These are wrenching times for trade magazine publishers, especially when your trade happens to be computers and technology. These print publishers are finding that people can connect more quickly and easily by just going online. They can get reviews and news articles from independent blogs, podcasts and websites, and can join a plethora of online communities to share intelligence. In short, they no longer need to wade through a thick stack of print magazines for information.
So what happens to an old-line magazine publisher such as the International Data Group (IDG), which has more than 300 print magazines and newspapers around the world, catering mainly to information technology (IT) pros? First, it defends the old line, and tries to stave off the inevitable by defending its print advertisements. Then it tentatively tries various approaches to the Internet, from online adjuncts to a portal, and even an attempt to stop other sites from deep-linking to IDG content.
And then, it faces the inevitable, and announces that it will focus on the web first, with print and conferences as ancillary products. IDG’s first big step as a web-centered enterprise was its decision to cease publishing its InfoWorld magazine in print altogether and focus on its website. IDG founder and chairman Pat McGovern offers another example of the company’s new web-first approach.
“In the UK, we’ve launched ComputerWorld,” he told me. “We’ve never had ComputerWorld there, so we launched it as a website, and will ask readers whether they want a version of a print publication going forward. Rather than [risking] millions to launch it in print, we spend about $40,000 or $50,000 launching a website and a lot of it is built by viral marketing and user contributions.”
It’s taken a good long time for IDG to get the Internet religion, and it will take a huge change in the corporate culture there to really put online first.
“IDG has been a deer in the headlights of the Internet 18-wheeler for years,” wrote IDG veteran and current Yahoo employee Matt McAlister on his blog. “I can imagine this is the first of many similar moves that will happen this year across the whole print market.”
I had the opportunity to sit down for a face-to-face chat with McGovern, 69, the father figure of IDG who’s also known as “Uncle Pat” around company publications because of his unusual practice of visiting each and every IDG employee around the world to give them their Christmas bonus in person. I got my start in technology journalism at InfoWorld in 1992, and later was lead writer of the Media Grok newsletter for the Industry Standard, a magazine that was partially owned by IDG.
The following is an edited transcript of our conversation.
How have journalism careers shifted recently with the advent of the web?
Pat McGovern: I talked to the dean of the journalism school at Columbia University recently, and he said the whole career of journalism is being rethought. You used to get trained and get your master’s in journalism and you went to work for a publishing company and built your career as an employee. Today you start a blog and get a lot of references and get famous and your name is your brand. You can get paid for speeches and to go to conferences, and then a book publisher comes through and wants to synthesize what you’ve written on your blog into a book.
With speaking fees and book royalties you could be making $500,000 or $600,000 a year, and the poor journalist is making $70,000 or $80,000 a year working as an employee. So there are a lot of people who are realizing that there’s a lucrative career making a name for themselves instead of being an employee.
There is a lot of talk about people becoming their own publisher, because they can online. How do you see that affecting the way publications are trying to hire people?
McGovern: In our field, where we are a special interest publisher, by function or by subject, our audience has a lot of knowledge and context that other people would find valuable. We first noticed that at our conferences. On our evaluation form, we’d ask them, ‘What did you like best? We paid $50,000 for a celebrity keynote speaker. Did you like that or like our panels?’ Their response was that ‘Everything was fine but we got our biggest take-home value by talking to other attendees.’ We thought, ‘My God, they are the content, so they’re going to ask us to pay them to come!’
Then we realized that they had a great deal of information to help each other and obviously with letters to the editor, you usually had to throw out two-thirds of those because you didn’t have space. So the web presented a great place for community-generated content because they have so many useful ways to solve each other’s problems. So the journalist can really focus on original reporting and new developments, that the bloggers and commentators are interpreting. Journalists are digging up the facts for new products coming out.
But the bloggers themselves are also digging up facts and doing product reviews on their own.
McGovern: That’s right. They’re networking and talking to people at different companies and coming up with scoops. It means that a person who was an editor in chief of a blog is now an information manager. They’re there to decide on the subjects of interest and which bloggers have the best accuracy and writing style to be there, and decide what webcasts and what [research] papers should be there. It’s much more like running a panel or being a moderator. They’re deciding who gets to speak and for how long. They’re an information manager or moderator.
You’ve been in technology journalism almost from the start, so you’ve seen a lot of changes. How profound is the change brought by the Internet?
McGovern: We’ve made an interesting re-definition about what business we’re in. We always thought of ourselves as [print] publishers who did websites and conferences. Now the website typically has a bigger audience than print, and it’s growing much more rapidly. We used to be a publishing company with ancillary websites and events, but now we’re a web-centric information company, and we have ancillary activities like print publications and events.
