Ten years ago, as netscape’s IPO kicked off the dot-com boom and Amazon.com and eBay brought E-tailing to Main Street, Major League Baseball (MLB) was doing some innovating of its own. The league introduced a new round of play-offs, dubbed the Division Series, to great acclaim. It also scrapped a much-criticized scheme in which it produced its own baseball telecasts and rotated games between ABC and NBC. Under that plan, no play-off games except the World Series would win a nationwide TV audience. Sports Illustrated quipped that this reduced baseball to “America’s regional pastime.”
Win some, lose some. A decade later, not only has MLB sorted out its broadcast strategy, it now reaches a vastly wider audience than ever — thanks largely to its embrace of the same technology that burst onto the scene in 1995. Seeing in the Internet a chance to extend its brand in entirely new ways, the league launched MLB.com in the spring of 2001 and, by any measure, hit one out of the park.
But wait. Having seen the dot-com collapse take so many promising ideas down with it, and having failed at its own effort to control its broadcast destiny, wasn’t MLB skittish, to say the least, about its belated plunge into an entirely new business model? “I think there is a certain fear for established brands to make a run of it on the Internet, given the mistakes others have made,” says Jeff D’Onofrio, vice president and CFO of MLB Advanced Media, the New York-based company that owns MLB.com (and is in turn owned by the 30 teams that make up MLB). “But if companies can couple the financial discipline of their traditional business model with creativity, some of that fear may dissipate.”
Some companies are doing precisely that. While manufacturers and retailers are now overcoming obstacles that made direct selling via the Web difficult (see “Old Dogs, New Clicks,” Summer 2005), other companies are going even further, developing entirely new business models that capitalize both on the capabilities of the Internet and on the failings of those that came before. While their approaches vary, they all reflect, as D’Onofrio says, a balance of prudence and boldness. They have, it seems, needed the wisdom of Yogi Berra: “You can observe a lot just by watching.”
Ten years on, “people are just beginning to grasp the potential of the Web,” says Dale Peskin, co-director of The Media Center, a Reston, Virginia-based media think tank. “They’re recognizing that the Web fundamentally changes the transactional relationship between goods and services, creating huge opportunities. That said, most companies, for a number of reasons, whether culture or a comfort level with what they’re already doing, are reluctant to grasp the idea that the Web is more than just another channel.”
MLB president Robert DuPuy and commissioner Bud Selig did grasp that idea. “They figured we could control our destiny in the interactive media space by taking the content of baseball and delivering it on the Internet,” says D’Onofrio.
Although the opportunity to watch streaming video of hundreds of live and archived games each day is the big draw, MLB.com also offers so-called fantasy games, where subscribers essentially create their own team rosters that compete against the teams of other subscribers. Fans can also buy tickets to all major-and minor-league games in America, not to mention merchandise (caps, bats, jerseys, and so on), memorabilia, and even baseball-themed furniture. To the delight of the obsessive fan, the site also presents a mind-numbing array of statistical information, sliced and diced for free. And don’t forget the editorial content, with hundreds of original stories written each day. “We’ve even got an auction site — stuff like signed bats that are authenticated by Deloitte and auctioned off to fans — with much of the money going to charity,” says D’Onofrio.
Each site feature carries a different revenue model. The big generator is paid content — fans can listen to every game of the entire season for a one-time fee of $14.95, or they can watch the games for $14.95 per month (or $79.95 per year). “We worked out a deal with MSN to distribute the content from all 30 teams,” D’Onofrio explains. “You can log on in Seattle and watch the Yankee games.” The only restriction, given that baseball has local rights-holders, is that you can’t watch the hometown team when it’s playing at home.
The fantasy-game piece of the business, which also includes novel features such as the no-cost “Beat the Streak” (in which fans select different players each game to see if those players can collectively beat Joe DiMaggio’s record 56-game hitting streak), is marketed on a subscription basis or, in some cases, given away for free. Tickets are sold with a slight “convenience” surcharge that MLB.com shares with major ticket providers like Ticketmaster. As for MLB.com’s vast memorabilia and merchandise mart, MLB Advanced Media takes a cut of the sales, which varies depending on the supplier.
Together these various E-businesses generated $135 million in revenue last year (the money is shared equally among the 30 major-league ball teams), up from $36 million in 2001, when the site made its debut. Visitors have skyrocketed from 190 million in 2001 to 1 billion last year, and subscribers are up from 125,000 to more than 840,000 over the same period. To top it off, the company expects to sell 17 million tickets online this year — that’s about half of all the individual (versus season) tickets sold. As good as last year’s revenues were, “we anticipate doing 30 to 40 percent better this year, exclusive of acquisitions,” D’Onofrio says. (In March, the company bought Tickets.com, which specializes in entertainment- and sports-ticket sales, to beef up its ticket business.)
