under pressure, and publishers in a panic over a softening ad market [see story, page 102], the few success stories below offer insight into what works and what doesn't.

ADVERTISING: It's almost a truism now that banner ads aren't effective and don't bring in enough cash to keep a content operation afloat. Even a powerhouse like the New York Times, which attracts the type of upscale audience advertisers love, still loses money on the Web.

The sites that have had the greatest success with advertising have done it by dominating their field, drawing the greatest number of visitors and offering advertisers the broadest exposure. That route takes a lot of money and marketing muscle. MSNBC.com has the big backers -- Microsoft and NBC -- to invest the time and money it needed to amass the largest news audience on the Web. MSNBC.com says it expects to be profitable next year, but its reliance on advertising for the majority of its revenue still makes it vulnerable.

CNET, the Web's most popular site for news and information about technology and tech products, has made money on its operations in eight of the last 10 quarters. Most of that money comes from advertising revenue. And roughly 14 percent of the company's revenue in the third quarter came from a hybrid of advertising and e-commerce: CNET makes money every time its readers click to an advertiser's site to investigate a product, even if the reader doesn't make a purchase. The company earned $6.2 million in the third quarter on an operating basis, and had revenues of $56.4 million, nearly double the comparable figure for 1999.

E-COMMERCE: A number of content sites, particularly those geared toward women, launched with the idea of drawing significant revenue from e-commerce. But earlier this year, the three leading women's sites -- iVillage, Women.com and Oxygen.com -- were forced to restructure their retailing operations when it became obvious they couldn't manage their own inventory and fulfillment. Since then, they've outsourced their commerce operations with slightly better results.

E-commerce is also turning into a key revenue source for CondeNet, which produces sites for Conde Nast magazines. The key, the company has found, lies in drawing a direct connection between content and commerce. In fact, the company closed Phys.com in November because it lacked a direct connection between the site's subject matter -- fitness and health for women -- and products that relate closely to the site's content and could be sold profitably through the site. Phys.com could have made a deal to sell exercise equipment, for example, "but that's a very tough, low-margin business," says CondeNet president Sarah Chubb.

CondeNet's decision to continue with its three other flagship sites -- Epicurious.com, Concierge and Style.com -- is based on its belief that they can bring in solid revenue from e-commerce and other sources. Epicurious, for example, sells items from the gourmet chain Dean & Deluca at its online store. And Style.com recently launched an online shop in partnership with Neiman Marcus.

SUBSCRIPTIONS: This is the shakiest leg of the three. Even the Wall Street Journal, often cited as a lonely success with its subscription model, is not making money on the Web. People just don't want to pay for news and information.

The exception that proves this rule is Consumer Reports. Its Web operation, like the magazine itself, accepts no advertising and has been making money for more than a year on subscriptions alone. Executives say the company enjoyed a $5 million profit in the 12-month period that ended in May - a healthy return on about $10 million in revenue.

Consider why ConsumerReports.org is succeeding and you'll understand why the others aren't. Its content is singular and especially well-suited to the Web: a searchable archive of product reviews from the magazine, along with some original content. Since it needs little updating, it can get away with a lean staff of 30. And its content isn't merely interesting. It's extremely useful - and that usefulness doesn't diminish over time. The magazine, furthermore, has a strong brand and a stellar reputation that no competitor has equaled, which saves the site marketing costs. (Brandwise and Productopia, two once-promising online product ratings startups, both folded.)

"There are really no tricks" to the site's success, says Joel Gurin, executive vice president of Consumers Union, which owns the magazine. "The trust people have in our name has been very significant, and the site fulfills a need people have. It helps people make decisions that involve thousands, tens of thousands of dollars."

Now consider TheStreet.com. It made a name for itself with first-rate financial news and analysis, but it has serious competition from the likes of CBS MarketWatch.com and WSJ.com, the Wall Street Journal online. Most of The Street's information is valuable for only a short time. And it's spending more than $20 million this year on sales and marketing, which includes a huge ad campaign with commercials on the TV networks and ads in magazines - a huge expense for a strapped site.

Similarly, the Wall Street Journal's lack of profits online is due in part to high overhead expenses. The site employs more than 200 staffers to keep its news and analysis fresh. Journal executives say they expect their site will eventually make money, but they won't say when, insisting that the Web operation is now focused on investing in the editorial product and also in marketing. "We have a business model that allows us to continue to grow the number of subscribers and users and to build toward profitability at a larger number of subscribers," says Gordon Crovitz, senior VP at Dow Jones in charge of electronic publishing.

Inside.com is taking a different approach. Since the media news site launched in June, subscriptions have fallen below the company's projections, according to editor in chief Michael Hirschorn. So Inside is launching a print magazine (to be produced with The Standard), which Hirschorn says will account for a majority of the company's revenues. Of course, the magazine's success will depend on advertising.

In the Web's ever-changing climate, the best strategy for finding revenues may be an ability to quickly adapt. "I think the lesson is that one has to be flexible almost to a fault, and that one never gets too comfortable with one revenue stream," Hirschorn says. "There's just no way to predict how any of this is going to go."

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