Salon, Nearly No Money and Ultramercials

Adam9 writes "As Salon fights for survival, they have introduced a new advertising program that allows you to receive a free 12 hour pass by clicking through about 10 seconds of advertisements. Currently, the advertisements are from Mercedes-Benz. According to the article, they've lost about $79.7 million from their start in 1995. They also have about 45,000 subscribers right now." Jamie also pointed out this article from the WSJ, as well as the words from Salon themselves about it.

Comments

Is this where things are going?

[beq]

It's an interesting idea, a "temporary subscription" in return for viewing some advertising. It seems there's something for everyone. The advertiser gets a forum where people actually have to click through the ad; Salon gets some money from the advertiser; and non-subscribers get access to "premium" content. If this works (and Salon stays in business in part because of this), perhaps other content sites will follow suit.

How did they lose $80 million?

[djembe2k]

Look, I love Salon, and I'll really hate to see them go if it comes to that. But I don't see how they accumulated a debt of $80,000,000. They aren't in retail, so it isn't inventory. They didn't have to do years of unprofitable R&D to develop some sort of magical intellectual property that would pay off later. They are a web site. What am I missing?

Now they have a solid base of advertisers and 45,000 paying subscribers, which is really good for an online magazine. The WSJ article says they are looking at a strategy of reducing costs. Sounds like a plan to me. Is it really conceivable that they can't find a way to keep costs within expected revenues?

Re:How did they lose $80 million?

[Didion Sprague]

My question -- similar to yours, I think is this -- do deadtree magazines rack up similar debt?

In other words, is the absence of paper -- and a physical object -- less profitable than if you do what Salon is doing and go 100% electronic?

I seem to remember that Slate.com tried the deadtree thing -- along with their website -- and I remember that the Slate magazine was available in Starbucks. I actually *liked* the magazine -- as opposed to the annoying site (with its reader letters back and forth -- which strike me as the absolute height of pomposity and "in-joke-ness". If you just try to browse Slate, you're hit with all these things referencing other things -- and if you don't know what the "Fray" is and if you haven't been following all the oh-so-elegantly written missives between experts, you're lost. Salon *isn't* this way -- thank god. So I'm digressing, but everytime I think of Salon, I think of Slate and how annoying it is. Michael Kinsley is (was?) bad enough, but now that he's departed, the whiff of pomposity is still there.)

Anyway, I know Salon at one time had some pretty good writers writing for it. I was always fond of Camille Paglia's stuff. But apparently they shit-canned her and a bunch of other writers a year (two years?) ago. Hasn't been the same since.

Re:How did they lose $80 million?

[NewtonsLaw]

I know full well how publishers (and other online enterprises) can lose so much money.

Back in 1997 I started a little website at 7am.com.

It wasn't pretentious and simply sought to become a news aggregation site designed to save people time by bringing together links to the most interesting stories from all around the Web.

About this time I'd also just finished co-writing a book on Java (being a programmer from way-back) and it occured to me that I could syndicate my regularly updated list of headlines and links using Java-based news ticker.

Thus an empire was born!

Within a few short months, 7am.com had gone from getting just a few hundred hits a day, to getting half a million or so.

The News Ticker was a smart idea -- it allowed people to include regularly updated, topical information on their web-pages at no cost or effort.

Within a few short years there were over 200,000 third-party web-pages carrying the 7am.com news ticker and it was being hit around 2 million times per day.

By that time I'd also started publishing a "newswire" consisting of stories written by myself and a small group of other writers who were keen to get some experience in the (then) new and exciting world of online journalism.

Probably not a lot of people are aware, but 7am.com was (to the best of my knowledge) the very first website in the world to carry the pictures sent back from the surface of Mars by the Pathfinder mission in 1997. 7am.com beat NASA, CNN and all the other sites I checked by several minutes and -- thanks to the News Ticker's ability to "get the message out" to a heap of other sites, there were over 100K visitors within the first half hour of those images being posted.

The exact details of how this "scoop" was achieved is revealed in an upcoming book I'm writing.

