Elements of e-commerce success - Statistical Data Included

Every second around the globe, seven new people tap into the Internet for the first time, according to one recent survey. Just as often, it seems, almost as many publishers wring their hands over a new e-dilemma, wondering who will steal their readers and ad dollars next.

For some magazine publishers, the notion of creating an Internet business is still fraught with enough challenges to make them want to unplug their computers for good. While many are busy untangling the Internet's complexities in a never-ending search for new revenue streams, some still wish it would all just go away.

But it won't, of course, and the shift in focus of many traditional publishers is more evident all the time. Here are some examples of early e-activity.

Early e-com entrants

* Time Inc. reconfigured its Internet and e-commerce strategy, this time favoring vertical online hubs with commerce capabilities over its Pathfinder site, which is being dismantled;

* TV Guide Inc. created a separate Internet and e-commerce division;

* Reader's Digest partnered with--and invested in--a healthcare Web site to build its own health site;

* Conde Nast's CondeNet unveiled its first plan to sell products through a revenue-sharing partnership with a major cookware company;

* The Hearst Corp. pushed the envelope further by joining with Whirlpool, the household appliance manufacturer, to form a new e-commerce company, brandwise.com.

And these are just some of the developments. For publishers who remain unconvinced, here's Manny Sawit, publishing director of several of Miller Freeman's Web-related properties, including the monthly 110,000-circulation Web Techniques. "It's myopic for print publishers to look at what's worked in the past and try to protect that. That's sticking your head in the sand."

And here's Lisa Allen, senior analyst at Cambridge, Massachusetts-based Forrester Research Inc. "Magazine publishers should not think they can simply transfer their content and business model online and make money, because they can't. As a traditional medium in the face of a newer one, you have to learn how to adapt, to find a distinct niche and a new role to play. Those who do will succeed. Those who don't will become nice footnotes to history."

Following is a primer on three of the most essential components of a successful online strategy.

1 Create internet culture

So where to begin? "The first thing companies--especially traditional ones--need to do is not pick content and commerce deals, but decide to invest in an Internet culture as a company," says Andrew Zolli, vice president of the interactive media group at New York consultant firm Siegel & Gale. "For most publishers this represents an evolution for their business. For the best publishers this can represent a revolution."

Evolution or revolution, what the change comes down to is commitment, says Zolli. In most cases, this must come from the top. To create a true Internet culture within a company, it is essential that top level executives be actively involved in all Internet initiatives. Although most CEOs are involved in identifying and articulating their company's vision, they often do not participate in strategic decisions regarding the Internet--often because they don't understand them, says Zolli.

A separate division

Kenneth Bronfin, senior vice president and deputy group head of Hearst New Media & Technology, agrees. "We're talking about potentially very large investments to get started," he says. "A new-media person within a magazine division is not going to make this happen. The most important part of this is for the CEOs of these companies to understand it and be heavily involved. Those guys focused on their traditional business will miss out."

Most agree a separate Internet division is essential for making online strategies work. Small to midsize companies can create an Internet culture in miniature by grouping their new-media employees together. The Hearst Corp.'s new-media arm, for example, was developed five years ago, not to build value or promote brands, but to start a new business, says Bronfin. "Just sticking something within a magazine division may help the magazines in the long run, but it's not going to drive a huge amount of revenue," he says. "We're building a business that should provide a substantial amount of money to the bottom line of Hearst in the next few years."

Several publishers have taken this model a step further. Some public companies have made their Internet divisions an entirely separate business, in part to cash in on the dot.com craze. In April, ZiffDavis Inc. sold the public a stake in a new tracking stock that follows its ZDNet unit, which includes the popular--and profitable--ComputerShopper.com. ZDNet raked in $18.6 million in revenue for the quarter that ended March 31, nearly double the same period in 1998.

Primedia spun off two new Internet content companies, one based in part on its consumer magazines and the other based on its trade-side holdings.

Critical to a successful new-media operation is the presence of innovative, Web-savvy employees--talent that usually comes with a price tag. "Quite a lot of the salary scales, positions and job definitions are coming from the software development side of things, and traditionally that's been higher," says Miller Freeman's Sawit. "Programmers, analysts and IS people are normally paid more than editors. Traditional print publishers need to understand that that's where the skillsets are." Overall, 38 percent of Webmasters make more than $40,000, and 43 percent of online editors get more than $40,000, according to an online ZDNet salary survey from June.

The employees of Hearst's Women.com Networks--the company partially owned by Hearst which filed to go public in May--are compensated not only through salaries but also through stock options--something the privately held Hearst can't offer, Bronfin says. "You're looking for a different type of people, and what it takes to motivate them are great stock options and a high-energy environment," he adds.

2 Partner, partner, partner

Despite the creation of Internet divisions or separate Web businesses, many publishing companies simply don't have enough technological wherewithal, Internet-marketing savvy or resources to achieve their online goals--particularly when it comes to e-commerce. That's why partnering is an increasingly popular option. "Finding the right partners can be the difference between success or failure," said Jeffrey Dearth, a managing director at DeSilva & Phillips Inc., at a recent ABP/BPAI-sponsored forum.

But how do you choose a partner? "I don't think you can shrink-wrap strategy," says Richard Malloch, group executive for Hearst Business Publishing. "I don't think one size fits all. Companies need to look at what their skills are, what their appetite for risk is, what their technical prowess is, what their capital budgets are, and the relationship they have with readers."

Partner with a retailer

A common method is for an established Web site to partner with a respected retailer. CondeNet's Epicurious site, for example, has formed an alliance with cookware-maker Williams-Sonoma. In the partnership, Williams-Sonoma brings its direct-mail business, state-of-the-art fulfillment and warehousing, and strong vendor relationships to the CondeNet site in an e-commerce play that will allow the retailer--which does not have its own site--to sell products from CondeNet. CondeNet delivers the eyeballs, with the basic model being a revenue split in sales. Epicurious has amassed an audience of 2 million unique visitors a month, offers 12 community bulletin boards, and has a database of about 10,000 recipes.

Reader's Digest Association Inc., meanwhile, has formed an alliance with WebMD, a privately held healthcare Web site based in Atlanta. The company's site offers Net-based services for physicians and online communities for consumers. RDA will create a separate health Web site with WebMD's help, and both companies will cross-promote their products. Under the deal, Reader's Digest will invest $13 million in WebMD's parent company and WebMD will help RDA build its own health site. The two companies will also exchange content.

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