Dotcom Bloom  | American Journalism Review
 AJR  Features
From AJR,   June/July 2005

Dotcom Bloom   

The Web seems poised to blossom with stand-alone news sites.

By Jennifer Dorroh
Jennifer Dorroh (jdorroh@ajr.umd.edu) is AJR's managing editor.     

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"Content is King."

Remember that catchphrase and the essay by Bill Gates of almost a decade ago? "Content is where I expect much of the real money will be made on the Internet," wrote the Microsoft founder in 1996, the year his company helped launch one of the first online magazines, Slate.

That boom-time utterance would soon seem like a taunt to Web-only newsgathering organizations that launched only to fail when the dotcom bubble burst a few years later.

Just a handful of those stand-alone sites, including Slate, survived. In the years since, there hasn't been much financial incentive to start up again.

Until now. Finally, after an awkward adolescence, online advertising has come of age, giving hope to those who believed that Gates was right about content all along. Advertising revenue online is now growing at the robust rate of 20 percent to 30 percent per year. This boost, coupled with falling barriers to entry for Web publishers as software becomes cheaper and easier to use, is spurring enterprising journalists to create fresh news destinations online--and to build viable businesses in the process. These efforts range from single-author news blogs to publishers who aim to create diversified media companies rooted in online news. And many offer an added twist: They're bringing unprecedented interactivity to the Web in the form of readers-turned-citizen journalists.

Montana's Jonathan Weber is one such publisher. In February, he launched NewWest.net, a news site "devoted to the culture, economy, politics, environment and overall atmosphere of the Rocky Mountain West." He thinks there's a dearth of quality journalism about the region he loves, and he believes he can make his living by filling the void.

"A few years ago, you could get people to come to your site, but they didn't pay you and you couldn't get ads," Weber says. During the dotcom boom, he cofounded and edited The Industry Standard, which chronicled the new economy before fizzling along with it. "Now ads are growing quite quickly. You can get enough money to support a project."

The numbers back him up: Ad revenue online reached $9.6 billion last year, according to the Interactive Advertising Bureau. That's an increase of more than 32 percent from the 2003 total of nearly $7.3 billion, which topped 2002 revenues by 21 percent.

Such hearty revenue growth is possible because online advertising has finally grown up, says Peter S. Fader, a marketing professor at the University of Pennsylvania's Wharton School.

One reason is that companies have figured out how to advertise more effectively on the Internet. Instead of expecting consumers to click on an ad and follow through by purchasing a product online, companies have learned to use the Web as part of an overall strategy to make their brands known. "Now it's more of a long-term investment," Fader says.

Another factor is "the blurring of advertising and entertainment, with content tailored for the Web," he says, pointing to spots like BMW's Web-only animated films featuring the automaker's cars. In one, the BMW outruns a demonically possessed road that rises up behind it in pursuit.

Advertisers are also itching to put their spots where they can be carefully targeted to specific audiences. Procter & Gamble's global marketing officer, Jim Stengel, told colleagues at an advertising trade conference last year, "We must accept the fact that there is no mass in mass media anymore and leverage more targeted approaches." Running ads online allows advertisers to do just that.

Although targeted ads are easier to place on the Web, Fader says the real power of online advertising, and another reason for the uptick in revenue, is that the Internet has itself become a mass medium. "You don't have everyone watching 'I Love Lucy,'" he says. "But so many people are online now that you can reach a mass audience there."

The news sites entering the market now hope to capture hometown advertisers, like the local pizza joint, that can't afford to buy space in the daily newspaper. Although community-based businesses may be small, the impact of their advertising isn't: Spending by local advertisers is projected to reach $3.9 billion this year, according to Borrell Associates Inc., a research and consulting firm that focuses on interactive advertising and marketing.

This growth is so strong right now because small companies are playing catch-up, says Colby Atwood, a Borrell vice president. "They don't have large staffs, so it couldn't happen until the owners became comfortable using the Internet," he says. "Now they're used to buying things online, and they take that attitude to work with them. They say, 'Why not buy advertising online the way I would buy a book from Amazon?'"

