Is CNET's New Ad Strategy A Sizzler?

The online publisher's focus on building brands should boost the bottom line

Forgive Shelby W. Bonnie if he feels left out of the party. First, he took over as CEO of online publishing company CNET Networks Inc. (CNET ) in March, 2000, just as the tech bubble burst. Then while the resurgence in online advertising over the past two years led to soaring revenue growth for Web cohorts Yahoo! (YHOO ) and Google, CNET continued to struggle. Why? CNET's bread and butter is selling Web banner ads, a business that has been on the decline for three years. The company largely missed out on the fastest-growing slice of the online ad market -- the search-engine bonanza that has benefited Yahoo and Google.

Now, finally, Bonnie may have his chance to celebrate. Strength in the overall Net ad market and CNET'S success with new kinds of Web ads have prompted the chief executive to raise his guidance for 2004 revenue to a range of $280 million to $285 million, up from $246.2 million last year. As a result, analysts expect CNET to report net income of $11.5 million this year, the first time the company will have recorded a full year of profits since 1999. "They're doing well," says Jeffrey L. Dearth, a partner at investment bank DeSilva & Phillips LLC. "Ask the print publishers in this space, and they would be delighted with the growth CNET is seeing." The company's stock has doubled in the past year, to about $10.

Bonnie is betting on a strategy with much promise for the years ahead. He believes that companies increasingly will use the Net to build their brands. Instead of simply paying for text links alongside search results on, say, Google, advertisers will want to polish their brand names with the kind of multimedia ads they run on television and radio. And he figures the content on CNET's collection of sites will make them prime destinations for that kind of marketing, particularly as Net advertising becomes more interactive. Already, BMW, Honda Motor (HMC ), and McDonald's (MCD ) are doing brand advertising on its sites. "Advertisers are turning to online brand development and more innovative spots that can build excitement about their products," says Bonnie. "We see that as a 10-year trend of dollars moving into the industry, and it will be a lot more than what's spent on [search] marketing."

Bonnie has put together an impressive group of offerings to attract Web surfers and advertisers. CNET's Reviews channel is one of the most comprehensive tech and consumer-electronics evaluation destinations on the Internet. GameSpot is a similar site for video- and computer-game enthusiasts. News.com is a full-fledged tech-news operation. And CNET recently reopened MP3.com as a one-stop digital-music site where surfers can read reviews and legally buy songs from providers such as Apple Computer's (AAPL ) iTunes Music Store and Roxio's (ROXI ) Napster. BusinessWeek has a partnership with CNET for online content.

To take advantage of those sites, CNET is pushing the envelope with new types of ads. At the company's GameSpot, for instance, visitors could see a video clip for the latest Grand Theft Auto game and then click on a link to try a demo version. At News.com, buyers of tech software can plug their own figures into a spreadsheet and calculate their return-on-investment estimates. "CNET is offering much more interesting ways to brand your product today than Google," says Rishad Tobaccowala, executive vice-president at ad agency Starcom MediaVest Group (PUB ).

For some companies, that approach seems to be working. CNET ads have boosted direct referrals to Sony Corp.'s (SNE ) e-commerce Web sites by 225% since the beginning of last year, according to Patrick Vogt, a senior vice-president at Sony's direct-sales arm. Now, Vogt is spending 30% of his online advertising budget on CNET.

How successful CNET is will depend on whether the online ad market develops the way Bonnie expects. He thinks Net advertising eventually will look like the traditional ad market, in which over 80% of the money is spent on brand-building and only a sliver goes to direct marketing. "Our job is to grow our properties to get ahead of those dollars so we're in a position to capture them over time," he says. If that happens, Bonnie will have even more reason to celebrate.

By Alex Salkever, with Ben Elgin in San Mateo, Calif.

— With assistance by Benjamin Elgin

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