High Noon for E-Commerce

Online-sales strategies run the gamut from promising to pitiable. On which ones should publishers set their sights?

by Christopher J. Feola

There’s an old joke that says the way to create a small fortune on the Internet is to start with a great big one. Nowhere has that become more apparent lately than in e-commerce.

Just ask Boo.com.

The British firm already has become a proverbial tale of ’Net woe. It set up shop as the cuttingest of cutting-edge online retailers, reportedly spending between $47 million and $53 million just developing a 3-D retail interface.

The good news was that Boo.com’s interface was advanced. The bad news was that depending on the computer used to access the site, it either wouldn't run, or it gave new meaning to the word “glacial.”

The worst news was reported May 30 by London’s Sunday Times. Boo.com, forced into liquidation, sold its vaunted technology for $372,500 to another e-commerce company.

Of course, not all the news is bad. There’s Amazon.com, which loses money on nearly everything it sells—but makes up for it in volume. And there are the computer-hardware companies such as Dell and IBM, which use the Internet to actually make money while lowering costs.

Into this sea of mixed tidings sails the newspaper industry. And how’s the news? Well, it’s...mixed. Newspaper-backed electronic storefronts, which have been launched by many newspapers in the past several years, often have been a disappointment.

“We’ve been regaled with tales about how building stores for local merchants is problematic for many sites,” says Melinda Gipson, NAA’s director of new-media business development. “It can cost thousands of dollars to put up a storefront, for which the newspaper may charge a setup fee of $1,500 or less, and then derive $100-to-$300 per month in hosting revenue.”

In the long term, Gipson contends, the real problem is critical mass—or lack thereof. “I repeatedly hear the same numbers [of storefronts] from lots of people—a dozen, or a score.” While Newsday.com leads the pack with more than 130 local stores, “this level of success cannot come without serious promotion on the part of the newspaper,” Gipson argues. “And yet, unless you have this kind of storefront volume, with its corresponding variety and depth of merchandise, it’s hard to build a marketplace.”

But not all is lost. Such problems may stem as much from strategy as technology, and publishers continue to explore a variety of other ways of making money on the Web, including online directories, auctions, pay-for-usage content, classified-ad placement, circulation management, sales opportunities from specialized content, and site development. Moreover, it’s critical to keep an eye on the paper’s overall business plan.

“It would be incorrect to say e-commerce is emerging as a key to newspapers’ online profitability,” says Randy Bennett, NAA’s vice president for electronic media and industry development. “The real issue is how newspapers can best serve traditional and emerging advertisers with a mix of traditional and emerging tools and capabilities.”

The question, then, is how to leverage existing relationships online, and what tools to use. “If [relationships] can be contained in the local—the newspaper—marketplace, [publishers] will have success,” says Linda Gagnon, vice president of marketing and business development for Edgil Associates Inc. of North Chelmsford, Mass. “It is at this point that application and database development come into the picture.”

Welcome to Webdale

At the heart of newspapers’ e-commerce efforts has been the humble online storefront. Picture a virtual shopping mall—in fact, the Star Tribune in Minneapolis actually named its online-shopping site Webdale, an in-joke based on the fact that the names of many Twin Cities-area malls end with the suffix “dale.”

Of course, if Webdale were a real brick-and-mortar storefront, much of it would still be covered by “Coming Soon” and “This Space for Rent” signs. Some 20 local merchants now participate, garnering about $9,000 in total revenues in May. Not much, perhaps, but usage has increased dramatically in recent months, Nick Rogosienski, vice president of interactive media, said at NAA’s recent Connections conference. “[Merchants] seem to be happy, and the trend seems to be going the right way,” he said. “We’ve given up on the model once seen as Nirvana—getting a little tiny piece of all online transactions. We’re focusing on building the marketplace.”

Others take a similar long view. “A few are [successful], but generally I do not believe the public has gotten comfortable with purchasing products over the Internet yet,” says Jack Harpster, executive director of Donrey Media Interactive, which publishes sites such as Lasvegas.com and Hawaii.com.

Failure often comes for one simple reason: “The majority of sites that fail have no merchandising plan or source of traffic,” says Kim Dixon, senior director of e-commerce for community-software developer Koz.com of Raleigh, N.C.

Gipson agrees. “What needs to be addressed, and evaluated from both a technical and business standpoint, is not how to build the store, but how to drive traffic to the store,” she observes. “If anyone is going to do anything in this space, they have to address the issue of how to network.”

