Commerce, content sites borrow from each other's playbook as they brace for consolidation

By TED KEMP and L. SCOTT TILLETT

No one is safe. Thousands of e-businesses teeter on the edge of oblivion as stock market aftershocks kill off the weak.

Optimistic that there's still time to rebound, scores of pure-play "content" and "commerce" sites are borrowing the best of each other's business plans, with the common goal of attracting loyal, paying customers.

Each wants what the other has. Content sites need product sales to make up for a shortfall of advertising and affiliate program dollars, while pure transaction-based e-marketplaces need to create a following as they brace for consolidation in their overcrowded markets.

Farmbid.com, a seller and auctioneer of farm equipment, is already stickier because of chats and discussion groups hosted by the site. When company officials send an e-mail blast reminding users of particular site features, they come back in droves, said company CEO Ted Farnsworth.

"We're getting over 15 percent coming back, and that's definitely because of community," Farnsworth said. The company was founded about a year ago, and in the early months of the site, a visitor stayed on for an average of 10 minutes. These days, they stay for about 23 minutes. And some 3 percent of returning customers buy from the site, he said.

Interaction with their peers is important to farmers, cautious customers who aren't generally comfortable using the Internet as a research tool. "They're not going to go online and risk their whole livelihood on the Internet," said Farnsworth, a former hedge-fund manager and former owner of a LaToya Jackson-endorsed psychic hotline service.

Community, loosely defined, is the interaction among visitors on a particular Web site -- a "many-to-many" set of interactions that can involve e-mail lists, chat rooms and message boards. Communities might include online events, chats with experts or specialized content that an e-business provides to visitors.

Online communities aren't new to consumer e-commerce sites. Consumer affinity for Amazon.com, eBay, America Online and Yahoo is often attributed to their platforms for customers to communicate and collaborate with one another in special interest groups.

But now b-to-b sites are trying to copy their recipes.

Ace Hardware uses community tools to keep in touch with its 300-plus commercial dealers, the operators of brick-and-mortar stores that sell hardware to businesses. Tina Lopotko, manager for the commercial and industrial department at Ace, said message boards let the dealers share information on product features and availability.

"It's a three-way way of communicating," said Lopotko, who said Ace may add community tools to its consumer Web site as well. "They can communicate with us, or us with them, or dealer to dealer." And since dealers can easily seek answers from one another online, Lopotko and fellow Ace workers don't have to answer all dealer questions. They can answer those questions among themselves. The community on the intranet also lets Ace dealers pass corporate sales leads to one another, and Lopotko said Ace is considering giving suppliers access to some of the communities Ace is building. Lopotko estimates that community tools save Ace at least $25,000 a year on paper -- mainly the cost of printing a regular newsletter for dealers. The newsletter now appears online and is supplemented with information from community messages, she said.

Home-improvement site Ourhouse.com has built an elaborate community that includes message boards and advice postings from home-repair experts. The community tools seem to be paying off as visitors get answers they can use before making a purchase.

"The average purchase for a person who has come to community or participated in community is higher than a person who did not," said Geni Burke, director of online marketing, who declined to reveal the average purchase price.

The reason it's higher? The more the customer knows, the more comfortable he is with his purchase, Burke said.

Internet services firm Diamond Technology Partners, which uses community tools to generate ideas for designing products and services, views communities "as just a no-brainer," said principal Erik Garr. "Ten years from now, " he said, "it's going to be like asking whether you should have installed phones in your business."

Still, squeezing revenue out of chats and other community features can be tricky, since such features may distract customers from the business at hand. "You really have to think about your business and the questions people are asking and how people are viewing your business," said Yankee Group analyst Emily Meehan.

'Monetizing' Content

On the flip side are Web publishers desperately seeking to "monetize" their content. For most of the Internet revolution, that money has come from advertising. But increasingly, content sites are engaging in direct commerce. In 1999, banner ads and the like generated 68 percent of content sites' revenue, while direct selling accounted for 6 percent. By 2002, Forrester Research predicts, ads will slide to 47 percent of content site revenue while direct selling will grow to 16 percent. Trouble is, most content publishers aren't experienced salespeople. So they're increasingly borrowing that expertise from outsiders. And most of the time the services are free to content players.