The new sites will get their share of the market by competing with traditional media like newspapers, he says. "There's a lot of money being spent by local advertisers to reach local consumers. The race is on to see who can get to that first."

Sites like NewWest are entering that race in markets where local advertising is particularly strong. In Missoula, Montana, one of several cities the site targets with community news sections, local spending on Web ads is expected to grow 47.9 percent this year, according to Borrell.

Many of the sites are starting in affluent communities with money to spend on advertisers' goods and services. Connecticut's WestportNow.com, which former CBS correspondent and producer Gordon F. Joseloff founded in 2003, is a local news site that serves one of the nation's wealthiest communities, home to Paul Newman and Phil Donahue.

"They're launching in well-to-do areas where there is a strong advertising market," says Vin Crosbie, managing partner of Digital Deliverance, a new-media consulting firm. "As [technological] tools get more powerful and as business models get more advanced, we'll see these migrate into the mainstream."

Of course, it's not just the startups that have noticed the ad boost and are trying to take advantage of it. Traditional media companies are watching their online revenues grow steadily, outpacing the growth of advertising in other properties, such as newspapers.

Suddenly, long-established news companies with print and broadcast roots are faced with demand for more online ad space than they have Web pages to display it. During the past couple of years, as the market for advertising online has started to mature, legacy media corporations have realized that to capture the available ad revenue, they'll need more page views. They're faced with a choice: either start new sites or buy existing ones.

For most, it's quicker and cheaper to buy than to build. Many companies prefer to tap into the ad market now with an established brand, rather than develop something new and wait years for it to pay off.

That was the logic behind the Washington Post Co.'s purchase of Slate from Microsoft, which, despite Bill Gates' early predictions, realized that content wasn't going to be its business after all. The Post Co. bought the politics-heavy site for an undisclosed sum in December.

The company could have created its own site, "but how do you brand something and how do you build it?" asks Caroline Little, CEO and publisher of Washingtonpost.Newsweek Interactive, the Post Co.'s digital unit. "Slate has a unique voice and is well known. How do you create that from scratch?"

Little says the company doesn't plan to change Slate's content. "We're very wedded to having Slate maintain its editorial voice because that's what made it successful, and we want to keep it that way," she says.

She notes that visitors to Slate (who numbered 4 million in March, according to Nielsen//NetRatings) share similar interests and demographics with washingtonpost.com's 6.7 million monthly visitors, but tend not to overlap. This allows the Post Co. to offer cross-advertising.

Crosbie says that Slate "fit the Washington Post very well with its focus on high-end think pieces and features." Slate also gives its new owners much-needed pages on which to display ads. Visitors to Slate viewed 64 million pages in March, about a third of the number that washingtonpost.com's visitors saw, according to IBM SurfAid Analytics, which the Post Co. uses to count its sites' traffic. (Nielsen//NetRatings reported 30.7 million page views for Slate and 133.8 million for washingtonpost.com, but those numbers are based on Web activity at home rather than in the workplace, where many people spend significant time online.)

This penchant for page views also drove a bidding war last fall for the financial news site MarketWatch. With its quarter-billion page views per month, a financially savvy readership attractive to advertisers, TV and radio spin-offs, and robust advertising and licensing businesses, MarketWatch drew offers from Dow Jones, the New York Times Co., Gannett and Viacom.

Ultimately, it was worth the most to Dow Jones, which paid $529 million for the site when the sale closed in January. The company needed a site that can be accessed for free, says MarketWatch founder Larry Kramer. Dow Jones' flagship site, WSJ.com, can be viewed only if the reader buys a $79 annual online subscription (or $39 for print subscribers to the Wall Street Journal or Barron's). While it's good for the company to generate revenue that way, Kramer says, that model limits its ability to lure advertisers, who want their ads to reach as many sets of eyes as possible.

