Peter Levitan CLASSIFIEDS PROVE TO BE A GOLD MINE FOR ONLINE OUTLETS: NEWSPAPERS RACING TO DEFEND THEIR TURF: AUTO, REAL ESTATE AND JOB ADS

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Newspapers view classified ads on the Internet as a golden business opportunity, but the question of the moment is how fast the trickle of cash can be turned into a flood.

The next question is whether newspapers will tap into that cash before heavily financed competitors ranging from America Online's Digital City to Microsoft Corp.'s CityScape do.

`ABSOLUTELY*HAVE TO*DO*IT'

Right now, newspaper Web sites are starting to include ads for everything from employment to automobiles for sale to personals.

"The Internet is probably the most significant new event we've had since someone figured out what a classified ad is," said Peter Levitan, president of New Jersey Online. "All of a sudden you have competitors that range from a guy in his garage to Yahoo!."

Most papers, including The New York Times (http://www.nytimes.com), are extending their auto, employment and real estate ads from print editions into the Web as a free, added-value deal for consumers.

Few debate the merits of moving the ads into cyberspace. Classified advertising in print generated $13.7 billion in revenue last year for daily papers-up 10% from a year earlier, according to the Newspaper Association of America.

Newspapers "absolutely have to do it. If they don't, someone else will," said Kevin LaValla, a managing director who specializes in the newspaper industry at Veronis, Suhler & Associates, an investment banking firm.

Newspapers have long felt that classifieds have been their own private turf, but over the past decade they've learned some hard lessons.

MICROSOFT A PLAYER

Realtors, who spent an estimated $2.5 billion nationally on classified ads in 1995, spent $350 million-14% of the pie-in free, mass-distributed shopper-type publications. That genre received very little money a decade earlier but has been growing by leaps and bounds in recent years.

"It's a chunk of money we want back," said Anthony Marsella, VP of the classified department at the NAA.

Overall, classifieds contributed 38% of newspapers' total ad revenue stream, which reached $36.05 billion in 1995, according to the NAA.

Other competitors-from technology companies to telephone service providers to special-interest trade groups like the Realtors-are already drooling at the prospect of raiding the newspaper industry turf via the Internet.

Microsoft is rolling out CityScape, although at a slower rate than initially planned. Only Boston, New York, San Francisco and Seattle are slated to go online in the first quarter of 1997. AT&T, meanwhile, has shuttered its once-ambitious $100 million Hometown Network.

"I don't think that's the last time the newspaper industry will hear from those guys," said Steve Brotman, the 28-year-old founder of AdOne, a New York company that links classified ads from newspapers into a vast, scannable database on the Web (http://www.adone.com).

Indeed while AT&T retreats on one front, AT&T Ventures is still teaming with Goldman, Sachs & Co. and others as a backer of another potential competitor, Pasadena, Calif.-based CitySearch (http://www.citysearch.com). CitySearch already has a site up and running for the Raleigh/Durham, N.C., region and plans to roll out 30 local Internet guides by 1998.

Tribune Co. is hedging its bets with an ownership stake in Digital City, along with America Online. That company is rolling out city-themed Web sites in a variety of markets. So, too, are other popular Internet search vehicles like Yahoo! or Lycos. All have classified ads as a revenue stream.

SQUELCHING COMPETITORS

Newspapers have a natural advantage, say many advocates, but it's one they don't want to squander by allowing new competitors to bloom.

"Anyone can be a winner in the online classified world," said Mr. Levitan of New Jersey Online (http://www.nj.com), which is repurposing classified ads from three daily papers, The (Newark) Star-Ledger, The Jersey Journal and The (Trenton) Times.

"Newspapers' advantage is that they are starting with a tremendous brand name and a customer base," he said.

He hopes to begin charging for Internet classifieds sometime next year.

"In the first quarter of '97, we're going to launch a killer classified section, which will take us to where we want to be," he said.

NEWSPAPERS TEAM UP

Many major dailies are already going full steam ahead. CareerPath (http://www.careerpath.com) launch-ed in October 1995 with the backing of six newspaper giants: The Boston Globe, Chicago Tribune, Los Angeles Times, The New York Times, San Jose Mercury News and The Washington Post. It now has 23 daily papers that pay to post their classified ads in one searchable job database.

In a recent week, the database contained nearly 140,000 listings.

Defending turf, rather than cashing in on new revenue streams, has guided the early ventures, however. NAA VP of New Media Randy Bennett estimates that of the 450 daily newspapers that will have Web sites by yearend, about 60% will place classified ads online.

"I think there is some incremental revenue," said Mr. Bennett, "but generally we're not seeing huge cash flows. It's added value and a way to protect their existing franchises."

The New York Times runs its classifieds at no extra charge to consumers on its Web site, its @Times site on America Online and through CareerPath.

Dan Donaghy, senior VP-sales and marketing for The New York Times Electronic Media Co., said Web classifieds have proven to be a particular boon to out-of-towners who ordinarily would not receive the huge Sunday classified section in their national edition of the paper. But he feels the Web is also helping drive the classified efforts locally.

"It gives us the potential for reaching 6 million more viewers on America Online and untold millions more via the Web," he said. "We have plans to begin selling Internet-only ads for help wanted."

There is "no direct revenue" from the Web classified ads currently, Mr. Donaghy said. "We're trying to build the marketplace right now," he said. The first steps real revenue generation may occur later this month, when the Times and a number of other CareerPath participants begin charging for "Web only" classifieds, Mr. Donaghy said.

The Chicago Tribune (http://www.chicago.tribune.com), however, will generate $2 million to $3 million in additional revenue from Web classifieds, a spokesman estimated. It has been charging an additional fee of $1 to post ads on the Web, but that fee will disappear. Instead, the Tribune will raise overall classified ad rates and include the Web in the new price.

Russ Gillespie, classified ad manager for the Lancaster Newspapers in Pennsylvania, has been upselling some employment and real estate ads via a link to the Ad One database of 200 publications.

The paper charges $5 extra to appear on the Internet, which it shares with Ad One.

"The biggest advantage is that we're tapping into a very high-profile database that is advertised every day in millions of papers, not just the 100,000-plus readers in the Lancaster Newspapers," Mr. Gillespie said.

But Mr. LaValla at Veronis Suhler questions just how much of a paper's classified section should be placed on the Web.

"It absolutely makes sense for real estate and employment, but someone in France probably isn't going to be too interested in buying your old couch or a second-hand washer and dryer," he said.

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