After the Goldrush: New Media Mavens Combat Internet Fatigue

Yet nearly a year later, dotcoms are still falling from the skies, the NASDAQ is still ailing, and no one wants to read another tale of pink-slipped twentysomethings who were paper millionaires last year. Both "new media" and the old media that grew up to cover the sector are suffering setbacks. Whether it's online publishing ventures like the nearly flatline [Salon] and the storm-tossed [TheStreet.com](http://www.thestreet.com), or print magazines like [Wired](http://www.wired.com) and [Fast Company](http://www.fastcompany.com) and [The Industry Standard](http://www.theindustrystandard.com) that were once obese with the dotcom and tech advertising that's now vanishing, they're all struggling to cope.

Three weeks ago a few new economy mavens gathered at our offices to talk about life after the goldrush. Along with Anuff, they included Ms. Ande Zellman, assistant managing editor at Newsweek; Dave Kansas, editor-in-chief of TheStreet.com; Rich Turner, executive editor and New York bureau chief of The Industry Standard; and John Ellis, a contributing editor at both Fast Company and [Inside] (and a former New York Press columnist).

 

Dan Gilmore, a financial writer at the San Jose Mercury News, has called the Internet bubble the "greatest legal con of all time." If that's extreme, it's certainly true that the entire technology investment market has yet to recover from the crash. Look at the long slough of despond in which the NASDAQ has been loitering. The Industry Standard recently reported that roughly 250 tech stocks, ranging from dotcoms to biotech research, are in danger of being booted from the index for poor stock performance. The Times meanwhile reported that, low as it has fallen, the NASDAQ 100 is still trading at "811 times the combined earnings of the companies in the index."

Dotcoms continue to fail at such a rate that [Fucked Company] has become one of the top go-to sites for daily browsing. Recent notables: [Icebox.com](http://www.icebox.com) shut down, [eToys](http://www.etoys.com) will soon. Amazon just laid off 1300 workers and its chief competitor, barnesandnoble.com, is cutting 350. In what looks like desperate sleaze, Amazon also announced a plan to start charging publishers $10,000 to spam potential buyers with e-mail "recommendations" of their books. Novix Media came and went in less than a year, reputedly blowing through some tens of millions of investors' dollars developing a Gen-X portal that never saw the light of day. Pseudo.com closed down after making a reputation for extraordinarily lavish partying. (As one insider in the Pseudo bankruptcy proceedings put it, "It's amazing that people get rich in this country, given the stupid shit they put their money in.") Razorfish just cut 27 percent of its staff, Motley Fool just laid off a third of its staff and will close Soapbox, Yahoo's stock has dropped more than 80 percent and it is predicting disappointing earnings for 2001. Disney is closing Go.com and laying off 400.

Forget about all those laid-off dotcommers who've had to go back home to live with Ma and Pa. What about Ma and Pa themselves?all the average Americans whose 401(k)s and IRAs were slammed last year because they were in the hands of go-go mutual fund managers who bet the farm on the Internet bubble?

Dave Kansas agrees it is troubling that "the private market entered the public sphere. What's happened on the Internet has happened many times in the development of our country, I think. This new technology comes along, people are trying to exploit it, a ton of money is thrown at it, one in 100 ideas works and 99 fail. But usually this is just happening in the private investment world. [This time] all that got into the public world. So Ma and Pa were involved in something that they probably shouldn't have been involved in. And a lot of that was helped by the venture capitalists and investment banks, creating this ironclad relationship where the venture capitalists would bring in a company, the banks would promise great coverage and support, take them public, pump the stock?then the VCs would move on and individuals were left holding the bag... [A]s long as the gravy train was moving, nobody really paid close attention to it."

Regarding those dotcommers, Kansas complains that "old media really enjoyed making a caricature of anyone who did well on the Internet by implying that they were all lazy and young and lucky."