Dow Jones considered building its own site. "Dow Jones could have easily started a site like MarketWatch if they had done it earlier," Crosbie says. Instead, the company had allowed MarketWatch to grab an audience it didn't have--everyday investors as opposed to the financial professionals who gravitate to the Wall Street Journal--without competing for it. Having missed that opportunity, "they made a good choice now to buy instead," he says.

Still hungry for page views, the companies that lost out in the MarketWatch bidding kept shopping for sites. In February, the New York Times Co. spent $410 million to buy consumer and reference site About.com, which gives its new owner an audience of 22 million unique visitors, 3,000 pieces of original "evergreen" content and 200 million page views per month. Gannett, Knight Ridder and the Tribune Co. each bought a 25 percent stake in news aggregator Topix.net in March. Although these sites don't offer news by strict definition, they increase the size of their new owners' audiences and give them needed ad space.

Just when it's possible to make money by selling ads online, it's also much easier to create content. Web publishing software has become simple to use and has collapsed in price. "Almost anyone can download free software programs and automatically put [their work] online in a graphic format," Crosbie says.

For this reason, he expects the number of independent news sites to explode next year, perhaps even by the end of this year. And many will become profitable quickly. "Sites that trained journalists can use will soon be competing with legacy media," he predicts.

Steve Outing, senior editor at the Poynter Institute and an interactive media columnist for Editor & Publisher, agrees. "I was always surprised there weren't more independent sites," he says. It's become so easy to create a Web site that he used free, simple-to-use software, available at Google-owned Blogger.com, to design an online home for his cycling club in Boulder, Colorado. Time spent: Thirty minutes. "The technology has come a long way. The barriers to gathering a bunch of writers together are low."

This is exactly the technology, of course, that has helped fuel the blog explosion of the last few years. When Outing started blogging about five years ago (on Poynter's E-media Tidbits, which offers news and ideas on the evolution of digital media), he didn't know if he was part of a content revolution or a passing fad.

It was soon clear that blogs were at the forefront of a sea change in Web publishing. Blogs take many forms, some news, some not, but now individual reporters with the most basic of online skills can publish their work on their own micro-journalism outlet.

Chris Nolan, who offers a West Coast perspective on Politics Left to Right, coined the term "stand-alone journalist," which she prefers to "blogger," to describe her profession. Using Movable Type software that starts at less than $100, her site has begun generating revenue.

NewWest's three staffers and 10 contract workers use Expression Engine, a Web publishing software that costs about $200. "What we're doing would not have been practical two years ago," Jonathan Weber says. "The tools and the software have radically changed." The company spent a sum "in the low five figures" on software and building the site.

That's a mere fraction of what it cost to launch The Industry Standard's site. "I'm not saying that our platform does everything that one did. But we're getting 80 to 90 percent of a high-end system for a 100th of the cost," he says.

Even those who build or commission their own software are finding that process to be much less expensive now. Mark Potts and Susan DeFife launched their "all local" citizen journalism startup, Backfence, in early May in two suburban Washington, D.C., communities. Their team built the technology from scratch for about $100,000 with money they earned as consultants on related projects for major media companies.

They say their software allows visitors to seamlessly add their own content (in other words, to blog), edit posts written by others (to wiki) and post photos, all without being aware they are using cutting-edge technology. Potts, a cofounder of washingtonpost.com, and DeFife, who in the 1990s founded an Internet portal for women in business, say building the software cost hundreds of thousands of dollars less than it would have five years ago--if it would have been possible at all.

Another contributing factor is the way Internet users now connect to the Web. More than half of the people who access the Internet from home in the United States use a high-speed, broadband connection, according to Nielsen//NetRatings. This fuels ad growth, since more people can access Web pages more quickly and with greater ease. It also means visitors use the Internet more often.

"That really allows this to be an always-on appliance," DeFife says. "It's something that you're looking at, hopefully, more than once a day. This is 24/7. This is constantly being updated."

