E-Commerce Makes a Comeback as Stream of Revenue for Media

Brands From Martha Stewart to Salon Are Offering Online Shopping Areas That Present New Ad Inventory

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NEW YORK (AdAge.com) -- At a time when media is trying to diversify its revenue, big and small brands such as Martha Stewart, The Wall Street Journal, Lucky and Salon have recently introduced new or renewed shopping areas on the web.

Source: Citi Investment Research

E-commerce's year-over-year change.

What they're finding is that being a media brand may offer some advantages in launching an e-commerce business -- and the web pages where products are displayed are a pretty good place to sell more advertising.

Regular e-commerce companies spend millions on search, e-mail and other marketing expenses to drive traffic and convert sales, said Michael Kessler, managing director at Veronis Suhler Stevenson, a private-equity firm that partly specializes in media. "The media companies have an advantage in this regard, in that their content is already driving significant traffic to their site."

They've also found the insight they have about their consumers -- knowledge typically used to sell ads -- can be deployed to stock their virtual shelves properly. "One of the challenges to a typical online retailer is how to figure out what to sell," Mr. Kessler said. "If you understand your readership and the demographics of your audience really well, you have a kind of information advantage."

All that said, e-commerce isn't likely to take over any media brand's balance sheet; far from it. But in this kind of environment, any contribution is more than welcome.

New inventory
And there's another benefit for them: The shopping areas, media companies say, also provide lucrative new advertising inventory to sell.

"All media is looking at alternative revenue streams," said Drew Schutte, senior VP-chief revenue officer at Conde Nast Digital, which most recently opened the Lucky Store in November. "If it goes well, it will be significant but still a small portion of the business relative to advertising. At a minimum, I can see that the advertising placement within it is pretty compelling."

E-commerce has been around for years, but during a terrible year across the economy, online retail sales fell just 5.5% in the first quarter, slipped only 4% in the second quarter, edged up 1.8% in the third quarter and may improve by 12% in the fourth quarter, Citi Investment Research said last month. Advertising spending, by comparison, fell 14.2% in the first quarter and sank 14.3% in the second, according to the most recent figures available from TNS Media Intelligence.

"Advertising is the dominant component of our revenue stream but it always seemed to me to be wise to have more than one leg, or more than two legs, to the stool," said Richard Gingras, CEO of the Salon Media Group, which added a Salon Store to its website in November. "So e-commerce is one that we're exploring."

A Salon "curator" is picking items, from the "world's smallest guitar amp" to a $299 sled, which will deliver Salon 15% to 20% of any sales the outside retailers generate. It plans to add food to the store early next year, complementing the new food section on the main site.

Outside help
Those outside retailers and their capabilities, not to mention technology partners, are key to the new wave of media brands' e-commerce. Martha Stewart Living Omnimedia's first internet strategy revolved around e-commerce, but in the most difficult possible way, and it admitted it wasn't good at the inventory and other back-office requirements. So it got out of e-commerce in 2004 and 2005, remaking its site as a content play supported by advertising. When it re-entered e-commerce with a shopping tab on its site, outside retailers carried all of the inventory and other burdens.

When the site introduced a much-expanded shopping section last month, it also tried to make the most of the company's editorial skills and content. "We're experts in telling the stories behind things, and that's really kind of the romance behind product sales," said Gail Horwood, senior VP-digital programming and strategy at Martha Stewart. "I call it contextual commerce because it's about providing a platform to explain why things are differentiated."

The "Shop" tab is not just about commerce with consumers. "Historically, the media real estate in the Shop channel had high clickthroughs," Ms. Horwood said. "We were encouraged that this is valuable real estate, so we integrated advertising units throughout."

There are plenty of ways for media brands to go about e-commerce, depending on the size of their audience and the kinds of products that fit. The Wall Street Journal, for its part, introduced a revamped and expanded store last month that sells framed press plates and stipple portraits, Journal-branded clothing and gifts, and jewelry and other items without the Journal logo.

When Condé Nast's Lucky magazine -- the magazine about shopping -- introduced shopping functionality on its site -- it posted more than 86,000 products from more than 450 brands through more than 40 retailers. Lucky gets revenue from those retail partners but also wants the store to serve as a loyalty program for the magazine's print edition; subscribers get a cash-back program.

'An experiment'
Sibling Condé title Architectural Digest, which focused on high-end home décor, has a far narrower audience and range of potential products to sell. So its ShopAD.net, introduced in September, collects revenue from designers that pay for the ability to display a certain amount of product. That site is leading, in turn, to new digital advertising, according to Giulio Capua, VP-publisher, Architectural Digest. Marketers like the chance to run ads in an environment where people are shopping for product, Mr. Capua said.

Condé Nast has taken its knocks for a longtime focus on ad pages, often to the exclusion of other business opportunities. But e-commerce is definitely getting new traction. "We've got e-commerce in nine areas on the sites with eight partners," said Mr. Schutte, the Condé Nast Digital executive. "I think a year ago we had zero."

What happens over the next year with all this is anyone's guess. "What we think this will be from a revenue perspective, honestly we don't know," said Mr. Gingras, Salon's CEO. "I have not made forecasts. This is an experiment."

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