The genius in MLB.com is the recognition that its brand could be leveraged online in new ways to its 73 million-customer base, the fans who annually attend baseball games. But the success owes as much to execution as to vision. “We’ve been lean and mean from the outset,” says D’Onofrio, “and we continue to try to keep expenses under control. The lavish offices and parties that early Internet companies got involved in were not part of the equation for us — even with a relatively young workforce.”
Like baseball, Eastman Kodak Co. can trace its history back more than a century. In fact, in the same year that the classic poem Casey at the Bat was written (1888), George Eastman coined the phrase “You push the button, we do the rest,” launching Kodak as a wildly successful purveyor of both photographic film and cameras.
Unlike professional baseball, however, Kodak faced a steady diet of competition from Japan, Germany, and elsewhere, reaching its apotheosis with the Digital Age, as cameras were suddenly based on microchips and film looked as anachronistic as the handlebar mustache. Kodak was slow to respond, but in 2003 it made a strong commitment to digital cameras, investing billions and laying off tens of thousands of workers. The company quickly caught up to market leaders Sony and Canon and now leads the U.S. market. Not content to win only in hardware, last year CEO Antonio Perez vowed to transform the company into a major digital player. Key to this strategy was the Internet — and not just as a channel for selling cameras.
“Eighteen months ago we embarked on an internal strategy, called Kodak Connects, to reflect how we are integrating our digital cameras, software, and output services,” says David Rich, vice president of online services at the Kodak EasyShare Gallery, in Emeryville, California. “We looked at our assets, IT, and input devices like mobile phones, digital cameras, and film. We realized that customers might be interested in an E-commerce company that could offer them the ability to upload from their devices to a Website where they could keep their pictures, organize them, and print them from multiple devices, from a printer at home to a retail shop.”
Central to this strategy was the relaunch of www.ofoto.com as the Kodak EasyShare Gallery, at www.kodakgallery.com. Kodak makes money three ways on this new venture. First and foremost is the printing of photographs and photo-related merchandise, everything from T-shirts to greeting cards to calendars and photo books. The second revenue stream comes from subscription fees for online access to photographs taken with mobile phones. The third is a blend of the other two. In July, EasyShare launched a beta version of Gallery Premier, a premium online service that gives customers a personal Web page for $24.99 a year. “You can create your own gallery of photos and content and invite others to see it and order prints,” says Rich. “If you’ve collected photos from the company field day or the Christmas party, you can develop an album of pictures with captions that colleagues can see online and print for a price.” On the horizon is Kodak’s first wireless digital camera — the EasyShare One — which will enable consumers to take pictures and upload them from a Wi-Fi hot-spot to the Gallery service, connecting people with their pictures anywhere, anytime.
The E-business strategy is transforming Kodak: as recently as 2002, 70 percent of its revenue came from traditional photography; this year, the company expects digital revenue to outpace that of traditional products and services. By next month it will offer EasyShare services in 13 countries and expects to have 1.25 billion images under management by year-end.
The lessons of MLB.com and the Kodak EasyShare Gallery are “to look at who you are and what you have to sell, and then allow innovation to kick in,” says Patti Freeman Evans, retail analyst at Jupiter Research in New York. “Unfortunately, innovation — in terms of monetizing the Web in exciting new ways — is not given high priority at many companies. Great ideas remain just that.”
Adam Sarner, a research analyst at Gartner Inc., agrees: “Companies need to take a page from 3M — every day they give employees a couple hours of free time just to think up new ideas. That culture just does not exist at many companies. There’s no process liberating free thinkers to innovate.” (For a related story, see “Building a Better Workforce.”)
But MLB and Kodak do have company. Corporations as diverse as The Home Depot Inc., CBS News, and Nike Inc. are thinking more broadly these days with respect to their E-business strategies. CBS News, for example, is betting its future in large part on the Internet, creating a 24-hour, multiplatform digital news network that bypasses cable television in favor of broadband. “This is the first time anyone has committed a traditional news organization to the Internet,” says Larry Kramer, president of San Francisco-based CBS Digital Media,which comprises CBSnews.com, CBS.com, SportsLine.com, and UPN.com.
Part of the strategy hinges on tailoring the content to technological capabilities. On CBS.com, for instance, reality TV gets even more real: subscribers can watch the popular “Big Brother” TV show live, ogling the stars 24 hours a day as they go about their lives. “We provide four camera views for $12.99 a month,” says Kramer. “On TV, you get the edited version. This is the whole thing as it happens.” Other popular CBS reality shows also are slated for the site.
But the bigger change affects CBSnews.com. The revenue model is traditional — advertising — but the content is not. Viewers get breaking news, original reporting, commentary, and analysis. The site features the blog “Public Eye,” which offers candid dialogue between CBS news journalists and the public. Users can build their own newscasts, choosing from exclusive Web content, the current day’s CBS News broadcasts, an archive of more than 25,000 news pieces, and even video that has yet to be broadcast. Most extraordinary is the integration between CBS News reporters and CBSnews.com editors, who are now committed to 24-hour news delivery.