Adds Potts: "People ask us the demographics of a target market. And I say, 'If you've got a laptop and a wireless network and a high-speed connection in your kitchen, you're perfect.' And that describes a lot of people these days." Potts was part of a team that founded the now-defunct @Home Network, an early high-speed Internet service provider.

In the next few years, broadband is likely to become ubiquitous, as communities and companies seek to gain from having as many people as possible connected at high speeds to the Internet. Cities like Philadelphia, San Francisco and Dayton, Ohio, have already created wireless zones that make the Web part of the infrastructure, the way a road is.

"Once you have that, what do you do with it? Well, you know, you shop and do a lot of things, but where's the local news?" Potts asks. "National news? Piece of cake. Anywhere, everywhere. I can get pope coverage pretty much anywhere."

But that's not true of local news, he says, especially when he wants specific information for his own little corner of town. "I don't know what's going on with the school board, I don't know who won the T-ball game, I don't know how to find a good plumber."

Backfence and other intensely local sites aim to offer that information--and much more--by using "the shared wisdom of the local community" in the form of citizen journalists. Visitors to Backfence and other citizen journalism sites can write about the news that happens at their city council meeting, on their cul-de-sac and in their kids' sports leagues.

Several similar initiatives exist or are planned in California, the Carolinas, Texas and elsewhere, but Backfence is perhaps the most ambitious. In addition to its Washington operation, the company plans to launch 10 local community sites in each of 15 metropolitan areas during the next three years.

Backfence's content is purely citizen journalism, while other sites mix reader contributions with other forms. North Carolina's Greensboro101 and its sister sites in Nashville and Charlotte (with more sites planned) offer the work of local bloggers alongside reader posts. Other sites--including Maine's 10-year-old Village Soup, South Korea's pioneering citizen journalism site OhMyNews and NewWest--blend contributions from readers with staff-written editorial content.

Weber hopes citizen journalism will bring readers into the news--and onto NewWest. "People are alienated because they can't see inside the white-tower discussion," he says. "People resent that, because they read the paper and say, 'That's not quite right.' It's a very common reaction. Nine out of 10 times you talk to somebody about a news story and they'll say, 'Oh, my God, the reporter got it all wrong.'"

At a moment when mainstream news organizations are less trusted than ever, "the media absolutely need to find new ways of engaging the audience and making them feel more empowered," Weber says.

Steve Klein, coordinator of the Electronic Journalism Program at Virginia's George Mason University, predicts that citizen journalism sites like Backfence will be very successful. "Joe Schmo can cover my townhouse community better than the Washington Post could ever cover it, or would ever want to cover it," he says.

Citizen journalism startups will have a wide array of ethical and business issues to tackle.

Gaining credibility will be the first challenge. Because a visitor to a citizen journalism site won't always know much about the person who is writing on a given topic, Klein says, readers might "take citizen posts with a grain of salt." Some sites encourage their citizen correspondents to share information about themselves, in order to foster a sense of community and trust.

And once those citizen contributions come in, should the site simply post them as written, or edit them? Everyone agrees that offensive submissions should be removed, but how much should the site edit a citizen post for content, length, grammar or spelling?

The sites must also be concerned about liability, which is why some stay away from altering citizen correspondents' work. DeFife says such editing makes a site liable for what is written, so Backfence's staff of five takes a hands-off approach for the most part. Before a visitor can post to Backfence, he or she must register and agree to submit only accurate information to the site, and to indemnify the company for any harm the posts may cause.

Newspapers and media companies are beginning to experiment with citizen journalism, and these new sites might inspire or challenge them to experiment further.

This spring, in Bluffton, South Carolina, near Hilton Head, Morris Communications launched BlufftonToday.com, a companion site to its new free daily. The venture turns the typical print newspaper-Web site model on its head: Instead of treating the site as a digital platform for the print edition, it uses readers' online contributions to inform the staff's reporting and provide content for the 17,000-circulation newspaper.