That’s a big change, because in the past, we’d have a meeting with our publishing heads, and we’d talk about all the trends online — the growth in revenues and growth in audience. And advertisers were saying they were getting better ROI in online advertisements. The future, and most of our revenue by 2020, will be online. And the publishers would nod their head, and go back to their office and get four or five urgent messages on their desk about IBM cancelling print ads, ‘Could you rush out and have dinner with the IBM head to convince them not to do that? We got another call from Microsoft and they’re cutting back as well.’
They have to fight all these fires because of print, and you have to protect that, prevent that from eroding too quickly. As they were spending their time protecting history, they weren’t investing as much and getting the right people online. Now we’re redefining the business to say your website is your primary business, and you can do print if it has a clear and useful purpose.
In the past when we’d launch a new subject, we’d launch it as a new magazine, and put millions of dollars into selling subscriptions, and go out and get people to buy advertising. Today we would put it out as a website, publicize it to get a lot of visitors, use viral marketing, get people to come back and say it’s a great site. And through newsletters and webcasts, we can get a lot of registered information on the users.
When we get 50,000 or 60,000 registered users, we can take a random sample of those and ask, ‘Would you like a magazine or a newspaper on the subject? Is so, what frequency and what format and how much would you pay for it?’ And if there’s enough demand we could go to the advertisers and say, ‘Here’s the audience, here’s their buying power, would you be interested in buying advertising in a print publication?’
You’ve always run IDG publications in a very decentralized way. So how do you change the culture all over the world when everything is decentralized?
McGovern: We have the 10 corporate values, our principles of our business. We now say, ‘We launch with the web’ and use that maxim…So that’s the message everybody has, and people are acting it out by not spending a lot of time holding back the dyke of declining print revenues, and putting a lot more into growing online. Online is going up about 40% per year, and it’s now 35% of our total revenues. By 2010, online will be 50% of our revenues, 35% will be print, and 15% events.
The nice thing is that without print, paper and postage, profit margins online are about 40%, and print profit margins are 10% to 15%. The revenue is shifting to a much more profitable area. Our growth in online is faster than our decline in print, so absolute revenue growth is about 10%. But our profits have been doubling each of the past three years because of the higher profit of the online business.
Do you feel like you have more competitors as a web-centric company, with all the podcasts and bloggers and video sites, and so many people that are into technology online?
McGovern: Well, we have several advantages when we launch something online. Not only do we have a lot of knowledge from all the research we do, as well as the content from 2,200 editors, we also have our international news service, which has 65 people at 20 bureaus around the world reporting breaking news. That’s something that none of our competitors have. So when we launch a site, we can say, ‘In Tokyo last night so-and-so launched this product, this is what’s happening in India, this is what’s happening in France.’ We have a unique timeliness about the news content we can put on the site, so it’s one of the first places people will go to find out what’s happening in their special area of interest.
We also will compete with the local [sites] for local information, but can offer them more attractive reasons to come to the site and contribute. With the exclusive international timely coverage of events we’ll get a bigger audience, and we’ll get more people who would want to contribute locally because they’ll get many more eyeballs.
Your CEO Patrick Kenealy at one point talked about news aggregators, such as Google News, and didn’t think it was their intellectual property to use snippets of headlines, photos and links. That caused a real stir…
McGovern: Kenealy is now a venture capitalist. [laughs] My first meeting after he left for venture capital was with Eric Schmidt [CEO of Google], and I said, ‘We don’t consider Google to be a competitor; we consider you to be a strategic partner.’
Do you feel like Google is a friend or foe?
McGovern: Someone who comes directly to our site has much more business potential than a search engine could deliver. Google does a lot for [boosting] visitor counts but they aren’t as valuable as the core regular visitors. So advertisers will put more value on our regular readers. Some people will use search optimization to play games with Google so that other sites will come up as the place to go for business intelligence software, and won’t be realistic. We think Google is good because it points people to where useful IT information is, and as they become a more consistent buyer, they’ll come back to us. We put a lot of our video content on Google Base so they can sell across that, and we get more views that we can sell [ads] on. We consider them to be a partner and collaborator.
Why did the Industry Standard die?
McGovern: In 1997, the magazine was launched as many big Internet companies were launched, and investors needed a weekly publication covering the industry. In its first year, ’97, the magazine made $9 million in revenues, and in its second year it made $25 million. And then at that point, there was $800 billion invested in Internet companies. We [at IDG] would say, ‘Every month you guys are off from your revenue plan.’ They were making 100% more than the plan. They started up Grok magazine and there were 5 to 7 issues a month because of all the ads.