"And a lot of these lazy, lucky and young people were really swept up into the whole dotcom frenzy," Anuff says. "It got to a certain point where you had to have not only the expectation of an IPO for your product, but you had to scale your business to match those expectations, too. So that nobody could do anything conservative. You always had to be way up front with any conceivable earnings, you always had to blow up whatever plan you had, even if it was actually a pretty conservative, credible plan, into something that supported this predictable path. So in that sense, it's actually fantastic for those of us who are still in the dotcom world," that the boom has gone bust. "Because those expectations are gone, and the only expectation which should've been an expectation all along is that you create a business. There's a big difference between a business and something that's a candidate for a huge IPO."

Are there venture capitalists out still there willing to invest in new online concerns?

"It's a trickle," Kansas says. "Talking to venture capitalists, it sounds like they're not really eager to invest in that world right now."

The Industry Standard's Turner adds, "They always look for the next big thing. And they leave something behind. So it went from media, to B2C, then looking at wireless, and now they've dropped that..."

"Now there's a notion of 'What is the next thing?'" Kansas agrees. "I get the feeling of a little bit of paralysis. Wireless was the next big thing, but not anymore."

"That's a VC mentality, that you always move on," Turner says. In fact, he believes the next big thing will not be some brand-new technological step, but rather "the right blend of things that didn't work before... The fact is that customers are going on the Internet, and advertisers will figure out a way to reach them. But you don't figure out the business model on the first try. It's like the cliche about how there were 500 automobile companies at the beginning of that industry. In the radio industry they thought it was first supposed to be about two-way communication, and that didn't work. Then they thought it was about selling radios, and that didn't work. It wasn't until years later that they figured out it was this huge advertising medium."

"I look at the people who we laid off in the fall, where did they go?" Kansas says. "Well, they're going to work for the Internet arms of big companies. So you have, in a very rough sketch at least, very big companies on the Internet, exploiting it as an adjunct to their business, and tiny little niche companies that find a little space in the sea of ideas and create a good business."

"And they're going to be picking at the bones of all of these failed ideas," Anuff adds. "Which didn't necessarily fail?all this B2B and B2C and advertising and the rest of it. They failed to live up to expectations."

Turner agrees. "They were held to ridiculous standards because they were public. That's the sad thing about the Internet hangover. Not only did [the shakeout] eliminate a lot of hustlers and snake-oil salesmen who deserved to be wiped out, but it wiped out some really good companies that needed some time to grow, but the demands of the market didn't give them any time."

"I think the real interesting thing is going to be when it starts wiping out companies that we love," Kansas notes. "I mean, it's very depressing when something like an Urbanfetch dies, when you've actually kind of adapted your life to use something like that. Amazon is the perfect example of something where people keep predicting that it can never succeed in the terms that it needs to and you just think a failure of a dotcom of that size would be more depressing and more meaningful to people than all this stuff we see going on right now, just because it actually is something that we've come to take for granted and it really has changed the way a lot of us shop."

"But there will be Internet commerce," Turner says. "And if it isn't Amazon, it'll be Wal-Mart that figures it out." He insists that despite the current dotcom gloom, "the story is that the Internet is transforming the economy like the way railroads did, or cars or telephones."

 

Well, maybe. Meanwhile, online publishing ventures are still roiling. Old-school news organizations with online divisions began cutting back in January: New York Times Digital laid off 69 people, KnightRidder.com 68, the L.A. Times is similarly cutting back its Web staff, and News Corp. is halving the staffs at FoxNews.com and FoxSports.com. CNN Interactive is going through huge layoffs as well.

The long-teetering Salon laid off another 20 percent of its staff in December, and its stock is stuck at under $1. Dreams of a multimedia Salon empire seem much farther off now than when aired uncritically in The New York Times Magazine only a year ago. Launched into the heart of Internet darkness last May, Inside.com failed to achieve its goal of signing up 30,000 subscribers in 2000 (despite the staff's breaking more and more important media stories over the fall and winter). Ironically, it backed its way from new media into an old-media partnership with The Industry Standard to produce Inside, a print version, which is itself off to a wobbly start.

