TECH WEEK IN REVIEW: Time Warner, Svc Merchandise,
Disney
By Jason Fry and Timothy Hanrahan
The Wall Street Journal Interactive Edition
NEW YORK (Dow Jones)--This week saw Time Warner Inc. (TWX) send Pathfinder to the execution it
deserved from the first second of its sorry existence. Here's hoping a host of other companies still guided
by the same questionable logic behind Pathfinder are smart enough to cut their losses and follow Time
Warner's lead.
See, Pathfinder wasn't just a bad site - it was also a bad idea, one that persists among the Web's lost
corporate souls. Pathfinder was launched in late 1994 as an "umbrella" site that brought together Time
Warner's numerous new-media properties - Time, People, Money, et al. - at a single Web address. It was
a pioneering effort undertaken at a time when the Web was just a curiosity, and Time Warner deserves
credit for being brave enough to try it. But bravery isn't everything - Time Warner headed off
immediately in the wrong direction, and kept blundering along that course for years, even as any number
of Web Johnny-Come-Latelys blazed a more successful trail.
The fundamentally wrongheaded assumption at the heart of Pathfinder was that people knew or cared that
Time Warner published a given magazine or book. Time Warner executives knew that People was a Time
Warner title, so it was only logical that the readers of People would know it, too. Right? Well, no, that's
not right. In fact, it's emphatically, absolutely and obviously wrong, unless you happen to be a Time
Warner executive or a black-clad New York media dope who can dish for hours about power struggles on
People's editorial board, but has never met an actual People subscriber.
The Pathfinder Way, as this concept should be known in memoriam, takes as its starting point the idea that
the producer is king, and the consumers the subjects. If the consumer would like to do something - read a
magazine, get sports scores, shop for a toy - then the consumer should do the work, by finding the path to
the producer's corporate door. In the early days of Pathfinder, that was basically impossible even for
those who tried. Remember those famous Pathfinder URLs - those strings of letters, numerals and random
characters that looked like people produced them by beating their heads on the keyboard? Time Warner
executives loved to preen about the wonderful site they'd produced, boasting about the "state-of-the-art,
interactive format" and the areas that would become "dynamic gathering spots ... with a panoply of
features." Instead, they created the world's hardest typing test and a black hole for the company's money -
more than $10 million a year, according to numerous estimates. Meanwhile, Pathfinder ran through a
string of top executives.
Pathfinder did get easier to use, but it did so by disappearing. The vast majority of surfers click directly
on the individual sites, Time Warner said this week, and never bother going to pathfinder.com. Big
surprise.
But despite the fact that Pathfinder itself became nothing more than an embarrassing exercise in
pointlessness, the Pathfinder Way, apparently, will live on at the company. In announcing that it will
phase out the Pathfinder name during the next few months, Time Warner said that was part of a
previously announced plan to develop Internet hubs that group its Web sites by different subject areas
such as sports, finance and entertainment.
That doesn't seem likely to work either - it's just the same bad idea chopped into smaller pieces. Time
Warner has finally stopped touching a particular hot stove, but it hasn't figured out that hot stoves in
general are to be avoided.
In that, at least, it has plenty of company from other adherents of the Pathfinder Way.
Want to see the ugly results of the Pathfinder Way applied to retailing? Then check out
www.servicemerchandise.com, the Web site maintained by Brentwood, Tenn., retailer Service
Merchandise Co. (SME).
As a game, let's assume we're shopping for a Barbie doll and a Darth Vader action figure - basic
necessities for TV-minded girls and boys. First we go to Service Merchandise's main page, then to the
"online store." So far, more or less good. Our next step would be "Kid Essentials," a category that turns
out to include not only "Toys" but also "Bulk Toys," not to mention "Juvenile Furniture" and "Carseats,
Strollers." Shying from "Bulk Toys" - is this for communes, giant children, or what? - we try "Toys."
And now the fun really begins: Our apparently doll-related options include the likes of "Basic Dolls,"
"Collector Dolls," "Fashion Dolls," "Small Dolls" and "TV Dolls," not to mention such categories as
"Boys" Licensed Prod.," "Collector Merch.," "Boys' Misc." and "Girls' Misc." These categories, when
clicked on, yield equally confusing subcategories: "Basic Dolls," for example, leads to a choice between
"Basic Doll Accessories" and "White Doll," while "Collector Merch." yields up "Large Diecast" and
"Other Collector Toys." (Those last two subcategories, by the way, each include exactly one item, neither
of which can be ordered online.)
