Online Newsmedia's Vanishing InkAfter chewing up many Internet-only retailers, the stock market and investors are now pummeling content Web sites.
Such harsh scrutiny and reluctance to extend an overdraft has bankrupted crime news site APBNews.com, and forced layoffs at Salon.com, CBS.com and Oxygen Media. Refocusing under pressure, some sites are outsourcing their e-commerce component or, like iVillage.com, walking out of that business.
"One of the major problems a lot of these guys had was that they themselves had huge marketing budgets in order to acquire audiences," said Marisa Gluck, analyst at Jupiter Communications, New York. "So, they're spending a great deal of money without generating revenue."
Wall Street has shown its displeasure in the way it knows best, by knocking the stuffing out of their stock prices.
theglobe.com, for example, closed at 1 5/16 on July 13, down from its 52-week high of 19 3/16; TheStreet.com closed at 5, down from a year's high of 36 3/4; and Salon.com, which reportedly is losing $2 million a month, was selling for 1 1/16, way down from 15 a year ago.
"I think the biggest challenge is rationalizing the business model and proving that high-quality journalism can be profitable on the Web, and that has not been proven as yet," said Scott Moore, publisher of Microsoft Corp.'s Slate.com, Redmond, WA.
The consensus is that media sites will have to shape up or ship out.
"I think consolidation is absolutely real," said Peggy White, director of sales and business development at MSNBC, a joint venture of Microsoft and NBC. "We just signed an enormous alliance with the Washington Post Co. for Newsweek."
White was referring to Newsweek's new online address at newsweek.msnbc.com, a deal announced last fall but accomplished a few weeks ago. The alliance is said to have ratcheted up Newsweek's online readership manifold.
"It really is about where are the viewers, where are the readers and how do we get the right product that they want to read," White said. "As a result of that, it's going to be exceedingly difficult for the niche media sites to be successful in the advertising space.
"You'll see a disproportionate amount of the advertising dollars available for online media going to the larger sites as a result of the mass audience and the service that's behind that," she said.
Syndicating content and selling products may bolster the bottom line, but advertising revenue and creativity in extracting that from increasingly demanding advertisers is the key arbiter of success for media properties.
A visit to MSNBC's site confirms that its aim is not only to please online readers, but also advertisers seeking to convert those eyeballs into shoppers and buyers. The site also banks on cross-media promotions with its parents' properties, Microsoft Network and NBC-TV, to attract traffic.
"We really think of ourselves as providing advertising solutions for our advertising customers," MSNBC's White said, adding that "yes, advertisers want more. Advertisers want more customers to transact and it's inherent upon us to try and find ways to make that work for them."
Banners, buttons, contextual ads and sponsorships of sections or across the site -- like the deal announced between search engine AskJeeves.com and Salon.com -- are the spawn of the cost-per-thousand school of advertising.
Although still widely used, these ad forms don't measure up to advertisers' expectations. Banners are now reported to elicit a 0.3 percent click-through rate. That means only three in 1,000 viewers clicks on a banner.
White firmly believes in the CPM model, especially its utility as a brand-awareness tool. Jupiter's Gluck, acknowledges the relevance of CPM, but thinks media and advertisers should look beyond.
"They should look for several different types of pricing, and one of them would be cost per click or cost per action, depending on the action, whether the consumer buys something or registers or enters a sweepstakes; it's determined by the advertisers," Gluck said.
Slate gets creative by offering advertorial packages -- material that's included in pertinent sections that is clearly delineated as paid content. MSNBC goes a step further in its sponsorship program by displaying the advertiser's ad for a few brief seconds before pulling up the section page that was clicked. This is called transitional advertising.
Salon.com, which claims a high-brow following, has gone to the extent of sharing revenue with its newly signed-up advertiser, online outlet center Saleoutlet.com. The retail site boasts 135 different retailers under one roof, a single shopping cart and 1,500 first-run sale items.
"It gives revenue and exposure to new audiences, and puts Saleoutlet in front of new customers, new catalogue requesters," said Michael Aronowitz, president/CEO of Saleoutlet.com, New York. "Also, this is not a recycling of the customers that have been to the site before."
Online marketers allying with their own kind raises another issue. Jupiter's Gluck advises Web publishers to decrease reliance on dot-com advertisers.
According to a report in The Industry Standard, online companies' spending on sales and marketing was up 350 percent to $684 million in 1999 -- one of the fastest-growing ad spending categories in that period. This year it's projected to rise only 28.4 percent, to $878 million.
"The opportunity right now is from advertisers who are not dot-com, traditional advertisers in automotive, travel, financial services, et cetera," Gluck said. "Publishers need to aggressively court these types of advertisers who aren't about to run out of venture capital or are seeing their stock price drop 75 percent in two weeks."