“Throughout the day, CBS news correspondents around the world file, update, and expand their stories on the site, continuously enriching the editorial content by providing more insight and context,” says Kramer. That’s very similar to the online versions of newspapers (and some magazines), but of course it taps the Internet’s ability to deliver sights and sounds as well as text. “The Internet,” Kramer says flatly, “is where the news business is headed.”
Home Depot’s Web ambitions don’t run to the revolutionary, but it, too, is thinking hard about new possibilities. “People think of the Net as another channel to sell stuff,” says Shelley Nandkeolyar, president of Home Depot Direct Brands. “We do, too, but our goal is broader.” On Homedepot.com, contractors can create an online bill of order for merchandise that will be picked up at the nearest Home Depot, and consumers can schedule appointments for home installation projects, use an online gift registry, and receive messages about, say, merchandise that matches their interests.
But these are free services, many of which mimic what other brick-and-mortar firms offer on their Websites. Home Depot sees in its Website a chance to increase revenue by selling items that customers would not imagine finding at the nearest store.
“Customers want more access to more products,” Nandkeolyar says, “and we want to give it to them.” On the site, consumers can buy furniture, toys, inflatable swimming pools, and back-to-school products. “We’re leveraging our brand, which is all about the home, by moving it into categories beyond home improvement — but we’re doing it only on the Web,” she says.
Some companies see that the Web provides not only unlimited space, but also new kinds of interactivity. Nike and Lands’ End, for example, are among a growing list of companies that allow site visitors to custom-design products, configuring them on-screen based on their own measurements and style preferences. A consumer could potentially create a one-of-a-kind athletic shoe — or finally get a pair of jeans that fits.
Despite these successes, companies remain cautious. “Many are still leery of the Web even after the hoopla has died,” says Gartner’s Sarner. “They’re failing to realize that the Internet is a different animal.” For one, he says, the infrastructure is better, with many consumers now having high-speed connections. Consumer habits are now better understood—so much so, in fact, that some experts warn that companies should stop waiting for obvious solutions to present themselves and take a measured risk.
“The bottom line is that the Web should enable businesses to grow in ways they couldn’t have done otherwise,” says Jupiter Research’s Evans. “You can be like the newspaper business and let upstarts figure this out, or you can figure it out on your own.”
All for Knot
In the early 1990s, David Liu was a student at New York University’s film school dreaming of making it big. And he did, but not on celluloid. Despite knowing nothing about Internet technology, and having no particular affinity for weddings, he and three fellow students launched The Knot Inc., a business that the group conceived of from the beginning as “an immersive brand” that would embrace all things matrimonial. With www.theknot.com as its flagship property, the company has expanded into magazines and books, even as publishers in those traditional media continue to struggle to monetize the Web. “Whereas most people were focused entirely on the Net,” Liu says, “we were focused on brand extension. This approach shielded us from the insanity of the dot-com world.”
At the other end of life’s major events is www.legacy.com, a site devoted to obituaries. “The idea was simple — to use the Internet to expand on the traditional print obituary,” explains Hayes Ferguson, chief operating officer of the interactive-media company. “We figured since newspaper space is limited, the Internet would provide a way for people to enlarge upon the biographical and familial components of traditional obituaries.”
Legacy.com makes ordinary people into extraordinary subjects of interest. Friends and family members of the deceased E-mail their personal recollections and upload photos to the site, turning a run-of-the-mill obituary into a compelling biography. The site derives some revenue from newspapers, which pay it to provide online access to the obituaries they publish, and from individuals who pay to keep an obit running beyond whatever period of time the newspaper has contracted for. There is also a modest stream of advertising revenue.
Both www.theknot.com and www.legacy.com would have been logical extensions for magazines and newspapers. In fact, The Tribune Co., which owns the Chicago Tribune, had intended to enter the online obituary space. “We had a detailed business plan in place,” says Owen Youngman, vice president of development at the Tribune, “but then we ran into [Legacy founder] Stopher Bartol and his partners and realized they had the same idea.” Rather than compete with Legacy at its own game, the Tribune joined them, gradually acquiring a 40 percent stake in the firm.
“Traditional publishers are so calcified in their business models,” charges The Knot’s Liu. “Wedding magazines are filled with thousands of pages of advertising, but no understanding that people passing through this life stage have a tremendous number of purchasing decisions around the wedding and in subsequently setting up homes. Although a small number of people get married each year, they represent a disproportionate amount of consumer spending.”
Does he regret not working in the film industry? “Actually, we just launched a TV show on the Oxygen network that focuses on the drama that unfolds around wedding planning,” he says. “Every now and then I get the itch to see if they’ll let me direct an episode, but then I think what I’m doing now is so much more fun anyway.” —R.B.