InfoInnovation

2007 results validate first step in FT's new online pricing strategy

Today, The Financial Times owner Pearson PLC released preliminary 2007 results, indicating that an innovative new online pricing strategy is succeeding - even though it hasn’t yet made a direct impact on subscription revenues.

Last October, around the time that the New York Times dropped Times Select - and amid speculation that the WSJ.com paywall would be dismantled in favor a pure media model - the Financial Times announced it would pursue a “third way.” Rather than going all-free (or all-paid) – or continuing to offer a defined subset of content free, with additional “premium” content behind the firewall - it would adopt a more novel approach: a combination of free and paid, with the paid model determined on the fly according to actual usage.

Initial access to FT.com online content would be free. Once 10 articles had been selected, users would be asked to register with the site - and gain access to email alerts, an online portfolio, and a 5- (vs. 3-) year archive of company financials. Then, when (and if) 30 articles had been requested, they would be asked to subscribe (at US$109 / year, or $299 for the premium version which, in a variation on Times Select, os required for access to the important Lex column read by three-quarters of print subscribers).

Between the introduction of the new pricing model and the end of 2007, ft.com attracted 150,000 new registered users, and according to the earnings release , strong growth has continued into 2008. For the year, monthly unique users are up 30% to 5.7M, and page views are up 33% to 48.2M/mo. However, although online subscriptions rose 13% for the year, they finished at the same level as in October: just over 100,000.

Thus, while the FT is already enjoying the financial benefits of being more open to search engines (i.e. broadening its online ad inventory), the impact on subscription revenues probably won’t be seen until the next half-year’s financial results, as the new volume of registered users works its way through the subscription funnel.

New enterprise model, too

The next earnings period will also be the first time that the FT will be able to report on the impact of the other key component of the new pricing strategy. As Caspar de Bono, the FT’s managing director of B2B, described in his presentation at last week’s NFAIS conference, the enterprise model is also being fundamentally renovated.

As of April 2008, the FT will handle all unlimited usage enterprise subscriptions (except Academic) directly, rather than participate in the bundled packages of some 15 different aggregators. He noted that six of them have agreed to carry FT content under the new arrangement (they will no longer have a license to redistribute). Some enterprise customers don’t like having to deal with another, unique supplier – but they are learning that the FT is willing to grant more elaborate rights (across all delivery channels – online, print, and mobile) when there is a direct relationship with the customer.

Such innovation in pricing models is relatively rare in the online information industry. Part of the reason is evident from de Bono’s response to my question from the audience: how internally disruptive were the changes in access, billing, and accounting systems required to implement the new strategy? Was the burden greater in technology or marketing operations?

He replied that the impact on both has been significant. A new access and billing platform was developed internally – “we just couldn’t find what we needed elsewhere.” And the new enterprise strategy requires a big investment in a direct sales force - a critical and unavoidable requirement of the new enterprise model that suggests strongly that the FT expects to add significant value to its content once it can control directly its pricing and distribution.

In contrast, the internal technology investment signals an unfilled need, common to many “premium content” providers, for more open and flexible third-party back-office platforms – and unrealized opportunities to use pricing as a strategic driver of competitive positioning and revenue growth.

The best of the rest from Infocommerce 2007

A selection of other noteworthy presentations from last week’s conference:

An impressive presentation was given by Robert Battista of Doctor Evidence, a new healthcare publisher focused on making medical evidence more accessible to both consumers and professionals. From a library of full text and abstracts describing 4000 clinical studies on the top 300 drugs, it extracts key data elements in order to populate tabular reports comparing the relative effectiveness of alternative drugs for specific conditions. The data can be “drilled down” to the source studies, and is also “distilled” into a summary of effectiveness. Revenue channels being developed include doctor portals, OTC portals, a TV show being developed with WB, industry/manufacturer portals (e.g. GlaxoSmithKline), direct to consumer portals, payor portals, and health software companies.

Mailpound.com has become the highest ranked travel-trade website (with 2.3M pageviews/month). It serves travel agents and tour operators with information on travel offers, and has also developed an online, custom-publishing application for travel brochures. An excellent example of a content workflow solution: it provides direct to consumer delivery of personalized print and electronic brochures, with targeted marketing messages. President Bob Maier noted that the e-brochures have an especially robust value proposition, enabling reduced supplier costs, dynamic pricing of travel offers, targeted marketing by travel agencies, results tracking, and enhanced probability of online booking.

Those of us who may have been skeptical of the premise behind Jigsaw – that businesspeople and professionals would share their business cards, and that the resulting pool of information would be of sufficient value to compete with other “people” databases – have to acknowledge that the company seems to have won its bet. According to CEO Jim Fowler, it now has 6.8 million contacts in its database, growing by 10,000 per day. Members gain credits for correcting errors as well as sharing new contacts. Two differentiators from other people-finding services: much deeper mid-level contacts; and 55% of the contacts include a direct phone number. Jigsaw introduced two new services at the conference – an offering for corporate accounts (Jigsaw team), and a data cleansing service (Jigsaw Clean).