TheStreet.com had a very rocky 2000. Like Slate, it had to drop the subscription model for TheStreet.com itself, though it spun off three to-the-trade sites?RealMoney.com, TheStreetPros.com and ipoPros.com?for subscribers, and its subscription revenues (there are some 75,000 current subscribers, Kansas tells me) did grow during the year. After a high of $60 when it floated its IPO in 1999, the stock has dropped continually, to a low of under $2 (it's been around $4 recently). Although revenues were up 63 percent for the year, net losses doubled. In November the company laid off 20 percent of its U.S. staff and shut down its UK office. It lost its newsroom partnership with The New York Times (which also sold all its stock in the company), and its tv deal with Fox News blew up after figurehead Jim Cramer plugged TheStreet.com's stock on the air. Cramer went on to embarrass himself a few other times during the year.

Interviewed three weeks ago on IWantMedia.com, New York media columnist (and early dotcom flameout) Michael Wolff was asked, "What do you think is the long-term prognosis for content sites like iVillage, Salon and TheStreet.com?" He flatly responded, "I think it's dead. I think it's over with; it's gone. There is no long-term prognosis. The patient has died. There is no future."

"I believe there's a place for content on the Web," Kansas demurs, "and TheStreet.com is better positioned than most companies to succeed in producing content for the Web." Playing Cramer's long-suffering second banana, Kansas has seen the value of his shares in TheStreet.com dive-bomb from $9 million just after the IPO (which, to his credit, he always admitted was a grotesquely inflated on-paper figure) to somewhere under $500,000. This hardly makes him a pauper, however, and according to Reuters he was making in the neighborhood of $250,000 a year in salary in FY99. So he may be forgiven for still sounding a bullish line about the troubled company.

"We're a media company in its fifth year. We will be profitable this year," he predicts. "Most magazines, five years is considered pretty solid. USA Today took 10 years. Media companies take a lot of upfront investment and then you build from there. Once you get profitable it's not a bad business... It's not a very sexy story, but we raised so much money when we went public we had enough money to get to that five-year point with $80 million in the bank, and we'll reach profitability with a substantial amount of cash on hand."

Launching his own new online venture into the Internet gloom, Anuff is similarly upbeat. Plastic.com is a product of Automatic Media, a consortium formed this summer that includes Feed, Anuff's Suck and Altculture. The backing comes from Lycos and Advance.net. Much as at Slashdot or Fucked Company, Plastic users submit links to material they find interesting on the Web?other sites, specific articles, MP3s, etc. Submissions are vetted by editors from Plastic's 10 partner sites, which include The New Republic, Inside, Spin, Movieline and Modern Humorist. Plastic posts vetted links with short descriptive blurbs; each item also has a discussion log attached to it. New items are posted throughout the day, all week, in a continuing scroll. It's a fidget site?a place where people in their cubicles can go fiddle for a few minutes every couple of hours, to see what new has been posted. How that makes money is what has me scratching my head.

Anuff says the editorial partners get cool-site branding and "revenue split," though he concedes the latter is effectively zero for now, and a place to do some cross-promotion. They also get to pool their individual audiences?or as Anuff puts its, revealing his deep Net roots, to create an "instant pop culture community" of five million shared users, generating new traffic for each of them. (In a timely display of fucked-company irony, Plastic was barely open when one of those partners, Gamers.com, which had been showing signs of weakness since the summer, went through a second round of deep staff cuts, renewing rumors that it was shutting down.)

Asked how Automatic Media makes money out of this, Anuff replies, "We're definitely old-school in the way that we think we're going to make a buck," citing a mix of "advertising and sponsorships and offline media, your odd e-commerce partnership or whatever. Mostly because that's worked out for us. Suck is profitable, has been for a long time... It's never been terribly expensive to put out a Suck or a Feed. It's incredibly inexpensive to put out something like Plastic, with a staff of four people, running on open source software."