Crosbie says most traditional media entities, especially newspapers, are resistant to change and may not be comfortable with this new level of interactivity. It's tough for many of them to embrace a form of journalism in which they give up editorial control. It's also a perceived threat to their brands.

However, a month before launching, Backfence's creators were talking to nine major media companies about potential partnerships, and there are other citizen journalism sites out there that could be partners or attractive purchases for media firms. This could mean that a year from now, when you visit your local newspaper Web site, you may be able to hop from a staff-written local page about the school board meeting to a page where you can edit or rewrite the article, post your own version of the story, or write something new about an issue important to you that the paper didn't cover.

For the new sites, such partnerships can be part of the key to creating a successful content company online, says MarketWatch founder Kramer, whose site teamed up with CBS. Kramer, now overseeing CBS' new digital division, offers another piece of advice: "Build as many revenue streams as you can. Ultimately, it will pay off because it will mean more money that you can afford to spend" on newsgathering. One reason MarketWatch stayed afloat during an ad slump from 2000 to 2002 was that it was able to license its content to other sites. Licensing agreements allow one site to use and display another site's content--for a price.

"We capitalized on the idea that people would pay for something that would appear for free on the site," Kramer says. "Brokerages wanted to keep customers on their sites for a longer time. That way, they're not on our site seeing ads for their competitors. We're going to produce great content. Why not find a way to be paid for it multiple times?"

This approach paid off: In the quarter before the sale to Dow Jones was announced, MarketWatch earned more than 60 percent of its $19.8 million net revenue from licensing, while advertising accounted for just 36 percent, according to documents filed with the Securities and Exchange Commission. Licensing also brought in more net revenue during two of the three previous years.

Another revenue stream the new sites should think about developing, Wharton's Fader says, isn't online at all. They should create a print and broadcast presence as well. "To explicitly rule it out is a big mistake," he says. "It should definitely be something they aspire to do."

People use a variety of media throughout the day, he says, and the companies that grab market share will be those that consumers encounter in more than one place. "As the lines between the Web and other media blur further, you need to be everywhere."

New sites might follow the lead of Maine's VillageSoup.com, which launched two local papers in response to what its owners considered paltry community coverage in the existing papers.

While it's a stand-alone for now, NewWest plans to publish a print magazine next year, with different, but complementary, content. "Starting a regional general interest magazine is a big challenge," Weber says. "If we can be successful online, we can prove the market and the audience, taking some of the risk out of the print launch."

In addition to finding multiple ways to make money, the new sites may need to decide whether to stay independent or consider selling to corporate owners. With print circulation in decline, and with newspapers looking for ways to reach younger audiences, these new sites could make ideal purchases, Outing says, not just for the page views but also for content.

And the companies are already interested. "We're always looking," says the Post Co.'s Caroline Little.

Jai Singh, editor in chief of CNET News, cautions that while it's easier to get into Web publishing, serious challenges await new entrants to the field. "The real cost is that to do good journalism, you've got to pay good wages to good reporters and editors," he says.

Building a brand is not easy either, he says. "Can you be big enough to have the scale to compete with established news organizations? These things will have to be part of the business plan beyond the fact that the technology is cheaper and the ad market is strong," he says.

According to Nolan, the key to success isn't simply getting your site up on the Web, it's getting people to read it. "The barrier to entry in this new business isn't getting published; anyone can do that. The barrier to entry is finding an audience," she wrote on the blog Pressthink.

The new sites will have to market themselves intensely, either formally or by word-of-blog; spend money to optimize their sites (so they appear higher in search engine results); and stay current on publishing technology while keeping content fresh and accurate so that visitors will return. Those that do succeed may help online journalism fulfill some of its early promise by bringing a wide variety of fresh, independent voices to the Web.

Steve Klein echoes many of his fellow online media watchers when he says it's time for a new influx of sites. "As a journalist, I think, the more voices, the better."

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