But then the bubble burst. The magazine went from making $200 million in revenues in 1999 to making only $50 million in 2000. Unfortunately the management had put the magazine on an IPO track. They bought very expensive CRM software, and had $120 million in fixed costs per year. It was a hopeless situation. The gap between costs and revenues was too large. Plus, the renewal rate was only 28%, so 7 out of 10 readers weren’t renewing their subscriptions [after the bust]. And the magazine was becoming a report of the dead and dying, and all the bankruptcies. There were all those charts in the back of the magazine gauging the temperature of the dot-com business and they were all pointing to zero.
People just didn’t want to read that because it was too depressing. And the magazine just couldn’t break even. A lot of those ad sales were to companies that ultimately couldn’t pay for them because they had gone belly up. The magazine had made a volcanic rise and fall. We’d never seen anything like that before or since. In 1999 the magazine set a record for the number of ad pages, and the next year it set a record for the largest drop in ad pages.
The paradox was that in 1999, we were approached by Time Warner and Hearst, who wanted to buy the Standard for $400 million or $500 million. But [then-CEO] John Battelle had a plan to be making $1 billion a year by 2006, wanted to take the company public, and planned to make a tender offer to buy Dow Jones. It was a plan for world domination, and we should have taken the money from the magazine publishers and run. Business 2.0 sold for $350 million right before the bust.
[See UPDATES and reactions from others on this comment below.]
Do you still visit every IDG employee around Christmas?
McGovern: Yes I still do it but it takes longer each year. Now it takes three or four weeks to visit everyone. Back in 1964, the first time I did it, there were only 19 employees so it didn’t take very long. I really enjoy doing it and meeting everyone. I learn so much. We know that 64% of communication comes from the body language and face-to-face interactions. So I really learn about the people, and I always ask people for ideas on what we can do to improve where they work. Sometimes they’ll tell me something good, and I’ll ask, ‘You haven’t mentioned this to anyone here?’ And they say, ‘No one has asked me before you.’
Why do you keep the company private?
McGovern: Well if I prepared the company for a public offering, I’d fill out the red herring [report for offerings], and the bankers would look at it and say, ‘You’ve got $1.5 billion in cash as assets. It’ll be hard to sell this to investors if you don’t even need the money [from an IPO].’ One of our divisions, IDG Books, came to us and said, ‘We’re becoming more of a consumer company, and we think the business press will cover us more if we’re a public company.’
This was 1998 and they were located in Silicon Valley, and they wanted to offer their employees stock options and have an IPO. It was an amazing change after they had an IPO. Before that, they were concentrating on selling books through various channels, and worried about how they were doing in Wal-Mart and things like that. But after the IPO, they were having to do what the financial analysts wanted. They changed their name to Hungry Minds, and started buying up other book publishers and other companies and got post-acquisition indigestion.
In the end, we got an offer from Wiley to buy it, and it sold for $140 million, which isn’t bad considering we started it for around $2 million. The problem is that once you become a public company, you spend two-thirds of your time worried about what analysts want.
How do you stay motivated to work still?
It’s fun and I enjoy it. About 160 million people around the world get information from IDG publications, websites and research. I want that number to reach 500 million by 2010, and then 1 billion by 2020 and then I can say I’ve reached my goal.
After our interview, there was one burning question I had for McGovern: What happens when he eventually dies? I got this stock-type statement from IDG’s PR firm, which was credited to McGovern but talked about him in the third person:
IDG is a very decentralized company with 100 business units, each with its own CEO and Board of Directors. Pat McGovern is not involved in day-by-day operations of IDG, and his management oversight comes principally from his position as Chairman of the Board of Directors of IDG. When Pat McGovern retires as a full-time employee serving as President of IDG, which he plans to do in 2020, it is expected that he would still keep his position as non-executive Chairman of the IDG Board of Directors.
In that case, it would be the responsibility of the Board of Directors to select an executive to serve as the new President of IDG. There are many excellent managers within IDG who have been very successful running their business units. So, there is an ample number of individuals who would be qualified to be candidates for such an appointment.
In other words, no one knows. Or if they know, they’re not talking. It reminds me of similar situations at News Corp. under Rupert Murdoch and even at the Oakland Raiders football team under the tightly held ownership of Al Davis. With no clear line of succession, it’s hard to say what would happen when the leader eventually passes on.
What do you think about IDG’s history online, and where they might succeed or fail? Do you think tech trade magazines should move totally online and embrace their future there or will print survive? Share your thoughts in the comments below.
UPDATE: A lot of people have reacted with skepticism to McGovern’s contention that a blogger can make up to $500,000 to $600,000 with speaking fees and writing books. I agree that there are very few bloggers who have raked that kind of money in, but I think his overall point is valid: Star writers can make a go of it alone and don’t have to be tied to a media company.