So, he smilingly admits that "there's zero advertising online...absolutely no sponsorship possibilities, no revenue possibilities, period, [and] I think you could say that we're doomed to failure. But to the extent that there is revenue to be had, I think that we're in a great position, because you don't need a whole lot of it to be self-sustaining."

It certainly seems correct that for content sites online Darwinism would favor the small and the quick?low-overhead, small-staffed boutique sites like the Drudge Report, Kausfiles, Jim Romenesko's Media News, Plastic. Kurt Andersen, who has bet his career on the opposite model?a large, traditionally staffed magazine that happens to be both online and in print?wrote a column, which ran in both the print Inside and Inside.com, in which I took him to be denigrating weblogs and free-content sites as "Amateursville." Slashdot, he wrote, is where "ultra-caffeinated, computer-geek users post highly opinionated messages." And he judged the idea behind his new editorial partner Plastic to be that readers "will use Plastic as their central discussion zone, arguing and posturing about their cultural and business and political obsessions the way Slashdot.org's nerds do about technology, thereby turning the site into Hipsterville USA's teeming piazza."

"No, I wasn't disparaging anyone," Andersen e-mailed me. "I was making very mild fun of the idea of 'user-generated content,' in particular the fact that pre-Internet, the prospect of collecting and packaging letters to the editor was not the reason anybody I know went into journalism/publishing. And I guess I was being slightly rueful about the fact that of course you're absolutely right about the low-pain, low-gain virtues of no-cost content, whether aggregated from costly professional sites (e.g., Romenesko) or produced for free by users or 'for free' by one-man-bands (Harry Knowles). That's obviously (indeed, tautologically) an easier way to fill an online media or entertainment site for which users don't pay.

"Inside, on the other hand, in addition to its million-users-a-month traffic, has sold thousands of subscriptions at $199 a year. Furthermore, Inside is not merely a 'site'?unlike any other Web news service/site I know about, our journalists are also earning their keep by producing a print magazine as well. (A 75,000-subscriber print magazine, I might add, to which we are now selling thousands of $49-a-year magazine subscriptions from the Inside.com site at virtually no acquisition cost to us...that's synergy, bub!)" (Well, Kurt, but my subscription was a freebie. How many of those 75,000 are paid subscriptions?)

Back to Anuff: I tell him I'm surprised to hear him speaking of banner ads as revenue sources. Online advertising revenue is somewhere down in the subbasement at this point, is it not?

"Well, to be fair, all ad revenue is in the subbasement," Anuff replies.

"Yes, but online revenue more than the rest, because it was the first thing to get thrown overboard," Turner cuts in. A lot of banner advertising came from the dotcoms themselves, he notes, and as the dotcoms have disappeared, so have their ads. "I think traditional advertisers, too, when they're cutting back their budgets, as they did very suddenly late last year," will abandon banner advertising first.

All entertainment and news media?print, radio, tv?exist as vehicles for advertising. The problem is that, so far, Internet media has been a really lousy vehicle for really lousy advertising.

Anuff disagrees. "What you're looking at is a medium where it's very easy for a lot of amateurs to advertise, and that's always going to be true... It's gonna always look from a distance like advertising online is doing terribly. But you can get a lot of traction from a little banner ad, and there's many people who realize that and succeed."

"[But] the promise of the combination of 'richness and reach,' as the consultants say, is denied by the slowness, the lack of bandwidth," John Ellis insists.

"People complain about ads, but the one type of ad that people never complain about is movie trailers," Anuff argues. "People like trailers. Nobody objects when the trailers come on before the movie. You can really take 30 seconds and see, it's either doing it for you or it's not. It's advertising. I don't see any reason why it wouldn't make sense to actually be watching trailer after trailer and actually select those trailers. That's the kind of thing that's really not that far-fetched, assuming that there's a little bit of bandwidth."