Internet Tradeline Inc. of New York City, which operates end-to-end storefront solutions for more than 100 newspapers under the Pointshop.com brand, takes a stab at this by linking local sites. While only 20 Twin Cities retailers participate in Webdale, for example, networking arrangements bring the total number of storefronts that users can see to roughly 800, Rogosienski said during Connections.

In another take on the same problem, Koz.com has integrated online storefronts into its existing community-publishing software, now in place at more than 100 newspapers. “For example, the local sporting-goods store can be linked to local youth-sports sites and may include a calendar of upcoming sporting events, newsletters about sales or promotions, [or] a chat feature to share common interests in sports,” Dixon says.

Consider Matto Cycle (www.matto cycle.com), an e-commerce site that’s part of the Pottsville (Pa.) Republican’s community site. After operating a cut-and-dried electronic storefront for some time, owner Bud Matto opted to add such community-building features as chat rooms and message boards. “When he decided that e-commerce was more than just the transaction and changed his focus, his sales increased by 500 percent,” Dixon asserts.

Publishers also can help drive traffic by offering regional marketplaces “replicating marketplaces of interest,” Dixon adds. For instance, Koz affiliate The Richmond (Va.) Times Dispatch, which sells its store-building tools to merchant associations and other business groups, recently partnered with the Virginia Department of Agriculture to build an online mall for the “Virginia’s Finest” program, which promotes state-grown agricultural products (www.vafinest.com). “The belief is that local Virginians, as well as national consumers, will find it a unique place to shop,” Dixon says.

When it comes to the physical act of building storefronts, Koz takes a do-it-yourself approach borrowed from its community offerings, which let local clubs, sporting teams and not-for-profit groups build their own sites without knowledge of HTML or other Web tools. Its Community Commerce system allows merchants to “build and manage their own stores—and create a better experience for their customers through interactive features,” Dixon says. “These features enhance customer relations and provide customized customer support—and, in turn, lead to increased sales and retention.”

Calling Internet Tradeline an application-service provider, Ellen Devens, senior vice president for sales, marketing and product development, touts Pointshop’s ability to build the store for the merchant. That’s critical, as retailer inertia remains a key barrier to online commerce, according to Gipson.

Pointshop’s proprietary online store-management center also provides retailers with usage statistics and additional programs to help increase sales. The solution is completely transparent to publishers, Devens adds: “Internet Tradeline is everything behind the ‘shopping’ button.”

Building From Scratch

Other papers take a more complex approach, borrowing from the venerable business of Internet-site development to build storefronts from scratch.

“Here at Inland EmpireOnline.com, when a customer asks, ‘Do you?’ we automatically say, ‘Yes,’” says Freda Jones, acting manager of the site, which is associated with The Press-Enterprise in Riverside, Calif.

The benefit, Jones says, is that merchants get sites that go beyond the one- and two-page templates associated with basic electronic storefronts, or city-guide services suchas those offered by Zip2 (now MyWay.com) and CitySearch.

The inevitable problem that arises: too little time. “Sales staff is encouraged to target advertisers with [standard] Web sites first, but if a customer insists, we take our time and do the best job possible,” Jones says. “As we grow our online staff, plans are to eventually provide cookie-cutter type designs—that’s what some of the smaller advertisers want—but for now, we just are not staffed to do this.”

“There is a big concern about it taking away from our initial mission of having an online news-paper,” Kelly Dyer, general manager of The Daily Oklahoman’s Web site, agreed on NAA’s New Media Federation e-mail forum. “Web development really zaps resources.”

One possible solution to the dilemma is focusing on key market segments. “We have identified strategic categories that we are going to stay very close to,” said forum participant Chris Dawson, director of IT and new media for The Press Democrat in Santa Rosa, Calif., which is targeting local grocers. Why grocers? The paper also is preparing a regional-cuisine site for launch, and “we look to this category to be very closely tied to the site, including e-commerce opportunities.”

Supercharging Content

That regional-cuisine site proves a point that would make any print-side manager cheer. In the end, newspapers are still about content, and e-commerce based around that fact often can be quite powerful, Harpster says.

For example, consider Donrey’s destination sites, featuring travel information about such tourist Meccas as Las Vegas and Hawaii. The company expects to net $2 million in travel-related e-commerce revenues this year, largely from revenue splits with travel agencies and other merchants.

“I am somewhat surprised that newspapers covering other popular travel-destination markets have not been as aggressive going after this revenue,” says Harpster. “Other markets have other kinds of niches that could be mined, too.”

