1 July 2011

Jumping into the Net

Posted by Jody under: Communication .

For some firms, the Net is more than just electronic window dressing – it’s the new business focus.

It seems so easy. Build a digital storefront. Add lots of flash and glitz. Run a few TV ads. Get the site’s Web address added to the big search engines. Throw millions of dollars into the venture, and just sit back and wait for the profits to roll in. Simple, right?

Wrong. While scores of ecommerce efforts clutter the digital land-scape, very few are showing signs of financial success. As Barry Diller, CEO of USA Networks, so aptly pointed out recently, flash and youthful enthusiasm can’t keep businesses afloat forever. “Call it the old math,” Diller told a crowd at the Jupiter Communications Consumer Online Forum in March. “Arithmetic always catches up to you. Always.”

But for a select few companies, the Internet has become more than a gimmick. It’s the focus of their future. And if you look at their efforts, several common themes begin to emerge. First, hire smart and acquire smart. Direct-marketing powerhouse Fingerhut made a substantial move last year in hiring Will Lansing, former COO at Prodigy Internet and vice president of business develop-ment at General Electric, and making him president of the $2 bil-lion Minnetonka, Minn.-based firm.

Since joining the company last May, Lansing has spearheaded five equity investments in ecommerce companies. By buying chunks of these firms–which ranged from a 40 percent stake in PC Flowers&Gifts to a 19.9 percent equity interest in Internet retailers FreeShop International, Hand Technologies, Roxy Systems, and The Zone Network–Fingerhut tapped into a natural means of cross-promoting its core catalog and direct mail base on the Net.

These deals also let the Midwestern firm profit from the excess space in its existing warehouses, and use its real-world facilities to fulfill the housing and shipping needs of its online partners. In this case, the model worked so well that Fingerhut itself ironically became a prime Internet acquisition. In March, Cincinnati- and New York?based retail giant Federated Department Stores picked up Fingerhut for $1.7 billion in equity and assumed debt, making Fingerhut a wholly-owned subsidiary. Federated restaked its own Internet presence last year when it relaunched its Macys.com site.

Another important element, say ecommerce experts, is to embrace the Internet’s power of distribution. But don’t just cut and paste your offline products online. Since its launch in 1898, Thomas Publishing has built an empire on providing manufac- turers with up-to-date product information in enormous, multi-volume books. Times changed and customers needed product updates faster. Recognizing this shift, the privately held publisher turned to the Net. Starting with a bare-bones database, Thomas fleshed out its advertiser-supported Website to include everything from CAD drawings and product updates to ecommerce options. The firm used the site (www.thomasregister.com) to tap into a new business area–Web hosting for its industrial clients.

Finally, corporate converts often chant a very simple mantra– leverage the power of the Net. For example, newspapers have long relied on print classified advertising as part of their core financial base. But the Internet heralded the rise of ad-hungry foes, such as Yahoo! and Microsoft, who are eager to lure away such advertisers.

To offset this erosion and broaden its electronic presence, Knight Ridder has been one of the most aggressive publishers to leap into new media. The key figure in this corporate-wide push is Tony Ridder, great-grandson of the founder of Ridder Publica-tions, who became CEO of the media group in 1995. Known as a numbers man, Ridder sold off the company’s non-core assets and turned Knight Ridder into a pure newspaper entity–a risky move, according to analysts.

By recognizing powerful online foes early enough, experts insist that Knight Ridder is positioned to fight back. Ridder moved his company’s headquarters from Miami to the heart of Silicon Valley, both a symbolic and physical effort to be seen as a high-tech player. He also expanded Knight Ridder Real Cities, a collection of 45 Websites. The network includes online versions of all but two of the firm’s 31 daily papers, links to regional Web portals, and special-interest sites such as auto.com. The city sites became linchpins in landing deals with affiliates, and created ecommerce hotspots for the publisher. Knight Ridder New Media’s year-and-a-half old co-branding deal with Ticketmaster makes it simple for users to jump from Knight Ridder’s online Just Go entertainment sections to Ticketmaster’s ticket-purchas-ing site. This is definitely not your father’s newspaper.

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