Web Content Syndication:
Issues on the Sell Side

Fastwater Rapids vol. 1.5, 28Sep98

Content syndication is not a new business. Newspapers have for decades purchased and published content from outside sources -- crossword puzzles, comic strips like Dilbert and Doonesbury, columns by Dave Barry and the late great Mike Royko. The model works in broadcast media, too. Local television stations purchase rights to broadcast game shows like Jeopardy and Brady Bunch reruns. Syndication opportunities are driven by the basic economic laws of supply and demand: there's a demand for some kind of specialized content, and a shortage of resources (like talent or money) to satisfy the demand.

Extension of the syndication model to the Internet is natural. Companies seeking to build and maintain strong Web presence are generating increased demand for content. In some cases, content delivery is the site's primary business; in others, content supports some other business activity, like selling books or electronic components. Regardless of how it's used, however, original content is expensive to create, often prohibitively so. In some cases, it's not just cost that's the issue -- branded content from an outside source can add more value to a site than original content would. Companies that own content are eyeing up new channels for distributing their intellectual property Whatever the motivation, for both buyers and sellers the growing demand for content has created new opportunities around the syndication model.

What are those opportunities, and who is best positioned to capitalize on them? What challenges and threats come along with them, and how are content owners and content consumers addressing them? How is Web content syndication similar to syndication in print and broadcast media, and how is it different? What new kinds of businesses are developing in response to the differences between syndication via the "old" and new media? What's the short- and long-term impact of syndication on the perceived value of content? What trends will shape the development of content syndication as a Web business model? We will attempt to answer these and other important questions about Web content syndication in a series of articles that we'll publish in Fastwater Rapids^tm over the next few months.

In this first piece, we look at the "sell side" of Web content syndication. What are the key issues for those companies who own or aggregate content? What kinds of revenue models are sustainable over time? Several suppliers of syndicated content -- Reuters, Hoover's, PC World, iSyndicate, Stockpoint, and Women.com -- helped us answer these questions by sharing their experiences and insights.

Opportunities: New Businesses, Customers, and Channels

For content owners with established businesses, the Web presents a new distribution channel that gives them access to new customers in new places, which in turn generates new revenue streams and strengthens brand awareness.

Dave Mathison, Vice President, Development at Reuters, said that the Internet has enabled his company to reach outside of its traditional mainstream print and broadcast customer base. Over the past four years, Internet content syndication has grown to account for 25% of Reuters America's profit. The key, says Mathison, is that the Internet makes everyone a publisher -- everyone needs content. Reuters has over 120 syndication partners, from all ten of the major portal sites to smaller niche publishers like Meridith, a publisher that specializes in the agricultural market. Corporate information publisher Hoover's has seen similar growth in revenue from syndication.

The company started licensing content in 1993 and today realizes 53% of its revenue from a combination of end user subscriptions and syndication relationships with 15 Web site publishers and online services, including Microsoft Investor and Bloomberg.

For IDG's PC World magazine, the Internet has created a whole new class of customers for its content. The readership of the world's most widely read computer magazine is largely users who rely on the publication for product information; manufacturers and resellers of computer systems are now licensing PC World product reviews to accompany descriptions of their products.

In addition to providing new opportunities for established businesses, Web content syndication is also spawning new Web-based businesses. Content aggregators like iSyndicate are proving that it's possible to succeed as an intermediary, in spite of early predictions of the demise of middlemen due to disintermediation caused by the Web. iSyndicate collects a broad range of content -- articles, links and tools -- and packages it for distribution to customers. The company's goal is "the efficient allocation of content to where it generates the most value." Companies like Bank of America, Fidelity Investments, and a host of local newspapers use iSyndicate to gain access to content from suppliers like Reuters, Zacks, PC World, and Wired. Stockpoint, originally launched in 1995 as InvestorsEdge, entered the content syndication business in late 1996 when its then-core business of posting investor relations information dried up as companies began setting up their own sites. Stockpoint is now at the forefront of the trend towards syndicating content that's packaged with software tools that make it useful. 75% of Stockpoint's revenues come from content and application licensing (the remainder is from ads on its Web site).

