The other day, a writer interviewing me for another online publication asked me a very interesting question: “Why is ClickZ profitable while Salon.com is not? After all, you’re both providing edgy and entertaining online content for intelligent readers. What makes your business model work while theirs is floundering?”
I should say, first of all, that it pains me to know that Salon.com continues to bleed money, as it is without a doubt my favorite online reading. I get its daily newsletter in full HTML and read at least two articles, if not more, every day. On top of that, Ann emails links to me that she finds provocative. I even signed up my ex for “Mothers Who Think,” which she really enjoys.
I truly hope that Salon.com finds a way out of its current troubles and stays with us for many years to come.
A quick look at Salon’s numbers will tell you that it has an overhead that is killing it. For the first quarter of 2000, it generated $1.759M in sales, but it cost $6.486M in operating expenses to do so, creating a net loss of $4.520M just for the quarter. A glance at the balance sheet tells you Salon has just under $14M in cash in the bank, which if you do your math tells you that it will be gonzo in less than a year if it keeps moving along at its current pace.
Meanwhile, ClickZ is privately held, so, fortunately, I don’t have to share our numbers with you. I will say we aren’t too far off the pace in terms of sales for the same period of time but are doing well when it comes to profitability.
I don’t know the particulars of Salon’s day-to-day operations, but I’ll hazard a guess and say that it probably employs a good number of writers, and that it has a pretty good-sized support staff as well.
I say that because $2.7M of its quarterly expenses were directly linked to “Production, content, and product.” So it costs Salon $2.7M just to produce the content that it converts into $1.7M in sales… and then it costs another $2.4M to sell and market the content. Hmmm… I’m no rocket scientist, but it appears that it’s costing $3 to bring in every $1 it sells. Not a good ratio. Would you sell widgets that cost you $3 to make for a buck? I don’t think so…
The fact of the matter is, Salon’s customers don’t really care what it costs Salon to produce what it sells and neither do your customers or mine. Whether it costs Salon a nickel or five bucks is irrelevant.
It all boils down to the value the customers derive from the dollars they spend.
So who are the customers?
In the case of the online publisher, you have two: your readers and your advertisers.
Online, you have the additional challenge that (unless you are the Wall Street Journal or have some other proprietary content) you have about a zero chance of deriving any subscription revenue from one group of customers: your readers. But if you don’t focus heavily on their interests, you won’t be in a position to provide any value for the advertisers the customers that provide ALL your revenues.
Focus exclusively on the needs of your advertisers, and you screw them because you will lose your readers. Focus exclusively on the needs of your readers, and you screw them because you lose your advertisers. Do either, and you are screwed. So therein lies the great challenge of the business we are in.
The answer to the question is Business 101: You have to minimize costs while maximizing revenues.
At ClickZ, while we pay most of our regular writers (present company excluded), we don’t employ them. And we don’t hire professional writers. We sign up professionals in the areas they write about and work with them to help them write like pros. The employees we hire are editors, but we only have about five.
Contrast that with Salon.com (again, I’m making some assumptions here), which has a number of writers and editors on the payroll, and most likely pays top dollar to get high-quality professional writers to produce content for the site. Salon also has first-rate graphic designers producing the incredible artwork that graces every article.
The question Salon needs to struggle with is whether it can continue to produce the top-quality content that we’ve grown accustomed to at a lower cost. I don’t think Salon has a choice.
For the likes of you and me, the more writing we can outsource, the better. The lower the cost, the better. Free is best if you can get it. Content is king, but you need to be realistic about the costs; otherwise, you end up like Salon.com selling $3 watermelons for a buck apiece.
The biggest difference between ClickZ and Salon.com lies in our audience.
ClickZ has a tightly defined (by interest and profession) B2B audience. It represents enormous and quite definable spending power, and that was no coincidence in our overall business plan. I’d rather be a dominant player in a highly attractive niche than one of the pack in a broader market.
Salon.com’s audience is most likely highly educated and well heeled, but so are a whole bunch of other sites’ readers. So that mutes, to a certain degree, the value of the audience it offers to its advertisers. There is only so much its advertisers are willing to pay, because they sure as heck can get access to the same audience for less elsewhere.
A registration model might be nice to help Salon more clearly define its audience to its advertisers, but often the data is bogus and the process impedes new signups.
Salon’s got an e-commerce strategy in place with “Salon Shop,” but I kinda doubt that’s going to do much to make a dent in the $4M shortfall it has every quarter.
Salon’s advertising and sponsorship model appears to be exclusively banner ads. No text ads. No opt-in emailings. No content sponsorships. No exclusives. Nothing that jumps out to this reader beyond the pure vanilla you might find elsewhere.
ClickZ has approximately only 14 percent of online revenues derived from banner ad sales, focusing instead on developing a number of innovative and exclusive ad models that are effective for the sponsor and profitable for us. I’m no expert on Salon.com, but if I were the VP of Sales or Marketing, I’d leave no stone unturned in my search for new revenue opportunities… and I’d lean toward well-positioned, bold, exclusive sponsorship opportunities over the banners Salon is using now.
This applies to you and me as well. We need to stay out of broad consumer markets. Go “nichey.” Go wealthy. Go pricey. And if you can nail down that kind of audience, sell access to them at a premium, but deliver incredible value.
As I gaze into my crystal ball, I see Salon.com being sold at fire-sale prices to some outfit like Conde Nast, which could convert Salon’s wonderful content into a profitable print biz while using its considerable base of advertisers to bolster online revenues through creative sales and marketing strategies. I just don’t see any way Salon can continue on its own. I could be wrong, but that’s the way it looks from here.
For you, if you can manage to execute a smart content strategy while keeping your costs down, focus on an attractive audience, and stay away from commodity approaches to advertising, you could develop a lucrative online publishing business on your own.