7am.com also scooped most of the traditional media when NATO launched its attacks on Serb targets in Yugoslavia. One of our newshounds lived near an airport from which the B-52's were despatched and he filed a report within a minute or so of the first wave taking off.

The same thing happened in 1998 when the US and Britain attacked Iraq -- 7am.com got the news up first.

7am.com got the full Starr Report on Clinton's "misbehavior" online before many of the other news sites -- but we were smart enough to ZIP up our copy so that people could download it more quickly.

Our ability to scoop big (and small) stories like this, combined with the viral growth of our news ticker meant that 7am.com was ranked by NetRatings (now Neilsen/Net Ratings) as being more popular than Playboy.com, The BBC's news website, and right up there alongside FoxNews.

So why have I typed all this stuff?

Well here's the bottom line...

Until mid 1999, 7am.com was doing all this on a monthly budget of around US$7,000.

That's right -- the total cost of running what was, at the time, the world's most widely syndicated web-based news service, was just $84,000 a year. What's more -- there were months when revenues almost covered those costs so the actual operating loss was significantly less.

How was this achieved?

Simple -- 7am.com was a true "virtual newsroom" which took full advantage of the power the Net offers to slash overheads.

Although the webservers were located in San Diego, California, the "head office" of 7am.com was a tiny home-office in the New Zealand countryside, 10,000 miles away.

Total staff consisted of myself and two or three other part-time freelancers.

No Porsches in the carpark (no carpark!), no flash offices, no boozy lunches, no scooters in the hallway -- just a small group of people working their asses off and breaking some important new ground.

I have to admit that I worked 18 hours a day for four years without a single day off. In fact, I got an ear infection and had the rather unpleasant experience of my eardrum bursting because I was too busy to get to the doctor in time -- but hey, it's only pain eh?

About that time a group of VCs came along and said "we can take this business to the US and make a fortune". They promptly bought a majority stake in the business and set about "preparing it for sale".

Now remember, this was a business that had run very successfully on a shoestring budget for nearly four years and had built the largest syndication network of its type on the Net.

It had a very successful structure and operating model -- hell, it was even gearing up to make a profit!

Unfortunately, things changed dramatically once the VCs got their hands on the controls.

Suddenly the total outgoings jumped from $7K per month to nearer $120K per month. Offices were hired, staff recruited, new computers purchased, etc, etc, etc.

Suddenly seven figure sums were being consumed -- and, what's worse, the carefully crafted, and very successful publishing systems which had been put in place were being overhauled (ie: screwed around with) despite my objections.

To cut a long story short (buy the book if you want details ;-), the money-hungry VCs effectively bloated the operational costs by a huge sum.

Phrases such as "you've got to spend money to make money" and "image is important" were bandied about freely.

I was told that nobody would be interested in investing in, or buying 7am.com if it didn't have "substance". The "virtual" concept had to be replaced by lots of people huddled in little cubicles it seemed.

My suggestions that surely profit was more important than "image" fell on deaf ears (perhaps I was once again ahead of my time eh? :-)

The VCs ended up totally screwing the sale of the company, I got so frustrated I resigned, and now 7am.com continues to "chug along" but seems to have totally lost the spark, innovation and cutting-edge attitude that won it such success when the money-barons weren't in control.

By the way, I *am* serious about the book. There are literally thousands of "my secrets to success" type of books written by figureheads of business such as Richard Branson, Victor Kiam, etc -- mine has the working title "The secrets of failure".

I may not know what to do right in the world of business, but I sure have a very long list of things I've done wrong. Hopefully people will buy the book and learn from *my* mistakes rather than their own.

Let's face it, I must have screwed up real bad to come out of the dot-com boom with nothing but pocket change eh?

Re:Most advertisers won't allow this...

[grahamsz]

It's clearly inline with their advertisers wishes.

The advert i saw the other day from mercedes benz was clearly designed to be exactly that sort of click through. It had 4 pages of very flash oriented adverts for some new car.

I must admit it was quite effective, and if i had the money to buy a mercedes then the ad might have effected me.