Along with travel information, think vertical, which allows partnerships with other local players—including e-commerce merchants, who can do the selling for you. The Press Democrat identified such a niche with its winetoday.com site; Donrey recently launched a new casino-gaming vertical (casinogaming.com).

“The key is to know your market and to seek out the opportunities that can be uniquely yours,” Harpster advises.

Other Approaches

While online storefronts represent the most obvious form of e-commerce, a host of other approaches, some more obvious than others, fall into the category. They include:

Directories. Online Yellow Page and classified-ad directories have long provided newspaper merchants with storefronts. But Vance Gorke, vice president of business development for newspaper-directory partner Switchboard, sees them becoming all the more important in a wireless environment. “If you’re worried about driving shoppers to online stores, that’s what a good directory will do,” he says.

Palm Inc. announced in late June that it will bundle Switchboard’s lookup service with “certain future” handheld computers. Other technologies, such as short-message service (SMS) advertising featuring click-to-call voice numbers, such as Amazon enjoys with Sprint wireless-Web phones, will play a key role in making the wireless medium pay off.

Online Auctions. As eBay, the 800-pound gorilla in the auction space, nears the 5-million listing mark, it’s clear that this category isn’t relegated to the Beanie Babies that initially brought it national attention.

Since auctions are, in effect, interactive versions of newspaper classified ads, it’s not surprising that newspapers began playing in this space early. As eBay was beginning to build momentum several years ago, the Hartford Courant bought a fledgling ’Net upstart called Auction Universe that since has morphed into Classified Ventures’ auctions.com. Several other newspapers, including The Boston Globe, have partnered with companies like Fairmarket Inc., which offers co-branded, networked, local auction sites.

However, initial enthusiasm about the space has been tempered somewhat by lackluster results. Boston.com’s auctions site now accounts for less than 1 percent of all traffic, while the Star Tribune makes “literally tens of dollars on this every month,” joked Rogosienski (see Newspapers 2000 Review, p. S6).

The serious problem behind the joke, many contend, is that newspapers have yet to successfully link print classifieds with their more dynamic on-line counterparts.

“If newspapers do not pick up on this connection, they stand to lose their classified business over time,” Dixon cautions.

Of all companies, eBay now offers one take on a solution, offering to partner with local newspapers and sell print classifieds as upsells to its online listings, Michael Dearing, local-trading director for the San Jose company, said during Connect-ions.

Reverse Auctions and Negotiation Services. Boston.com and Washingtonpost.com also have experimented with a service from iwant.com, where users post items they’re looking for. Other services offering discount promotional opportunities include Nextag.com, allowing users to negotiate the price they’re willing to pay with local or national merchants, and group-buying experiences such as Washingtonpost.com partner The MobShop Network (see www.washingtonpost.com/wp-adv/shopping/front.htm). Likewise, Tribune Co. has invested in eFrenzy, with which it will create an online “request for services” marketplace, in which users can seek “bids” for professional services.

Shopping Services. Everybody likes a bargain, and a host of Web- and e-mail- based services target value-conscious shoppers.

Shoppinglist.com “clips” sales information from newspaper display ads—an approach that makes some publishers uneasy.

Rival Dailyshopper.com actively seeks local media partners, while the CBS Broadcasting Inc.-backed Storerunner.com has built a national database of local-sale items. Such sites may prove good partners for local newspapers seeking to enhance their sites’ utility.

Pay-for-Usage Content. For years, many newspapers have tied archives to some sort of pay-for-access model—either a fixed price (usually around $1-to-$3) to retrieve one story, or a fixed monthly or annual subscription fee for full access. With online-subscription fees generally considered a bust (with the exception, of course, of financial-news sites such as The Wall Street Journal Interactive Edition), archives appear to be the sole sweet spot for paid content.

Some newspapers now are exploring new models that could ultimately usher in the long-awaited era of “microtransactions”—complex billing systems allowing publishers to charge just pennies (or fractions thereof) per page.

Consider iCopyright.com, whose reprint-management technology was put into use on the Los Angeles Times’ Web site earlier this year; others, including The Washington Post, are experimenting with the service. Visitors to latimes.com see a link at the bottom of many stories; clicking on it brings up a form allowing them to request permission to e-mail, print or photocopy the story. E-mailed stories cost 20 cents apiece, while printing or photocopying a Portable Document Format version costs $2.50 per copy after the first five. In the Times’ case, not everything actually costs money—printing or photocopying up to five copies of a story remains free, for instance. Calling the system a way of “simplifying the process of granting clearances,” Steven Christensen, senior vice president of the Los Angeles Times Syndicate, says the new revenue source also “better meets the needs of our readers.”