But Ellis thinks "it's the end of the decade, really," before broadband will be widely available. "If I'm Verizon and I'm looking at broadband, I'm saying there goes my local telephone business. I mean, what incentive in the world do they have to really build it out to all of our homes?... The best broadband implementation I've seen is in Phoenix. It's terrific. It's twice as fast as T1, people are falling over themselves to get it?and you think, Phoenix?"

"But when broadband comes, advertisers will finally be able to tell stories in their [online] advertising, make people cry, do all the things that make television the great advertising medium that it is," Turner predicts.

Still, the very poor showing of online video to date suggests that until broadband is indeed universally operating, fancy dreams about glitzy ads or movie trailers are just that: dreams. Isn't the downfall of Pseudo.com a sign that television online can't work? Or did it only prove that Pseudo.com didn't work?

"I think that was a good sign that Pseudo couldn't work," Kansas says.

"On the other hand, you can put some of the blame on the Internet," Anuff adds, "because regardless of how great Pseudo was, nobody was listening."

Ellis likens it to Disney's shutting down Go.com and people "blaming it on the economy or saying 'The Net doesn't work.' The reason Go didn't work is because Disney fucked it up very well. To say it's the economy's fault is ludicrous."

"Video is just not that easy to use [online]," Kansas says. "That's a big piece of the puzzle. We have three million people who come into our site every month, and I get tons of requests from readers for hundreds of different things in the course of a month. We're in our fifth year, and I've never heard anyone say, 'Gee, I'd really like it if you had more video on the site.' Not one person. There's gotta be a reason for that is all I'm saying."

 

By the end of 2000, as dotcoms and other tech companies continued to die or at least trim expenses, the ocean of ads they used to pour into the print tech magazines turned into a drought. Wired, Red Herring, The Industry Standard, Fast Company, eCompany Now, Business 2.0, Upside and all the rest?the field has shown the effects in drastically slimmed-down issues and staff cuts. Red Herring has undergone a series of layoffs, and ad pages are flat compared to this time last year. Business 2.0's Dec. 26 issue was its thinnest since August 1999, and its spinoff Fuse came and went in one issue. Last week, its parent company, UK-based Future Network, announced sweeping layoffs, the closing of 20 of its magazines, and the possible sale of Business 2.0. Turner's The Industry Standard cut staff and killed its spinoff Grok after five issues. Variety killed its new media magazine eV after five issues as well. Wired is predicting a 20 percent drop in advertising for the immediate future. Upside's ads dropped from a high of 140 pages to 65 pages in its January issue.

Dan Fost, a Silicon Valley reporter at the San Francisco Chronicle, conducted a telling experiment. He weighed a stack of these magazines in June, and then weighed the same magazines' December issues. They went from 10 pounds to 5.

"We are looking a lot skinnier," Turner concedes of The Industry Standard, then spins, "which you can argue is a good thing. I mean, when the magazine looked like a phone book, it would separate your shoulder when it was in your briefcase, and I think sitting on people's desks it was scary to people. And it was an ordeal for the editorial staff to fill all those pages... We can be more selective about what we put in the magazine."

Have there been editorial staff among the layoffs? Freelancers unassigned?

"I think we're using slightly fewer freelancers," Turner responds. "We battened down the hatches along with everybody else when we saw that the beginning of this year was going to be soft in advertising. We had some layoffs, as has been reported, but none of those were in editorial." (Two weeks later, word went out that the magazine might be cutting another 65 staffers, including 15 in editorial.)

"I don't think that Red Herring or Fast Company is going to go out of business," Ellis says. "I do think our days of having 460-page [issues] are over. We're reaching a 200 to 240-page [issue]." (And on the upside, both titles have posted among the best paid-circulation growth figures of any magazines.)