For some content owners, revenues generated by syndication are indirect. That is, collecting fees for licensing content isn't the primary objective. Ellen Pack, founder and vice president of Women.com, said that her company would give away content if it assured exposure for Women.com through other channels. Their goal is to make Women.com an affinity portal, which means that building brand name equity is paramount. One way to do that is to spread around Women.com content so that the target audience sees the brand everywhere, including in traditional media such as McCall's, a leading women's magazine. McCall's regularly publishes sets of links compiled by Women.com on topical subjects. Pack's strategy is to "be where they go," so that eventually the Women.com site will "be where they come." The payoff is in higher advertising revenues and in increased revenues from commerce conducted on the site.

More Ways to Make Money

The revenue model for television and broadcast media syndication is primarily subscription-based. The papers and TV stations pay a fee to publish or beam content on a regular basis. Web content syndication offers players on the sell side additional ways to make money:

Advertising. Content owners can be rewarded for ad responses. Web technology makes it possible to measure the results of placing an article on a particular topic near ads for related products or services. Say you are reading an article, licensed from Reuters, on the 1999 car models and the current price war among auto makers. A banner ad placed near the article touts Chrysler's new line and a special financing package. Being a big fan of Chrysler cars, you click through to a Chrysler site. The host site charges Chrysler for advertising services based on CPM or click-throughs, in keeping with current Web practice. Then the host pays Reuters some percent of the Chrysler fee as a reward for making its advertiser happy by driving traffic to the Chrysler site. Revenues from ad results are in fact included in Reuters licensing deals -- the typical arrangement is 50% subscription fee and 50% advertising. This allows for flexibility in business arrangements and makes it possible for companies of all shapes and sizes to serve as channels for Reuters content. They might, for example, charge Web businesses just getting off the ground a lower subscription fee but take a higher percentage of their ad revenues.
Aggregation. Intermediaries like iSyndicate make their money by connecting content owners with Web publishers who want to build out their sites. iSyndicate's primary source of revenue is fees paid on the "buy side" by the Web sites that license the content. The added value to customers is the management of multiple content streams -- most of iSyndicate's customers license content from more than one source. Participation is free to the content owners.
Services. iSyndicate and Stockpoint are growing syndication revenues by offering services around distributing and leveraging content. Licensees outsource syndication distribution activities to iSyndicate, who uses software developed in-house as the platform. The company also provides staging services (for those syndication agreements that require approval or screening, for example); lets end-users "vote" on the usefulness of content so that it can be fine-tuned; and conducts Web traffic audits. They have tools for integrating links into syndicated content that take readers to other parts of the site, such as a product specification or white paper. As Brian McCracken, iSyndicate's director of product marketing, puts it: "This enables us to provide content that supports the core business. It's not just eye candy."
Commerce. Similar to a revenue stream from advertising, content providers and aggregators can get a cut of business transactions that relate to content. A syndicator might offer a free horoscope package, for example, that appears with a banner ad for an astrology site. If an end-user clicks through to that site and then purchases an astrology chart, the syndicator and the content provider share some percentage of the transaction as compensation for driving traffic and commerce activity. Adam Block, Director, Product Development at PC World, expects a growing trend towards binding content revenue to commerce, although he cautions that care must be taken to ensure that consumers do not perceive a bias towards specific products on the part of publishers.

Challenges: Measurement, Price Pressures, and Portals

What content works?

When advertising or commerce enter into the business model, it is critical to be able to measure and share results. Techniques for measuring the effectiveness of content are just beginning to emerge. iSyndicate's analysis services, described above, are examples. PC World is both a content site and a content syndicator. They are now looking for ways to evaluate how content increases the value of a commerce site with which it's associated; this puts the onus of reporting and analysis on the commerce partner. Online ad management companies like NetGravity track campaign effectiveness, but they don't currently have tools for tying content to response. Web site publishers need to do that themselves, by combining site analysis with ad analysis.