Online Classified-Ad Placement. Along with building new revenue streams, e-commerce also can help bolster existing ones. For several years, numerous publishers and classified-system suppliers have allowed online users to place print ads via the Internet, essentially extending the classified department’s hours to 24/7.

Now such tools allow advertisers to place multimarket ad buys. AdStar.com of Marina del Rey, Calif., was one of the industry’s first suppliers to help automate classified-ad placement. It now operates a Web portal, Advertise123.com, allowing online users to place classified ads in newspapers in all of the top-50 U.S. markets. Individual papers, including the Chicago Tribune, also use private-label versions of AdStar’s service, which includes online rating and credit-card payment, something not included in many early iterations of the technology.

How quickly is classified ad-placement moving online? It took Advertise123.com nine months to clear $1 million in classified-ad sales, but less than three more to double that amount.

Online Circulation Management. Speaking of extending existing revenue streams, one obvious e-commerce product for newspaper companies is...well, newspapers. Many are starting to offer customers the ability to buy or manage subscriptions online, according to John Murray, NAA’s vice president for circulation.

“They are becoming increasingly common,” says Murray, pointing out such sites as The Augusta (Ga.) Chronicle and Boston.com. While some sites dynamically interface with print-side systems, “most just capture the info, which is then [entered] manually.”

New software promises to simplify the process. At NEXPO®, Baseview Products Inc. of Ann Arbor, Mich., unveiled CirculationPro, allowing users to access their subscription information online, make payments and schedule vacation stops.

The Definition Dilemma

Are newspapers living up to their e-commerce potential thus far? Part of the unclear answer revolves around the fact that there’s no generally accepted definition of e-commerce, much less of e-commerce success. This seems unbelievably obtuse, but before we throw stones, perhaps we should remember that our industry and the Audit Bureau of Circulations still are trying to work out exactly what constitutes the sale of a print newspaper.

E-commerce “includes more than just an actual transaction,” argues Koz.com’s Dixon. “[It] also encompasses awareness of and education on the product being sold, comparison and negotiation, the actual sale, and ongoing customer support.”

And here’s the potential good news for newspapers. “As the Web continues to become more mainstream, e-commerce will include transactions that occur every day, such as purchasing goods and services, paying organization dues, registering for an event or simply making a charitable donation.

“These are the real ‘killer apps’ for e-commerce, because they’re making everyday life easier,” Dixon adds. “Life isn’t just shopping—it’s more than that.”

This thrust, of course, is what has intrigued the newspaper industry since the first e-commerce rumblings shook the Barnes & Nobles of the world down to their brick-and-mortar foundations. If e-commerce is about more than simple transactions—if it is about community—then who understands community better than newspapers? After all, we’ve been in the community-transaction business for a long, long time.

Feola is chief of technology at Belo Interactive.
E-mail, cfeola@belo.com.

Sources

Randy Bennett, Melinda Gipson and John Murray, NAA, 1921 Gallows Road, Suite 600, Vienna, Va. 22182. Bennett�s e-mail, bennr@naa.org; Gipson�s e-mail, gipsm@naa.org; Murray�s e-mail, murrj@ naa.org; phone, (703) 902-1600; fax, (703) 917-0636.

Ellen Devens, Internet Tradeline Inc., 111 W. 40th St., 3rd floor, New York, N.Y. 10018. E-mail, edevens@tradeline.net; phone, (212) 827-3371.

Kim Dixon, Koz.com, 5001 S. Miami Blvd., Suite 200, Durham, N.C. 27703. E-mail, kdixon@koz.com; phone, (919) 767-1061; fax, (919) 767-1711.

Jack Harpster, Donrey Media Interactive, Box 70, Las Vegas, Nev. 89125-0070. E-mail, jharpste@lasvegas.com; phone, (702) 383-0365.

Freda Jones, The Press Enterprise, Box 792, Riverside, Calif. 92502-0792. E-mail, fjones@pe.com; phone, (909) 248-6108; fax, (909) 248-6102.

Nick Rogosienski, Star Tribune, 425 Portland Ave., Minneapolis, Minn. 55488. E-mail, nickrogo@startribune.com; phone, (612) 673-7749; fax, (612) 673-7973.