They need the Wavemeter..
Web Content Firms' Status:
Little Profit, Fewer
Investors
Date: 7/27/98
Author: Pete Barlas
Net content is out. That's the message from
venture capitalists. These savvy investors can't
get enough of the Internet - except when it
comes to content providers.
PricewaterhouseCoopers LLP says U.S.
Internet companies raised $460 million in venture
funds in the first quarter, up 54% from $298
million in the year-ago quarter.
Internet investments accounted for about 65% of
all venture capital cash poured into tech
companies, says PricewaterhouseCoopers, the
name for the recently merged Price Waterhouse
and Coopers & Lybrand.
San Francisco-based researcher VentureOne
Corp. says first-quarter venture capital
investment in Internet companies rose 70% to
$873 million from $515 million.
Despite the gains, venture funding in companies
that provide Internet content fell. These
companies generally run Web sites that provide
some sort of news. They get revenue mostly
from ads on their Web pages. Some also have
paid subscribers, though the majority haven't
reached the popularity point where they can
charge for access to their sites.
In the first quarter, VC investors gave Web
content providers $39 million - only 9% of the
total venture dollars spent on Internet
companies, says PricewaterhouseCoopers. (See
Data Bus above.)
A year ago, content providers got $57 million -
19% of total venture capital Internet investments.
Venture capital firms are wary of backing
content providers that can't expect to make
money soon, analysts say.
''Content is a big bust. Most of those companies
are not going to make any money for at least
three to four years,'' said Bill Bass, an analyst for
Forrester Research Inc., a Cambridge, Mass.-
based market researcher.
Content providers face problems, analysts say.
For one, they rely too heavily on ad dollars for
revenue.
Last year, Internet ad spending totaled $500
million - roughly 0.5% of the $185 billion spent
on advertising in the U.S., according to
Forrester.
Internet advertising isn't expected to gain much
ground soon, says the research firm. It says
Internet ads will account for only about $1 billion
of the $200 billion in ad spending this year.
Analysts say such predictions don't bode well for
content Web-site outfits.
Another problem, analysts say, is that many
content sites have trouble attracting large
numbers of paid subscribers.
''The perception of the Internet is that it's like a
library: The information is free and you houldn't
have to) pay for it,'' said Kirk Walden, national
director of the venture capital survey for
PricewaterhouseCoopers.
The sheer volume of free news information on
the Web has hurt Santa Ana, Calif.-based
Scoop Inc. , one of several subscription-driven
content providers on the Web.
In recent months, Scoop has been looking for a
suitor to buy its online news service, which it
started in September. A month ago, Scoop was
delisted from the Nasdaq after its stock price
plummeted amid financial problems. Scoop's
stock has been trading over the counter for
about 12 cents a share.
Scoop, which culls its information from 1,600
news sources, has attracted only about 20,000
subscribers. And many of those are getting it on
a free trial basis, says Scoop Chief Executive
Rand Bleimeister.
''Running a (paid subscription) online news
service is a problem, because you can get almost
anything you need on the Web for free,''
Bleimeister said.
He says the company also faced stiff competition
from other online subscription news services,
such as those operated by The Wall Street
Journal and Lexis-Nexis.
This year, at least two newspapers, The New
York Times and the San Jose Mercury News,
have stopped charging fees to read their stories
on the Web. The Times, which had only charged
non-U.S. Web users, changed its policy in part
to help it gain more viewers overseas, says
spokesman Peter Himler. ''It's an advertising
decision,'' he said.
Some Web content providers, though, continue
to find niches that investors like.
In the first quarter, Atlanta-based Greenberg
News Networks Inc. pulled in $23 million in
venture funds. Greenberg is developing an online
medical information service for physician
subscribers.
Greenberg's specialized content puts the
company in a better position to succeed than
most general content providers, says Charles
Moseley, general partner of Noro-Moseley
Partners LLP. The Atlanta-based venture capital
firm is a Greenberg investor.
Moseley says Greenberg's service is designed to
help physicians sort through reams of medical
journal articles and other data related to health
care.
''We are hoping to make this service helpful to
physicians like Bloomberg is to securities
brokers,'' he said.
Overall, the Net is finding plenty of hungry
investors.
A total of 101 Internet companies received
funding during the first quarter, compared with
93 during the same period a year ago, says
PricewaterhouseCoopers. VentureOne says 94
Internet companies received funding, compared
with 114 in the first quarter of '97.
''The Internet is going to fundamentally change
what everybody does at home and at work,''
said Forrester's Bass.
Venture capitalists also have benefited from the
Internet's success on Wall Street. One recent
example is Broadcast.com Inc. The
Dallas-based firm broadcasts audio and video
programming over the Web.
Last week, Broadcast.com launched its IPO. In
its first day of trading, the stock soared from the
offering price of $18 a share to $74 before
closing at $62.75. It closed Friday at $61.50.
Over the last three years, venture capital firms
have seen rates of return of up to 40% from their
Internet investments, says Venture Economics, a
venture capital research division of Securities
Data Co. in Newark, N.J.
''The Internet is ideally suited for venture capital
investment,'' said Walden of
PricewaterhouseCoopers. ''It has incredible risk,
but it also has an incredible reward.''
The venture community appears to back nearly
all areas of the Internet:
Internet service companies received $129 million
in the first quarter, up from $56 million a year
ago, says PricewaterhouseCoopers. The service
category includes search engines, online travel
agencies and job-placement sites.
Internet access and gear makers received $153
million, up from $83 million. This category
includes Internet service providers and makers
of routers, switches and other products used to
create Internet-based networks.
Internet software companies received $138
million, up from $102 million. This category
includes companies engaged in electronic
commerce and makers of Internet security
software.
Heavy investments in the software category, in
particular, don't surprise Walden.
''You are going to see more and more capital
poured into e-commerce and security,'' Walden
said. ''Security issues and enabling tools are
becoming increasingly important.''
New York-based iVillage Inc. emerged as the
biggest single winner in the first-quarter venture
sweepstakes, raising $31 million. The company
targets women, providing a variety of information
on its Web site, including shopping tips and
financial advice.
Savvis Communications Inc. got the
second-largest investment. The St. Louis-based
Internet service provider raised $30 million.
Argon Networks Inc., a Littleton, Mass.-based
ISP, received $26 million.
(C) Copyright 1998 Investors Business Daily,
Inc.
Metadata: BCST I/3241 E/IBD E/SN1 E/TECH |
