boston dot com

Slide1: 

tom eisenmann

Chapter Three Case One: 

Chapter Three Case One

CEO quotes: 

CEO quotes The newspaper industry has been battered and given up for dead for several years now. But something funny is happening on the way to the graveyard.” When we started the enterprise, it was a midnight strike. We knew we wanted to start a website, but what did we want to put on that website? My original answer was that we were going to put the newspaper on the website. … The publisher responded, “All right, I’ll go along with that, because there is no audience anyway.” Thus, our publisher really entered into the enterprise without a clear vision of why we were putting the news online. Within a matter of years, however, our audience got to be fairly significant. Then the question became quite profound: Are we in essence destroying our business model? We’re charging people for this product on paper, but on the web we’re giving it away for free. What’s the endgame? Lincoln Millstein, CEO, Boston.com

Newspaper = Bundle: 

Newspaper = Bundle Physical carrier for 1) Ad-supported editorial 2) Circulars 3) Classifieds Bundling follows from economies of scale in newsgathering, physical production, and distribution Internet unbundles the physical product (Blown to Bits, Evans & Wurster)

Strategic Initiatives 1997-1998: 

Strategic Initiatives 1997-1998 Classified Advertising Free uplinks from Boston Globe Help wanted 28 days for $95 Online Yellow Pages Rejected Auctions

Strategic Initiatives 1999: 

Strategic Initiatives 1999 There’s some confusion now. You see that these companies are spinning out pieces of their existing business. But the question now is do you take it public? Do you create an entirely separate company? Do you move it a mile down the road and give it carte blanche to run over the existing business or do you try to take the long view and keep it more integrated? It’s a huge crisis that is today still unanswerable. William Drewry, DLJ equity analyst What do we become Bricks and Mortar Bricks and Clicks Pure Play??

Operations in 1999: 

Operations in 1999 80 full-time employees and 15 interns Advertising sales 4.2 million Legacy computer issues at the Globe Online news 6 employees Content delivery

Year 2000 Challenges: 

Year 2000 Challenges In a world defined merely by the quality of information, what should the New York Times be scared of? We have the best information in the world, with our commitment to quality journalism, our commitment to honest reporting, and our commitment to provide reporting that people read to make their lives successful. In an era defined as the information age, that has to have some value. Our business is information—quality value-added information. What defines us—and what is to me the core of newspapering—is taking the information and making it valuable . . . putting it in context . . . making it accessible to your audience. If you accept that, then everything else is just means of distribution. —Arthur Sulzberger, Jr., Chairman, New York Times Company

Year 2000 Challenges: 

Year 2000 Challenges Register or Not?? User wishes versus increased advertising revenue Auctions Deal with FairMarket Integration or separation from the Globe Tracking Stock Capital creation

Get Big Fast (GBF) Strategy: 

Get Big Fast (GBF) Strategy Massive upfront investment in brand building and customer acquisition Products/services often free or deeply discounted Funded by exuberant capital markets Examples: Amazon.com; AOL; E*Trade; eToys; iVillage; Netscape; Priceline

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Get Big Fast When … “Winner-take-all” dynamics apply Network effects Scale economies Ability to retain customers And, lifetime value of customer exceeds acquisition cost And, competitive risks are reasonable And, company can manage “growing pains”

Get It Right First When…: 

Get It Right First When… Protecting quality/brand is paramount “Learning by doing” is important New Market’s

Boston.com: GBF or GIRF?: 

Boston.com: GBF or GIRF? Boston.com is a hybrid of several business models Online content provider Online market maker Vertical portal Issue: GBF strategy has different payoff for different models

GIRF as Content Provider?: 

GIRF as Content Provider? Little threat of competitive preemption, given dominant position in newsgathering Globe’s key asset is brand, so protect editorial integrity (avoid sensationalistic content to drive traffic) Winner-take-all dynamics weak “Learning by doing” has been important

GBF as Market Maker?: 

GBF as Market Maker? Powerful winner-take-all dynamics Serious threat of competitive preemption

Can Boston.com Execute a Cost-Effective GBF Strategy?: 

Can Boston.com Execute a Cost-Effective GBF Strategy? Spent $1 million on outside media ads in 1999 (equivalent to $40 million national ad campaign) But only 10% of revenue (vs. 82% for CNET; 54% for Lycos) Revenue / user is about $17—high by Internet standards Ad cost / new user runs about $30-40 for sites like CNET or iVillage

Why are incumbents so often reluctant to pursue a GBF strategy?: 

Why are incumbents so often reluctant to pursue a GBF strategy? How valid are various explanations for inertia? Concerns about cannibalization Concerns about stock price impact of losses Dysfunctional resource allocation processes What organizational/financial structures maximize incumbent’s success odds when pursuing GBF strategy? Tracking stocks “Hawk versus Dove” structures

Hawk or Dove?: 

Hawk or Dove? Hawkish Choices: Separate brand; separate location; separate reporting structure, website links to other Boston media Dovish Choices: Leveraged newspaper content, IT and HR staff; “4-legged” selling; double commissions; insider CEO