To be fair, Service Merchandise has larger problems than a jaw-droppingly bad Web site: The company
has closed stores and narrowed its retail focus in recent years, and it sought bankruptcy protection last
month. Service Merchandise is also aware that its online strategy isn't all it could be. In November, the
company said it hired Internet marketer Paradigm Interactive to help it with its Web strategy "as it moves
to become the online store of choice for gift purchases." (Paradigm's president referred questions to
Service Merchandise officials, who didn't return calls.)
Paradigm certainly has its work cut out for it, but the first step, clearly, should be weaning the company
from the Pathfinder Way. Odds are that categories like "TV Dolls" and "Fashion Doll Fashions" (my
favorite) make perfect sense to someone in Service Merchandise's back room, but they're certainly no
help to the consumers. The real question is who at Service Merchandise assumed consumers would ever
bother sorting through the mess. This is the Web - waste a consumer's time forcing him to do things your
way, and he's off to your competitor's site in a click.
There are, no doubt, different reasons why companies choose the Pathfinder Way, but it does seem that
gigantism, with its attendant plagues of insularity, myopia and arrogance, is a key risk factor. Take Walt
Disney Co. (DIS) and its attempt to link its various properties together under the rubric of the Go
Network.
The Go Network uses the search engine Infoseek Corp. (SEEK) as the hub for a wheel of Disney
properties, from Disney's own sites to those of ABC News, ESPN and Showbiz. There are some terrific
properties here, but nobody beyond Disney executives sees that they have anything in common.
To Disney, that's a problem - it wants to turn the Go Network into a portal to compete with Yahoo! Inc.
(YHOO). Hence, a major marketing effort that has plastered the Go Network's name and its green-light
logo all over the Web and TV. But are a catchy name and common corporate ownership really glue
enough to create what Disney wants? Or is belief in the magic of that corporate ownership just another
symptom of the Pathfinder Way?
Luckily for Disney, they're in little danger of creating a new Pathfinder. Infoseek was already a pretty
good portal, and the various Web sites that are part of the Go Network still work under their own names -
they automatically redirect to Wed addresses that include "go." The Go Network's components already
work, so the idea will probably do no harm beyond draining Disney's deep coffers a little. But here's
some free advice for Disney executives: Don't count how many people bother typing URLs with "go" in
them. It will only upset you.
As for companies just beginning their Web odysseys, here are some rules of the road: Don't make
consumers work for what they want. Don't try to teach them things they don't need to know. And don't
fall for the false religion of the Pathfinder Way. Despite its name, the only thing it's good for is getting
lost.
In other tech news this week:
Hardware and Software
-Internal Microsoft Corp. (MSFT) documents unsealed in a private antitrust lawsuit may point to a
campaign to crush a competitor using many of the same tactics alleged by the government in its suit
against the software giant. Microsoft took an aggressive stance in 1996 and 1997 to keep control over the
first screen computer users see when they turn on their computers, including preventing Hewlett-Packard
Co. (HWP) from substituting its own program for guiding new users, according to trial testimony.
-Compaq Computer Corp.'s (CPQ) chief of world-wide sales and marketing, Michael D. Heil, is leaving
as the company restructures its sales operations. The departure that comes on the heels of a management
shake-up that saw the company's chief executive and chief financial officer leave.
-Britain's General Electric Co. PLC agreed to buy Fore Systems Inc. (FORE), a maker of
Internet-switching equipment for $4.5 billion. The deal is GEC's second major acquisition of a U.S.
telecommunications-parts maker in two months. The company was widely expected to unveil an
acquisition this week. But few expected it to buy anything as large as Fore.
-Acorn Group PLC said it will break itself up, a move that will dismantle one of the most venerable
companies in the British computer industry. Through a complex transaction, Acorn shareholders will
swap five of their shares for two shares in ARM Holdings PLC, a highflying chip designer. Acorn
retained a 24% stake in ARM, a former subsidiary, after it floated on the London Stock Exchange last
year.
Internet and Online
-Amazon.com Inc. (AMZN) announced three acquisition agreements totaling $645 million. The proposed
transactions will propel the Internet retailer into the rare-book business, Web navigation and new
electronic-commerce technology.