Another people-finder story, ZoomInfo, had $12M in sales last year, mostly from 2500 subscription customers. It is just now beginning to monetize traffic to the site, with 35M pageviews/month (and the fastest growing network in the US with 276% annual growth in traffic according to Nielsen Netratings). COO Bryan Burdick described how a premature jump from recruiting to sales intelligence applications created some missteps, but a re-launch should yield $2M in sales this year, helped by a relationship with Salesforce.com via the latter’s AppExchange program. Next stop: a vertical search model a la Business.com.

Judy Luther of Informed Strategies provided an update on Project Counter, the initiative to bring cross-publisher consistency to the measurement of online information usage in the STM academic and corporate marketplaces. After five years, there are now 10,000 journals from 70 vendors participating. Librarians are beginning to derive cost-per-use metrics, and relying upon usage data to drive renewal decisions; and publishers such as ACS, IEEE, and Project MUSE are developing usage-based pricing models. And, perhaps most interestingly, there is growing support for the concept of a “usage factor” based on usage behavior, as a complement to the “impact factor” measuring author (and journal) influence in the scientific community, as pioneered by Thomson’s ISI. A full report on this initiative is here.

A presentation by Fred Dixon of Toronto-based Serence provided an appropriately B2B / enterprise desktop view of widget technology and applications, with an emphasis on widgets as self-installing, branded desktop applications, and client examples including Reed Business, Wolters Kluwer, and Staples. The value proposition in this context: easier access to data users care about, in order to differentiate services based on ease of use and timeliness of delivery; driving more traffic back to the destination site/portal; enabling users to customize content applications to their workflow.

Hugh Owen, president of Owen Media Partners, provided a fairly stunning example of turning around a small, old-school publisher of business and industrial directories (e.g. McCrae’s Blue Book). In three years the company has gone from 1M to 100M page views, and 100,000 users to 50 million users, with a 20-fold increase in online revenues, a two-fold increase in offline revenue, and 400% overall revenue growth. How? 1) Leverage assets to work together in “clickstream continuity” by removing registration barriers, removing brochureware, making databases browseable, and leveraging brands via link partnerships to drive Google rankings; 2) Focus on the user experience and let Google do the marketing; 3) Set realistic traffic goals for each brand and monetize with premium display ads, Adsense, ad networks (including GlobalSpec and the new Reed Partner Network), and introduce new subscription products.

Two workflow integration stories from different perspectives, both involved partnering with Salesforce.com: Dow Jones Wealth Manager, an impressive investment advisor workflow integration of Dow Jones news resources (another instance of AppExchange, or, alternatively a web service to internal platforms); and Verticals on Demand, a “new kind of CRM business,” based on enabling CRM products that are loaded with complete, accurate contact data from day one. In the initial vertical, it is providing accurate data on doctors, drug performance, shipment data, formularies, payors for use by Pharma sales teams – reselling Salesforce.com as part of the service.

Thanks to Russell, Megan, and Roxanne at Infocommerce Group for another successful and highly informative conference!

 

GlobalSpec: detailing the "what" and "how" of a vertical search role model

In any discussion of vertical search, GlobalSpec is bound to come up as one of the prime role models. Though it is privately held, and funded primarily by Warburg Pincus, its rapid growth has been well-known (and widely envied) for  years. One of the highlights of Infocommerce 2007 was a detailed presentation by chairman and CEO Jeffrey Killeen, rich in both the statistics and the philosophy behind the company’s ongoing success.

According to Killeen, the story (like many Web successes) began with seeing the Mosaic browser - and recognizing the potential link to catalog data. From then on, there was a consistent tripartite focus – engineering, workflow, and e-media. The initial product, SpecSearch (parametric search on electronics parts catalogs) is now the largest database of its type with more than 2 million products searchable. Two years ago (it seems longer – perhaps because of the high profile of vertical search in that time period) came the Engineering Web – a curated collection of websites, tied together by a proprietary taxonomy, that was originally created to drive more frequent use of SpecSearch (which, like all GlobalSpec offerings, is advertiser-supported and free to users). There are now 3.6 million registered subscribers, 3 to 4 million unique monthly visitors, and (from a beginning just two years ago) 5.9 million opt-in newsletter subscriptions representing 2.3 million unique subscribers. The result is a rich environment for hard sales leads and contextual advertising.  GlobalSpec has further capitalized on its premier position by creating an ad network providing additional inventory to its advertisers. Killeen quoted a five year compounded revenue growth rate of 70%, positive cash flow for the last two years, and progress (“half-way”) toward a target EBITDA of 35-plus percent.

Underlying this success have been some consistent principles, chiseled in stone. “Things we are intensely commited to”: 1) a registration model optimizing the value of clickstream data, built with careful attention to the value exchange with users (registration in exchange for increased productivity), patience, and derivative businesses (e.g. e-newsletters); 2) a default to user-centricity in any trade-off between user and advertiser needs; 3) a “what are we solving for now” management approach that has followed multiple life cycle phases (product model/vertification; early audience build; cash flow break-even; audience/advertiser scale with sales force expansion and new product rollouts; and EBITDA increase via flat headcount and continued high degree of innovation); and 4) “managing from the perspective of a blank sheet of paper.” “Things we said no to”: software as a product, e.g. product lifecycle management (PLM) and product data management (PDM) a la IHS; user-paid models; price-cutting; private-labeling; other verticals (“for now”); “weak” M&A opportunities; “premature” strategic sale.  When that sale does come, it will be one of the great value-creation stories of the post-Mosaic information industry.