David Card, a longtime IDC analyst (IDC is the research arm of IDG) and current JupiterResearch analyst, has this reaction to IDG’s web-first move:
This is all very sensible, even wise. But if IDG’s Pat McGovern was doing what he says he’s doing now back in 2000, it would have been brilliant. It would have been absolutely awe-inspiring in 1996…I worked for IDG for almost 10 years (not in magazines, but at IDC, its research company). Yes, I got my X-mas bonus hand-delivered. The one of the 10 Corporate Values I memorized in case I met McGovern in the elevator was ‘Keep the corporate staff lean.’
Actually, doing this in ’96 would have been a bit too far ahead, while 2000 was the beginning of the bust. Probably 2003 or ’04 would have been the perfect time. But it is true that IDG quickly lost the headstart of so many other online tech pubs such as CNET, TechRepublic and TechTarget, as Donnomarz points out in the comments.
UPDATE 2: John Battelle, who was CEO of the Industry Standard back in the day, takes exception to what McGovern says about a possible sale of the magazines. Battelle’s take is this:
McGovern claims that management (er, that’d be me) refused to sell and blindly pursued an IPO. For the record, he has this entirely backwards. I tried for all of 2000 to get Mr. McGovern to let us sell the company to a stronger buyer, one who believed in our vision of the Internet Economy. He refused, and pushed us to go public instead. It was this very conflict that led to our differences and, partially, to our demise. I had three very real offers on the table that I took to McGovern, and three times he refused them, telling me that instead, we’d make more taking the company public or, at the very least, telling the potential buyer to double the price. Given that the price was between $250mm and $750mm, such a response was, to my mind, nonsensical. But he owned the majority of the shares, and his word was what mattered.
UPDATE 3: Fred Wilson, a venture capitalist who was part of a minority investment in the Standard magazine, backs up Battelle on this point and also remembers events differently than McGovern’s take:
But that part about turning down the $400 to $500mm offer is pure revisionist history on Pat’s part. I recall very clearly Jerry [Colonna, my VC partner] coming back from a board meeting and telling us that IDG was blocking the sale, that they didn’t want the magazine to end up in a competitor’s hands. That was very frustrating to the investors because we would have made a significant gain in a very short period of time. But when you invest as a minority in a company controlled by a corporate entity, you have no control over such things. Lesson learned. Never doing that again.
Rex Hammock points out that using blogs all the parties of this incident were able to give their side, which makes it easier for historians to look back and try to make sense out of what happened. “One day some student or biographer or researcher or descendent of someone doing a family history will have a better chance of getting to the truth(s) because lots of individuals are filing away their recollections.” That’s true as long as the blogs all live on.
One other mistake by McGovern, that’s been pointed out by current Business 2.0 editor Josh Quittner, is that that particular magazine was bought by Time Warner for $350 million. In fact, News.com reported at the time, in 2001, that the sale of Business 2.0 magazine was for $68 million. Perhaps someone else who was in on that sale can now report on their blog what the real price was (or leave it in comments below)? This is the kind of “networked journalism” that I enjoy.
UPDATE 4: McGovern writes in comments below that he did indeed go with Battelle’s IPO plan for the Industry Standard rather than accept the buyout. A careful reading of his exact words from our interview shows that McGovern never precisely said that IDG wanted to take the buyout but Battelle was blocking it:
The paradox was that in 1999, we were approached by Time Warner and Hearst, who wanted to buy the Standard for $400 million or $500 million. But [then-CEO] John Battelle had a plan to be making $1 billion a year by 2006, wanted to take the company public, and planned to make a tender offer to buy Dow Jones. It was a plan for world domination, and we should have taken the money from the magazine publishers and run.
So what he probably meant was that the media companies made an offer for the Standard, but IDG went along with Battelle’s IPO plan rather than taking the buyout — even if Battelle himself wanted to take the buyout (at least according to Battelle today). It’s a bit confusing, and it’s easy to misread McGovern’s words in the interview to imply that Battelle didn’t want the buyout. But with McGovern’s own admission that he didn’t want to make the sale, that shoud clarify what happened.
One important point I don’t want to lose in all these details of days gone by is the way that we as bloggers and observers are approaching a new mini dot-com boom that might be happening today. I think many of us have learned the lessons of the past, and will look much harder at what business plans make sense and really serve people and customers and which ones are too grandiose and unattainable. The real positive is that today we have entrepreneurs, VC investors, executives, journalists and employees who blog regularly and point up any irrational exuberance before it has a chance to get too far. At least, I hope that’s the case.