-U.K. media and information company United News & Media PLC said it agreed to buy technology
publisher CMP Media Inc. (CMPX) for $920 million, or $39 a share.
-EBay Inc. (EBAY) agreed to buy Butterfield & Butterfield Auctioneers Corp. for $260 million in stock,
a rare example of an Internet company spending aggressively to buy one of its bricks-and-mortar
counterparts. MarketWatch.com Inc. (MKTW) agreed to acquire BigCharts Inc., an online financial
information company, for about $166 million in stock and cash.
-Infoseek has lost at least five managers in recent weeks, including the executive who headed the
company's high-profile Web site with Disney.
Telecommunications & Cable
-Global Crossing Ltd. (GBLX), which is building fiber-optic networks around the world, plans to acquire
the undersea-cable operations of Cable & Wireless PLC (CWP) for about $725 million.
-Sprint Corp. (FON), building on its plan to offer high-speed, high-capacity Internet and
telecommunications services to more customers, said it will purchase American Telecasting Inc. for a total
of $167.8 million in cash. The pact also includes the assumption of about $281 million in American
Telecasting debt.
-MediaOne Group (UMG) has entered into confidentiality agreements with both AOL and Microsoft,
paving the way for the Denver-based cable company to separately discuss new merger deals with each of
them.
IPOs
-Informatica Corp., (INFA) a developer of software that helps businesses collect and analyze information
gathered from various sources, made a strong debut as a publicly held company, rising 84% in its first
session.
-Shares of Internet-software developer Marimba Inc. (MRBA) skyrocketed following its initial public
offering, finishing at more than triple the offering price.
-Shares of Mpath Interactive Inc. (MPTH) nearly tripled from their offering price, continuing the recent
string of hot Internet-related initial public offerings.
-Razorfish Inc., (RAZF) a flashy Web-site-design shop, saw its stock price more than double from its
offering price on its first day of trading on the Nasdaq Stock Market.
-Software AG (AGS) sold $464 million in stock in its initial public offering, the largest in the software
industry ever. But the shares failed to budge on their first day of trading in Germany, closing at their
starting point of 30 euros.
Earnings
-Amazon.com jolted stock traders with a warning that wide operating deficits are likely this year, even as
it reported breakneck sales growth and a smaller-than-expected first-quarter loss. Amazon also said it has
begun a search for a chief operating officer, a new post.
-America Online Inc.'s (AOL) operating earnings tripled, as the online service saw strong growth in
advertising and e-commerce.
-AT&T Corp. (T) beat analysts' earnings expectations by 4 cents a share and boosted first-quarter revenue
9.9%, as strong growth in its wireless and business units offset declines in its consumer long-distance
franchise.
-Dutch business software maker Baan NV (BAANF) reported a third successive quarterly net loss,
although the latest results exceeded analysts' expectations.
-Computer Associates International Inc. (CA) disclosed preliminary fiscal fourth-quarter results, saying it
expects to report that earnings rose 11%, topping analysts' estimates, on better-than-expected revenue at
the business software maker.
-Double Click Inc. (DCLK) said its first-quarter net loss widened by 56%, largely because of increased
expenses due to sales and marketing as well as one-time items at the Internet advertising firm.
-EBay reported better-than-expected first-quarter earnings of $5.9 million, up from net income of just
$148,000 a year earlier. Revenue surged.
-Electronic Data Systems Corp. (EDS) cut 5,200 jobs, or 4% of its work force, and said
lower-than-expected revenue gains and a $380 million charge to cover the staff reductions resulted in a
first-quarter loss.
-iVillage Inc., (IVIL) which produces a network of Web sites for women, reported major losses in its
first quarter as a publicly traded company, largely because of steep sales, marketing and production costs
and one-time items.
-MCI WorldCom Inc. (WCOM) reported first-quarter results that topped analysts' expectations as
Internet, data and international segments continued to thrive.
-MindSpring Enterprises Inc. (MSPG) reported its first net loss since the Internet service provider defied
Internet wisdom by turning a profit in the fourth quarter of 1997.
-Northern Telecom Ltd. (NT) posted first-quarter earnings, excluding charges, that were in line with
analysts' expectations for the Canadian telecommunications- and networking-gear maker.
-Sony Corp., (SNE) battered by the fallout from global financial turmoil, reported a group loss in the
most-recent quarter and predicted the company will continue to struggle in the coming year. |