Analysts have suggested that one or more of the smaller, independent tech magazines like Upside, which don't have parent companies like Bertelsmann behind them, may not survive if this forced advertising fast goes on much past Lent. In December, Forbes managing editor Dennis Kneale razzed a panel of tech magazine editors at a conference. "It's over," he told them. (This was reported in the San Jose Mercury News.) "Can we take a vote? Which one of you will die?" Pointing out the obvious redundancies in the field?too many magazines duplicating coverage of the same turf?Kneale uttered the blasphemous notion, "It's not that readers are reading more, it's the advertisers. We all are created just for advertisers!"

"It's true, I think there are too many new economy magazines," Turner admits. "A lot of people have said that there's going to be a shakeout, and I bet there is."

Kansas believes that the readership for new economy magazines will naturally drop off given the current "reduced expectation that there's some kind of huge [financial] payoff" in what the magazines have been covering. "So many people could hook into the Internet sweepstakes, either as small traders or active participants, that it seemed like it was imperative that you read everything about the Internet?that you read not only the Standard, but every Standard clone out there. And now that's gone..."

Newsweek's Ande Zellman agrees that last year's avid reader of Wired and Upside and Business 2.0 may be feeling a sense of reduced need for and personal return from those titles. "We keep reaching moments every six months, every year, where we know what we need to know" about technology in its present form, she says. "I go to all sorts of conferences, I go to seminars, and then I get to a point where I'm not learning anything. So I stop going for a while. I wait to hear about things that are going on, where people are talking about something new or we're going into some new phase."

Kansas reiterates the hardware shortcomings that have blunted some of the promise of the Internet. "We've got the same bandwidth problems that we had five years ago. It's still a pain in the ass to use the Internet for most people in the country. People said, 'That'll get solved. Bandwidth issues will get resolved.' And there are pockets of solutions, but for the most part, most of our [TheStreet.com] readers are still coming in on 28.8, and pissed off if we put a big graphic in there."

It was recently announced that owner Mort Zuckerman is selling Fast Company to Gruner + Jahr USA, a division of the German global media giant Bertelsmann, for a staggering $500 million ($342 million up front, plus another $150 if certain performance goals are reached). Granted that Bertelsmann is a gigantic corporation that seems to be enacting a master plan to own all the world's media someday. Granted that foreign buyers always pay too much to grab up sectors of a market they want to enter and eventually control. Still, is it possible that Zuckerman, a canny real estate guy, is dumping a white elephant and abandoning new economy publishing? Could Fast Company really possibly be worth $500 million?

"It could," Ellis replies. "You have to be very patient... If you look at Fast Company as a magazine, as a website, as a community, you have opportunities to take?to go beyond conferencing, to go into a consultancy. You have opportunities to go into television. You know, you just have to be patient."

 

I ask Zellman if the drop-off in dotcom and tech ads has affected magazines outside the sector?if mainstream titles like Vogue and Newsweek and In Style, etc., haven't also felt some of the pinch.

"Yeah, but the percentage wasn't as great," Zellman says. "I think what's scarier for mainstream publications is the auto industry."

"The auto industry is one of the few that seems to be succeeding in online marketing," Kansas notes.

"But the car companies have pulled out of a bunch of magazines," Turner says.

Zellman continues, "Before the end of the year they were pulling out of tv, intensely, which was part of what got everybody so hyped up at the end of the year that we're now going into the big recession. Auto advertising's the big canary, or at least one of the big canaries, in the coal mine."

And the auto industry, all agreed, is troubled. See the mass layoffs at GM, or the sickly Chrysler, which Ellis predicts will go on the auction block before the end of the year.

It's possible that the next large wave of layoffs in New York City will be on Wall Street, where a lot of junior masters of the universe who were hired to handle all the IPOs in the goldrush years?and just collected fat bonuses for 2000, based on the tail end of the boom in the first quarter of last year?are going to be looking idle and redundant by this spring, unless the now-dormant IPO and general investment markets pick up. If big auto tanks as well, the shock to the general economy could make the Internet crash of 2000 look like a trifling affair.

In that context, at least, one is inclined to agree with Anuff. Maybe the Internet gloom has been exaggerated after all.