Technology

EarthWeb.com Bids Farewell to Content Strategy

The shakeout in Web content forces EarthWeb.com to sell some assets.
Joseph RadiganJanuary 5, 2001

How many of you can remember the slogan “Content is King”? The phrase was one of the sparks that ignited the Internet revolution in the mid-1990s, but soon fell out of favor as Web hysteria moved on to other fads.

As 2000 wore on, it became clear that not only wasn’t content king, it was barely a poor pretender to the throne. That’s led to a shakeout in the sector.

By the end of last year, EarthWeb.com of New York had decided to get out of the Web content business entirely, selling 14 Web sites and 18 E-mail newsletters to Internet.com, a Darien, Conn., Web publisher specializing in technology content. EarthWeb.com will now focus on its job placement services, including the IT career site, dice.com.

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Among the addresses sold was the company’s own site, EarthWeb.com, which suggests that the firm will soon rename itself to something close to dice.com.

The companies didn’t reveal the purchase price, but according to a report published in The Daily Deal, at least one Wall Street analyst estimated that the transaction was valued at $5 million to $6 million. According to a filing with the Securities and Exchange Commission, the content business has been generating roughly $4.5 million in sales in each of the last four quarters, although results for the fourth quarter of 2000 are not yet in.

The SEC filing also said that the businesses being sold by EarthWeb.com generated $31.2 million in losses on only $14.3 million in sales through the first nine months of 2000.

But, clearly the content business was the source of much of the company’s financial problems. Overall, EarthWeb.com lost $33.6 million on $51.2 million in sales through the first nine months of the year. Anthony Blenk, an analyst with Punk, Ziegel & Co., says the content segment’s weak performance drove the company to sell it.

The career placement business, which will be the heart of the revamped EarthWeb’s operations, is much healthier financially than the content segment. It even turned a modest profit in the third quarter. Through the first nine months of 2000, the career segment lost $1.8 million on $33.7 million in sales, but revenue has been growing rapidly.

The career placement business’ third quarter 2000 top line figure of $15.5 million was nearly double the first quarter revenue of $7.9 million, helping the segment earn $721,000 for the quarter. A year earlier, in the third quarter of 1999, the career placement business lost $1.8 million on $4.4 million in sales.

While career placement on the Web is not nearly as crowded a market as content, there’s still enough competition there to require substantial marketing cots. Sales and marketing have been the single biggest cost for EarthWeb, accounting for $5.8 million in spending in the third quarter alone.

Blenk says EarthWeb.com’s management believed they could have turned a profit on the content business, but the results would be slow in coming and in the meantime, the content side would have detracted from the career business.

In addition, EarthWeb.com is recruiting many content oriented Web sites as business partners for its career placement site, and Blenk says some of these content providers were reluctant to hook up with a firm that had a content business competing with them. The sale to Internet.com removes that obstacle.

Still, EarthWeb is not making a clean getaway. The company will take a fourth quarter charge of $42 million to $47 million against earnings. According to the company’s news release, approximately $22 million of the total is related to goodwill and intangible assets. Another $9 million to $11 million will result from the write-off of computer hardware, software and other equipment, and the remaining $11 million to $14 million relates to the write-off of accounts receivables, severance costs, discontinued leases, and pre-paid expenses.

But the EarthWeb.com that emerges will be much leaner and better equipped to focus on its strongest market. The fourth quarter write-off will cost the company $5 million to $6 million in cash over the next 12 months. But the firm listed $43.8 million in cash on its balance sheet as of Sept. 30, and given that the business it is retaining is on the verge of profitability, it may become one of the few dot-coms to protect its cash in 2001.

For Internet.com, the deal adds to an already hefty portfolio of content-oriented Web addresses. The company owns 164 Web sites and more than 300 E-mail newsletters. The addresses it is buying from EarthWeb.com include sites geared toward IT professionals, such as developer.com and codeguru.com.

But like most content sites, Internet.com is struggling financially, although it appears to have enough cash to not be at risk of burning through its capital. The company lost $5.8 million on $14.7 million in sales in the third quarter. Through the first nine months of the year, it lost $14.5 million on revenue of $36.5 million, and as of Sept. 30, it had $67.9 million on its balance sheet.

But Internet.com is increasing its bet on Web content just as the sector is undergoing a shakeout. It will need to protect the cash on its balance sheet if it’s going to emerge as one of the survivors.

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