As new measurement capabilities evolve, there are challenges ahead for companies that want to use these systems. In Adam Block's experience at PC World, traditional ad buyers are often confused about how best to buy online ads, and salespeople may find it difficult to explain the technicalities of the advertisement posting and reporting processes. Training and education for all parties needs to be built into the adoption cycle.

Information wants to be cheap

Information providers that depended upon online businesses before the Web have seen the Internet wreak havoc with pricing. The older generation of online suppliers -- Lexis-Nexis, Dialog, Dow Jones -- have been forced to cut their subscription prices. Consequently, they are willing and able to pay much less for source content than they did in the past. The price pressures have trickled down to the content providers who depended on these online information suppliers, causing them to lose revenue, too. PC World reports that pre-Web electronic information suppliers like Lexis-Nexis and Computer Select have over the last few years dramatically reduced the prices that they are willing to pay for content. Hoover's also noted that its revenues from syndication through the online information provider channel had declined relative to total revenue. This forced both companies to seek out the new syndication opportunities described above.

Reuters, on the other hand, did not depend to any great extent on the online information suppliers and has not found that selling content on the Web has placed downward pressure on pricing. Reuters prices have remained steady over the three years since the inception of its Web business, and revenues have grown with the success of its customers.

Spending rather than making money

In the current climate where mass-market portals dominate the Internet economy, content providers are not only wrestling with lower pricing, but also finding that they might not collect any money at all. The high-traffic sites are using their muscle to attempt to change the pay-for-content business models, sometimes even requiring a content provider to pay the site for placement of its content (so the content owner pays rather than charges). PC World prefers arrangements under which the portals share advertising revenue; the publisher has no pay-for-promotion deals. Hoover's has rolled content licensing fees that would have been paid directly into bigger umbrella agreements -- the Hoover's capsules that are served up on the Infoseek site are part of a strategic partnership between publisher and portal. While benefitting these two parties, such deals could be out of reach for many of the smaller players on both sides of the syndication model.

Another issue that affects the buy-sell relationship is the uniqueness of each deal. Web content syndication as a business is new territory for many companies, with evolving structures and models. When asked about Women.com's standard syndication arrangement, Pack said: "Every one is different. This is the Internet." How many participants can afford the cost involved in one-off business deals?

Content as a commodity

Some publishers who have been hit hard by increasing competition and decreasing prices believe that content has become a commodity. PC World's Block says that the idea of portals demanding to be paid to use publishers’ content suggests a "decline in respect for content."

Whether we agree or disagree, the Web has nonetheless created a new marketplace for content. And even if content is becoming a commodity, players old and new are finding success in that market with syndication. What should companies on the sell side of the market be doing to ensure that they'll have a piece of the action going forward?

Development of the Syndication Model

Some key trends that will affect the sell side of Web content syndication:

Increasingly, the value provided by the content owners and aggregators won't be content, but context. Context can be applied in a variety of ways -- in the form of personalized and customized delivery of content, or as software tools that allow us to use information, not just read it. Companies like iSyndicate and Stockpoint understand this, and they are building revenue models for their businesses based on increasing share from services. Their offers are moving away from content streams, and towards content that's packaged in some useful way.

Syndication will be used more and more to build brand awareness. Tom Feegel, executive vice president and co-founder of NetResponse, a strategic technology and marketing consulting firm with expertise in direct response marketing, wrote in a recent article: "A brand can no longer make it on one site alone. Programs like content syndication (the distribution of branded content through a variety of channels) develop awareness, increase traffic, and generate revenue through longer-term relationships." Content owners and aggregators who can tie content to branding, either for themselves or for their syndication partners, will find a business sustainable beyond pure content delivery.

There is a growing market for syndication of content to intranets. Cowles/Simba, the leading newsletter publisher and market researcher on the business/professional information market, projects that online sales of business/professional information will reach $23.9 billion in 1997 and grow to $37.5 billion by 2001. Content sellers who can tap into this market will find new syndication opportunities as the market for content on external Web sites begins to level off.

Web Content Syndication:Issues on the Sell Side