Consumer Reports.Com: No Ads. No Links. Just Loyalty
Some unusual mail has been landing on Rhoda H. Karpatkin's desk. "We've been getting a lot of offers to be acquired recently," says the president of Consumers Union, publisher of Consumer Reports magazine. Karpatkin won't say who is sending these overtures to her office in leafy Yonkers, N.Y. But they are peculiar: Consumers Union is not-for-profit, so who would want to buy it?
It's not hard to see why suitors might try. Not only does Consumer Reports sell a hefty 4.4 million copies each month, it also has a dot.com business that any publisher would envy. Since its launch two years ago, consumerreports.com has attracted more than 330,000 subscribers who pay either $24 a year or $3.95 per month, and it's adding 7,000 new subscribers per week. What's more, 90% of them don't already take the print product. This bible of consumerism is one of the few print publications, along with The Wall Street Journal Interactive Edition, that has built a workable subscriber model online (table, page 186). Already offering extensive archives, free information, and chat rooms, the site will soon expand to include Web-only content such as surveys of online shopping sites.
To some enterprising media mogul, Consumer Reports might have the makings of a juicy profit center if it abandoned its not-for-profit stance. But Karpatkin says that's not in the cards. The site is already profitable just with subscriptions, she says. And flattered as she is by the attention, Karpatkin says neither she nor her board is thinking of selling out at any level. There's no doubt in Karpatkin's mind that the magazine's steadfast editorial independence is the reason for its appeal. Says Karpatkin: "We are very singleminded about who we serve. We serve the consumer."
Indeed, not much has changed about Consumer Reports' mandate since it was launched in 1936 "seeking to create and maintain decent living standards for ultimate consumers." Paul W. Noglows, who follows Web companies for Hambrecht & Quist in San Francisco, recently used the site with his wife to buy a cell phone. "I think the real key to their success is that people believe it's unbiased and it's objective," Noglows says.
CLEAN LINE. That independence has taken on even more significance as cyberspace blurs the line between commerce and content. Online car-shopping services such as Microsoft Network's carpoint. msn.com offer ratings similar to Consumer Reports', comparenet.com helps shoppers sift through prospective purchases, and one of this year's hottest startups, epinions.com, calls itself "the ultimate online shopping guide." None offers Consumer Union's independence. Still, will their free content chip away at Consumer Reports' franchise? Consumer Reports "may be not-for-profit, but the real question is: What is the business model going forward?" says J. William Gurley, a partner at Benchmark Capital, one of the venture firms backing epinions. "They still need to pay for what they do."
So far, that's not a problem. Neither the heat of competition nor the lure of Internet riches fazes Consumers Union, says Karpatkin, 69, a sharp former corporate lawyer who has doubled the magazine's circulation during her 25 years in charge. Although she maintains that Consumer Reports is "as excited about making money as anybody," she believes that any commercial relationship would undermine the organization's mission. It's the same reason why all of the products the magazine tests are purchased in stores by a clandestine army of 160 "shoppers." "We don't pull punches," says Karpatkin. "We have great strengths in antagonizing various interests."
NO WAY. Isn't it possible to perform a public service and make money by separating editorial from the commercial side of the business? And though sometimes conflicts arise that require skillful navigation, does that mean all commercial links are sellouts? After all, one media banker estimates that a Web service with Consumer Reports' numbers could be worth at least $500 million if it were able to exploit other revenue streams besides subscriptions. Any money reaped from unlocking that value would certainly boost Consumer Union's current budget of roughly $140 million a year--allowing it to buy and test even more products. On the other hand, consumers may be willing to pay more for content when they know there are no ads. "It's not better or worse [to sell ads], it's just a different economic model," says Fayne Erickson, publisher of Ms., a for-profit magazine that sells no ads.
But in the realm of online consumer guides, commercial ties are growing. That's the case with epinions, which was started by a group of twentysomething self-described "Internet veterans." Rather then test products in-house, epinions' notion is to create a worldwide community of product reviews. Charlatans trying to foist biased reviews onto the site, says Gurley, are quickly found out because visitors to the site rank the usefulness of reviews and identify those whose opinions they most trust. And product reviews might actually be one of the few online areas where advertising makes sense. After all, says Gurley, "the best time to sell an ad to people is when they're about to make a purchasing decision."
What no rival service comes close to boasting about, however, is Consumers Union's storied testing facility. It consists of 50 laboratories spread over 25 acres in Yonkers (plus a test track for cars in Connecticut) where products from potting soil to biking helmets to dishwashers and breakfast cereal are painstakingly put through their paces.
Amid the cyberfrenzy of linkups and cross-selling, Consumer Reports serves as a reminder. "People are willing to pay for content on the Web," says new media director Nancy Macagno, "because of our name and because the site is deep." But the more profit-hungry Web rivals catch on to Consumer Reports' appeal, the harder it may be to fend them off without playing the e-commerce game.
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