ZDNet trudges along as tech site rebuilds

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It's been one tough year for ZDNet. The tech news and information site went public with great fanfare in April 1999 as one of the first so-called Internet "tracking stocks" to a parent company. But last fall, the bottom fell out.

ZDNet's parent, Ziff-Davis, announced plans to sell off all of its other major businesses--events, education, a cable TV channel, even the vaunted magazine unit--at the behest of majority shareholder Softbank Corp. At the same time, Ziff and ZDNet began a complex reorganization aimed at merging the remaining assets of Ziff--including slumping Computer Shopper magazine--with ZDNet into one company.

Since its IPO, ZDNet's stock price has fallen 66% to $12.56 at last week's close. Though many Internet stocks are down, ZDNet's investors have battered the stock in part because no one seems to know what the company will be when all is said and done. ZDNet's $943 million market capitalization is less than a third of its biggest competitor, CNET Networks.

Such turmoil can give even the most stalwart Internet CEOs palpitations.


"It's been a long time in coming; we announced the thing over nine months ago," said ZDNet's president-CEO, Dan Rosensweig, of the restructuring, which, if all goes well, should be completed at the end of this quarter.

Still, he insisted, "The business of ZDNet has been quite good . . . despite all the confusion and question marks surrounding it."

Granted, ZDNet has had an operating profit for seven straight quarters. The company had net income of $1.9 million in 1999.

ZDNet also completed an overhaul of its Web site last fall, consolidating 30 channels of content into 10. Among the new channels: TechLife, ZDNet's first major foray into consumer-oriented content.

Mr. Rosensweig is also hot on acquisitions and international expansion; ZDNet has acquired or invested in six companies in the past nine months. And ZDNet is now available in 21 countries.

But what would satisfy Mr. Rosensweig and his team the most is beating CNET. If CNET hadn't launched a $100 million, 18-month consumer ad campaign last July, then ZDNet might not have been so eager to defend its turf. In December, ZDNet launched its first consumer branding campaign, a $25 million, 15-month effort via Lowe Lintas & Partners, New York.

While the campaign isn't aimed at CNET, ZDNet called attention to its competitor in other ways. It deliberately set a much lower budget "so we didn't plunge our financial model into disarray," said ZDNet exec VP Barry Briggs, a thinly veiled reference to CNET's big-bucks campaign, which put the formerly profitable company in the red. CNET's $65 million in ad spending the second half of last year almost matched its revenue.

ZDNet spent just $6.5 million on media for the campaign's first flight, which ended in February.

What has the campaign done for ZDNet? Although executives protest that they don't really care about their competition, they're quick to present spreadsheets that show how ZDNet is faring vs. CNET in nearly every measure.

"The immediate impact seems to be fairly favorable," said Mandana Hormozi, analyst with Lazard Freres & Co. But she cautioned that "it's too early to tell the effectiveness of the ad campaign" in the long term.

To be sure, comparing CNET and ZDNet in a way is like comparing Amazon.com and Barnes -andnoble.com. Like Amazon in books, CNET has moved beyond the tech media space it shared with ZDNet to expand into other areas, acquiring mySimon for comparison shopping and developing CNET Data Services to work with e-tailers.


ZDNet says its audience doesn't overlap that much with CNET's, and the more CNET extends in consumer-oriented ventures, the less it cuts into ZDNet's space.

But CNET and ZDNet remain fierce competitors in the tech online market. Said Mr. Rosensweig: "We have always felt that we've been very clear with our market position. We are 100% committed to the largest vertical in the world, which is technology."

In fact, ZDNet's newest rival may be closer to home. Investor group Willis Stein & Partners earlier this month bought Ziff-Davis magazines to create Ziff Davis Media. The new magazine company, in turn, formed Ziff Davis Internet to develop standalone content and e-commerce properties. Ziff Davis Internet expects to launch "a handful" of such properties by yearend, said Elizabeth Estroff, director of communications for Ziff Davis Media.

Though ZDNet has a licensing deal giving it access to Ziff-Davis magazine content exclusively for the next three years and non-exclusively the following two, the deal doesn't prevent Ziff Davis Internet from launching competing properties. Ms. Estroff would only say that the properties would "not necessarily" be competitive.

Leaving aside Ziff Davis' entrance, one thing is clear about the battle between ZDNet and rival CNET: There's no clear winner in this horse race yet.

Nielsen/NetRatings gives CNET an edge in the week ended April 9, with 2,503,000 unique at-home users (including mySimon.com) vs. ZDNet's 2,197,000.

But watch for ZDNet to increasingly tout Media Metrix numbers instead; they're more favorable. ZDNet's monthly unique audience shot over 10 million for the first time in January, at the height of the ad campaign, beating CNET's audience of 9.5 million.

ZDNet towers over its competitor in time spent on the site. In February, users spent an average of 18.6 minutes on the site, compared to 9.3 minutes for CNET, according to Media Metrix. (The result apparently wasn't due to the ad campaign; ZDNet has topped CNET in this measure for several months in a row.)

ZDNet this month broke a series of print ads aimed at its core business-to-business audience. Its next consumer flight is scheduled to begin in June or July, said Mike Della Penna, ZDNet's VP-marketing.

While it's too early to declare ZDNet the more efficient advertiser, it's not too early to predict that ZDNet will be a lot more aggressive once it gains full independence.

"It takes away the uncertainty and the cloud," Mr. Rosensweig said.

Copyright April 2000, Crain Communications Inc.

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