Bill Jeppesen launched start-up AutoMall.com because he wanted to build the best source for car-buying information. He has little interest in dealing with the staggering IT, fulfillment and administrative investments -- sometimes totaling millions just to start -- needed for e-commerce. "I've got a master's degree in business," Jeppesen said. "I get it. I just don't want to do it."

AutoMall, an affiliate of Amazon.com, runs the bookseller's banners in exchange for a small percentage of any sales the site generates for Amazon. AutoMall also gets a bounty for referrals it makes to auto insurance companies and a cut of the sales it generates for auto accessory merchants.

But its aspirations go beyond these affiliate relationships. This month, AutoMall finished testing a service from CrossCommerce that will let it begin selling merchandise -- videos to start -- to 20 customers over the next few weeks. CrossCommerce is one of a growing number of ASPs that let content sites merchandise an assortment of individual products from several wholesalers or manufacturers.

AutoMall cut and pasted a single piece of HTML code from CrossCommerce into its own site and then used a Web interface to pick the products it will carry. AutoMall designed a virtual "shelf" -- a database where those products are stored on the CrossCommerce server.

When a visitor goes to AutoMall, the content site serves its page of content to the user's browser as usual. A Java script call points to the CrossCommerce server from the part of the page AutoMall has chosen to display its goods. CrossCommerce serves a cached shelf, which appears as a selection of products formatted to match AutoMall's look and feel.

CrossCommerce's virtual product warehouse is connected to manufacturers' warehouses via EDI, XML or whatever integration method the supplier prefers. The manufacturer ships the goods to the consumer.

AutoMall's Jeppesen is considering directly selling nonautomotive goods -- golf clubs, for example -- that match his customers' demographic characteristics. AutoMall prices the goods it carries and splits the margin with CrossCommerce. Such an option, Jeppesen said, is better than the "percent of a percent of a percent" of the sale price his company gets from banner ads.

Still, many informational sites are happy with banner ad affiliate programs -- still their dominant source of revenue -- largely because of the little IT integration they require. In one study, Forrester found that the retailers operating affiliate programs averaged 10,270 member sites each.

Parenting site Childfun.com runs banners from online ad network 24/7 Media, and additionally is a member of programs operated by Amazon and affiliate network operators BeFree and Nexchange. Banners alone keep Childfun in the black, said Jenny Wanderscheid, founder of the site. Mostly, that's because she runs the site from a home office, and overhead is minimal.

"I don't have any products that I sell myself. It's been perfect because there's no way I can keep a huge inventory right here in my house," she said.

BeFree aggregates affiliate programs and invites content players to join as many as they choose. Sites apply once on the BeFree site and then sign on for the programs whose retailers they feel best match their content material.

Like with CrossCommerce, the integration is free and relatively easy. BeFree has proprietary tag-generating software that creates the HTTP references and the HTML for whichever links merchants want -- search boxes, product links, category links or drop-down boxes, for example. Content sites cut and paste the tags from a secure portion of BeFree's site into their own.

Despite banner click-through rates that now hover at less than a half of 1 percent, retailers last year ranked their affiliate networks more profitable than any other marketing technique except for outbound e-mail, according to Forrester.

In September, BeFree will introduce a program that lets merchants syndicate their own content to affiliates' sites in real time. From the perspective of the content site, the program will involve the same cut-and-paste steps as standard banners. But the links could dynamically render price changes, stock quotes or other product-related content through banners.

Other vendors say they can help create sales while also staying true to the core interests of site visitors. Affinia operates a hosted storefront service that lets site operators pick products they want to carry, rather than e-retailers they want to link to.

An astronomy content site, for example, could set up an account with Affinia and then pick 50 products from various e-retailers for a store page. Affinia instantly generates HTML for those products, and the site operator pastes them in. The HTML links directly to the e-retailer itself. Affinia storefronts make it clear that the content site isn't handling the goods itself, said vice president John McCrea. Consumers often are hesitant to hand over credit card information to a small content site.

"Retail and content are two dramatically different businesses," McCrea said. "Anyone who forgets that is setting themselves up for failure. We do not try to create the impression that the content site is the retailer. That's suicide."

But the ease of adding banners and other commerce links can create a risk for content sites: alienating a loyal audience with overbearing sales pitches.

"The most important thing for a content site to remember is that their brand is at stake," said Hurwitz Group analyst Carol Baroudi. "They want to be able to deliver products, but how their site behaves is going to either build their brand or diminish their brand."