Tekkies as Publishers ?

By Po Bronson, author of The First $20 Million Is Always the Hardest a novel about Silicon Valley

This article first appeared in the New York Times on Friday April 11, 1997

SAN FRANCISCO: The trend seems ominous. American Cyercast, the producer of the Web soap opera site The Spot, has filed for bankruptcy protection. Out.com, the on-line version of Out magazine, has shut down for lack of advertising revenue. Politics Now, a joint venture of ABC News, National Journal and The Washington Post, which was one of the Net's busiest sites during the 1996 campaign, no longer exists. And late last month Netguide Live, an on-line Web directory that had nearly 200 employees at its peak, announced it is pulling the plug.

But to look at these setbacks among prominent Web sites and conclude that the Internet is not living up to its promise is like inferring that the computer industry is in trouble because nobody's buying computers from Wang, Commodore or Kaypro. In an odd way, these Web casualties are an indication of the Intenet's new maturity and profitability.

To understand the Web's growing pains, one must remember that many of the first developers of the sites were engineers, computer programers and others from the high-tech industry. To them, the Web was an enticing fantasy, a chance to unleash a repressed artistic side. They hoped to take their furious Email rants and publish them as columns and to use their programing skills to make Web pages look cool.

Unfortunately, these engineers-turned-cultural-arbiters also brought with them the software industry's expectations for compensation: Trade 18 months of hard work at low pay for stock options, and soon enough you'll get rich or move on to something new. They neglected one reality of the industry providing the "content" for new and old media: Cultural arbiters - most writers, editors and illustrators earn relatively little and rarely make a fast buck.

The engineers didn't understand that sites are more like magazines than software companies, and that a new magazine is considered a success if it turns a profit within five years. The Spot is a case in point. It had been modestly successful before TCI and Intel became big investors and they tried to morph it into a network of shows, watering down the content until even the core audience abandoned it.

Too many failed sites, like Netguide, tried to operate along Silicon Valley norms - 8,000 square-foot offices and staffs so large that workers Stopped saying "hi" in the halls. Most companies that have succeeded on this scale - like Yahoo, provider of a leading Internet search engine, and Netscape, maker of the most popular browser - are really part of the Web's infrastructure. And even Yahoo, which has been around from the beginning, just turned its first profit in the final quarter of 1996.

With money not so easy to come by, Web sites are learning how to practice sustainable economics. The on-line magazine Salon, for example, has been building readership steadily for two years, yet doesn't expect profits until the fifth year. Some promising small sites are no longer even chasing advertisers, hooking up instead with a handful of long-term sponsors and even creating promotional events for them. Riotgrrl.com, a biweekly Web. zine for young women, has partnerships with Squeeze Jeans, the on-line bookseller Bookzone and the computer store Cyberian Outpost.

The good news for the Web is that ad revenues are still growing, although advertisers are focusing on the top 100 or so sites (buying up lots of space on low-traffic spots was proving inefficient). And although many entertainment-based sites are closing, real-world companies like L. L. Bean are finding that a thriving business with on-line catalogues.

This competition will help the Web because it will punish complacency. The string of failures, far from being an omen of the Web's unprofitability, will likely spur innovation and, most important, frighten away those who are only in it for the quick buck.