Cnet: Can A Tech Guru Handle Wine, Too?
Shelby W. Bonnie should be sitting on top of the world. The CEO of CNET Networks Inc. has just finished a $2 billion shopping spree for companies that make CNET the undisputed king of online technology information. The company now boasts more than 16 million monthly visitors to its Web sites and is projected to pull in $427 million in revenues this year, triple the 1999 figure. Just as important, the company is showing it can make money by selling Net ads alongside technology news and product reviews, with a projected operating profit of $12 million this year before merger charges.
But this is no time for celebration at CNET. Bonnie has seen his company's stock price hammered--along with the rest of the Net sector--in recent months. Shares are down 76% from their high in December, to about $20. One big concern is that the technology advertising that made his eight-year-old company one of the earliest Internet success stories is starting to taper off. To keep flourishing, CNET needs to expand beyond its technophile roots. "Technology can support its growth only so long," says Peggy Lee O'Neill, an Internet analyst at Nielsen/NetRatings.
SHOPPERS' AID. No one knows that better than Bonnie. The flaxen-haired, 36-year-old executive is already plotting a strategy that will determine whether the company emerges as a top-tier Internet hub or a niche outpost on the Web. CNET earned its reputation by providing high-tech news, reviews of technology products, and price comparisons for tech goods at a wide variety of online retailers. Bonnie's plan is to take that same help-the-consumer approach into a host of new markets such as cars and furniture. Bonnie insists that the CNET formula can work in virtually any category with complex products that are difficult for consumers to compare. "We can be effective anywhere there's a huge need for information, and that information is critical to buying decisions," he says.
His recent acquisitions will help CNET carry out the plan. The company has just finalized its $1 billion purchase of ZDNet Group, its chief rival in providing technology news and information on the Web. The deal will consolidate CNET's position as the leader of tech information online by adding 4 million monthly visitors. And in March, CNET acquired mySimon.com Inc, a service that provides comparison-shopping information online, in a $736 million stock deal. So far, mySimon has been used primarily to give Web surfers information about technology-related commerce sites.
That will soon change. MySimon recently finished hiring a 14-person editorial staff that will begin producing content in the next few weeks about products as diverse as wine and stereos. One of the first topics covered will be menu ideas for a gourmet-foods site. By yearend, mySimon will offer the same type of content about cars, thanks to a deal in late September between CNET and online auto-information site Edmunds.com Inc.
TRAFFIC JAM. It's an audacious strategy, to say the least. Although some categories, such as consumer electronics and office products, are cousins to CNET's core tech items, the company will be hard-pressed to establish credibility with such step-siblings as furniture and wine. And most of these markets are thick with competition. Consider car sales: There's a traffic jam online with multiple startups, such as autobytel.com Inc. and Autoweb.com Inc.--and General Motors Corp. and Ford Motor Co. have responded with online dealer networks of their own. "It will be quite a challenge," says Lanny Baker, an online media analyst at Salomon Smith Barney.
Even trickier will be avoiding any damage to the CNET brand. The name, short for the Computer Network, has become known for technology information, and the diversification could confuse the issue. CNET hopes to solve that potential problem by keeping distinct brands for mySimon and ZDNet. "A lot of great companies, from Time Warner to Procter & Gamble, are able to support multiple brands," says Bonnie, a seven-year CNET veteran who took over the chief executive role in March from Halsey M. Minor, founder and chairman.
Bonnie gets high marks from Minor, employees, and analysts for having the right style to guide the company into its next phase. While Minor was detail-oriented to the point of sending employees late-night e-mail suggesting a color change on the company Web site, the Kentucky-born Bonnie is a delegator, who gives his lieutenants room to work. "He's better at running a larger organization," says Minor.
In the end, CNET has little choice but to broaden its reach. The company spent $100 million on advertising last year to boost its brand name and succeeded in increasing the number of visitors to its site by 49% from July, 1999, to this August. Its 16 million visitors make it the ninth most popular Web site. But growth in online ads is beginning to slow, dropping from 12% in the second quarter to 6% in the third quarter. With nearly 60% of its revenues coming from online advertising, CNET's exposure is less than mainstream portals, such as Yahoo! Inc. Still, it worries some analysts. "Yahoo needs to diversify, and so will CNET," says Laura Mitrovich, program manager at the Yankee Group.
CNET does have an advantage over online sites such as Yahoo and even Amazon.com Inc. It has established itself as a trusted voice for objective content, whether it's news, reviews, or advice. Those data help attract millions of potential buyers, who might make purchases through CNET's links to other online sites, such as Gateway Inc. or Dell Computer Corp. The company makes a commission from the sale of others' goods but doesn't have to spend millions on such things as fulfillment or inventory management. This formula helped CNET reach profitability in mid-1998, well before most of its online brethren. Sales commissions generated $13.5 million in revenues on 200,000 sales leads in the second quarter of 2000. And CNET has pumped up the price it charges tech companies for each potential customer it sends, to 89 cents, up from 50 cents last year. "The best e-commerce model is a model where you don't sell anything," contends Bonnie.
Even with the budding new markets, CNET is deepening its technology footprint to help drive growth. Since last year, it has been trying to wring more revenue out of its tech side by selling its database of pricing and product specs to more than 100 customers, including the likes of Dell and Ingram Micro Inc., which want to offer the data on their own e-commerce sites. In addition, CNET recently unveiled a Web application that lets technology resellers, consultants, and consumers obtain real-time product information from manufacturers. "They're surrounding the technology supply chain and becoming increasingly important in the IT equation," says CS First Boston Vice-President Bob Hiler.
Bonnie's biggest coup would come from extending such services into dozens of new product categories. CS First Boston figures the nontech operations could grow from 2% of CNET's revenues today to 9% by next year. While that might compromise the company's propeller-head image, it's an outcome that may finally prompt Bonnie to take a moment to celebrate.