Offline it’s nice to have everything in one place when we buy things or
do research. Hence, the Wal-Marts and libraries of the world. We
like to find our products and resources in one place, rather than spend
our time driving all around looking to find those things.
The Internet acts as the Wal-Mart of all goods, services, and
information. However, here, people still oppose driving,
but welcome surfing. Everything you could want or need is only a click
away. So online companies face a major dilemma; be everything to
everyone (Amazon.com), or something special to a targeted group of
I’m an avid proponent of vertically focused Web content and e-commerce
companies. It’s clear that the in-depth, quality offering will attract
loyal users, which of course attracts the end-all prize on the Internet
– -commerce transactions and advertisers.
Indeed, Forrester Research media analyst, Charlene Li recently announced
a “sea change” in online spending, noting that advertisers and marketers
are showing a stronger affinity for vertical sites such as CNET Inc. and
Sportsline. Li’s report predicts that 57 percent of all online ad
spending will flow to vertical sites and affiliate networks by 2004- – a
nice piece of the pie considering eMarketer predicts $13.3 billion in
Web advertising by 2003.
Still, investors can’t and certainly don’t argue with “critical mass,” a
term thrown around by “experts” in the Internet universe that signifies
dominance or superiority. The basic idea is that an Internet property
(or network of properties) at some point gathers enough users (it can be
sellers, buyers, registered users, advertisers, etc.) where it becomes a
liability for other users, advertisers and sponsors to not somehow be
associated with that property. In our world, a critical mass is only
justifiable if the company can create Internet market value (aka-sky
high market value).
The leading independent destination on the Web, Yahoo! Inc. (YHOO),
immediately comes to mind. The network hosted 46 million users during
the month of February, reaching 61 percent of the Web’s total audience.
Yahoo’s stock now trades at $201-1/2 with a $106 billion market
capitalization. Aside from its strong growth rate (125% year-over-year)
and high operating margins (35% +), critical mass is a huge reason for
investor optimism and the resulting stock performance.
Internet stock investors are left with the same dilemma facing most
online companies…breadth vs. depth- – volume vs. niche. Why fret though
when you can have the best of both worlds?!
offers users a portal-like interface with 28 main channels of content
that are divided into 700 niche environments (sites). In addition, an
expert guide who will help you find the information you need while
providing unique research, analysis and services oversees every site. I
clicked on About.com’s “Finance/Investing” channel and was promptly
presented with 22 niche sites that spanned “day trading” to “retirement
planning.” Click on “Investing for Women” and guide Lita Epstein
provides the information, links, community events and shopping resources
for this group.
What does this mean for investors? About.com offers investors what I
like to call the “portal punch”… a large number of users. However, by
breaking the site into niche verticals, users stop by, stay, and come
back often because their specific needs are being addressed. Of course,
advertisers enjoy the large base of users. The real value, though, is
About’s ability to target users in any of its 700 vertical sites with
advertising and commerce offerings. 406 companies advertis
ed on the
About network during Q4:99, up from 167 companies during Q1:99.
Advertisers and sponsors pay more for better odds of acquiring a
customer…it’s that simple.
The month of March has been an extremely volatile and difficult month
for Internet stocks. Shares of About.com however, are up about 13%, to
89 for the period of March 2 to March 23. According to Media Metrix,
About.com was the 10th ranked Web property for the month of February
with 13 million unique users. With a $1.5 billion market
capitalization, that values each About.com user at $115 compared to
over $2,000 for each Yahoo! user. Taking into account the Net’s “sea
change” in online advertising, About’s “portal punch,” and the company’s
probability of soon exploiting both critical mass and targeted
advertising/e-commerce opportunities, it’s possible that About.com is
severely undervalued at current levels.
We’ll soon have the opportunity to sit down and speak with Scott Kurnit,
chief executive officer of About.com. Among other things, we’ll discuss
About.com’s new business-to-business e-commerce initiative. It’s very
likely that About.com’s business-to-consumer content model will easily
be scaled into B2B. VerticalNet
is watching closely. Stay tuned…