If it were better targetted and perhaps extolled the benifits of red bull and coding sessions then i might have gone for it.

Re:Most advertisers won't allow this...

[SirSlud]

Which is exactly why CPC (cost per click) aint as popular as it used to be.

CPM (cost per thousand) is the defacto standard.

Furthurmore, most ads dont have anything to offer beyond the clickthru. Internet advertising is primarily a branding medium .. getting the customer to click thru isnt as important to the advertiser as youd like to think. (Although, granted, with aquisition campaigns, usually hybrid deals rear their ugly heads .. like CPM with a little Cost Per Action thrown in .. or sometimes its _just_ CPA.)

Actually _seeing_ the ad for longer than 2 seconds is. (Salon isnt forcing you to click, they're forcing you to watch .. they force the impression out of you, which is actually _good_ for the advertiser.)

I know these things because I write the ad delivery server for a company that has about 10% online penetration (one in ten americans online have 'hit' my ad server at some point.)

45,000 is small beans. Analagy to cable subscript.

[Frobozz0]

I'd like to state that I worked for a company that had over 180,000 "subscribers" before it folded in 2001. We didn't charge for a subscription, but we did charge for content. Each piece of content you viewed was a small fee. Quite frankly, I was never convinced of this business worthiness of this approach. We burnt through about 30 million before going belly up. Looks like Salon will be doing the same thing.

I think online communities are going to have a hard time selling to individuals. While the metaphore works for real world newspapers and magazines, their publishing numbers are going down. Less people are reading them because they can get free content on the web. Now, I totally believe you should pay for content, but it should be subscription based and not be on a per site basis. In a sense, it should work like AOL (I know, I know). With AOL, you get prepackaged content. I'm suggesting you pay xx.xx dollars and get a pass to 20 or 30 web sites that all use the same password. You should be able to sign up for these sites through different subscribers, like you would your domain registration or cable access. The web sites still get the same amount of money, but if one 'net-network can provide a lower price but sell to more people, they can compete. They could also provide different site packages or offer more sites.

Like the old Warez sites...

[autopr0n]

Anyone remember those old warez sites, (and some H/P/A sites as well) where they tried to force you to click their sponsors, or links to top-sites in order to access them?

I guess all kinds of marketing comes around. But the real question is, are people too cheap to pay for salon premium really going to buy Mercedes-Benzs?

Read their Financial Data

[serutan]

Everybody is asking, "How could an online magazine lose so much money" and everybody else is giving vague answers. According to their financial reports they seem to have trimmed down considerably this year, but looking at last year they were spending about a million a month on content and production, half a million on sales and marketing, $100k on research and development (??? you tell me) and about $400k on admin. That's $24 million a year right there. Losing $11 million/year doesn't seem so far-fetched.

What interests me is that each of the two top execs made $300k last year. Not bad pay for shovelling venture capital down a hole, eh?

Re:Anyone know

[Sloppy]

And what have those Slashdot subscribers really seen that makes it worth their money?

I'm a paying subscriber, so I can at least answer that question from one point of view.

What I have seen is this: No ads, combined with the knowledge that Slashdot still got paid anyway (thereby staying open), every time I hit their server. I don't really care very much if any new features ever get added or not.

That's all there is to it, and it's really that simple. I hate ads (and I fast-forward through them on my Tivo), and if I just filter, then someday Slashdot will cease to be (*). Without money, the wires that carry electricity and data would stop working, and then it would be over.

That would matter to be, because I have fun here. I learn things, I read funny things that make me laugh, I troll, I egotistically shout nonsense just to hear my own voice, I watch others do the same, and we all waste time together. That's all I ask for, so it's ok if that's all I get.

(*) How do I -- just one little guy using up half a cent credit with every page load -- possibly make that much difference? I don't know. If there are lots of people like me, then we'll add up to something. If there aren't many of us, then I hope someday maybe there will be. The basic principle is: if you want to change the world, you must first change yourself. Conduct yourself in the manner that you hope others conduct themselves. This is my strategy for keeping my playground open.