Time Warner bravely ventures forth to make $$ on the Web

Rohit Khare (khare@pest.w3.org)
Fri, 7 Jun 96 11:11:01 -0400

A well-done article on the challenges facing Pathfinder. Two insights: the
rise of the Web Demographics industry, and the analgy of web sites to printing
presses: in fact, *authors* and even *publishers* don't own printing presses
-- only *printers*, who became less and less important over 500 years. "Every
author a publisher" may yet come true, but Web infrastucture (what we work on
here) may be largely beholden to the R.R. Donnelly's of the future: the bells,
the mega ISPs, the MAE owners.


Web pundits claim the most entertaining thing about Pathfinder is tracking
Time Warner Inc.'s efforts to turn it into a profit center.

The slings and arrows have Time New Media's execs reeling. And
pathfinder.com, the digital flagship of Time Warner's sprawling multimedia,
film, TV, music and publishing empire, is an inviting target. Navigating
through Web pages from People and Sports Illustrated and Warner Bros. Records,
for instance, feels like tangling with a digital version of the film
"Twister." (To counter this perception, in a few weeks Pathfinder will debut
its fourth redesign.)

Another persistent criticism dogging Time execs: The company's well-known
brand names are "buried" under the Pathfinder label, which features more than
90 products.

But after 20 months, Pathfinder execs believe they're onto something good,
even if it's not yet profitable. That's because the first step in any
successful business campaign is to generate demand. The company says
Pathfinder attracts more than 1 million HTML page views per day, a figure that
clearly establishes it as the premier (nonpornographic) original-content site
on the World Wide Web.

Despite avid consumer interest, there's a tendency by many Web experts to
take Pathfinder lightly. And you may be wondering how a media company's Web
efforts can serve as a model for your company's business. But if your company
is entering into electronic commerce--and top executives are asking you and
your IT department to help orchestrate it--Time Warner's experience is very
valuable (even if it ultimately is balkanized into separate Web sites.)
Pathfinder is nothing if not a lavish experiment in E-commerce, content
publishing, catalog sales, Web product branding and--what's most often
overlooked but is probably the biggest IT challenge--Web site management.

The Pathfinder "experiment" is costing Time Warner about $13 million
annually, according to various sources. (The execs won't say how much.) In
1995, the company tallied about $2 million in advertising revenue; this year
it will do at least twice as well. The company also recently granted an
exclusive licensing deal to CompuServe that is probably worth several million
dollars annually. By late summer it will offer users a "personalized"
Pathfinder on a subscription basis. But it's not enough to break even by a
long shot.

Aside from one infamous comment by a senior Time Inc. exec, who called
electronic commerce "a black hole," Pathfinder appears to be a long-term
corporate play. Paul Sagan, president and editor of Time New Media, estimates
it could take five to seven years to turn a profit.

To appreciate the Webonomics at work here, consider the relative market size
of the Web (5 million to 10 million Web-active viewers, says Sagan) compared
with, say, cable TV (65 million viewers) or Time Warner's print subscription
base (50 million). Of the Web, Sagan surmises, "It's not a market today."

But in bustling midtown Manhattan, it's easy to think the Web will be a
market some day. And it's certainly an exhilarating place to run a
multibillion-dollar media empire. Too bad Rockefeller Center is a lousy place
to host a major Web site.

"It's not an ideal neighborhood," quips Oliver Knowlton, vice president of
operations and administration. In his domain: Sun Microsystems Inc.
SPARCstations of various stripes and models, which are stacked up like old
Time-Life Books in what passes for a tightly cramped data center.

Not surprisingly, Pathfinder is in the RFP phase of a planned 1997 move away
from self-hosting its busy Web site. "The goal isn't simply to save money and
eliminate jobs," says Sagan. Web hosting isn't Time Warner's core
competency--just as Time magazine doesn't own its printing press.

Another goal is to separate development and production environments, says
Knowlton, who also supports servers for editorial staff and payment.
Eventually, the plan is to create a fault-tolerant, fully redundant production

Then there's the ceaseless and daunting challenge of data management.
Pathfinder itself totals some 11G bytes of data and images--but users help
pile up an additional 2G bytes of log files daily. "How do you manage the
information--not just collect it?" asks Shikhar Ghosh, chairman of Open Market
Inc., in Cambridge, Mass. "They seem to be the first ones to run into
technical problems."

"We don't regard ourselves as a technology company, but because we're at the
cutting edge of Web technology with high traffic, we have custom
implementations," explains Bruce Judson, general manager of Time New Media.
The company can track unique visits by Web surfers. (It claims to get 1
million per week.) It adds a session ID to track where users go and determine
when sessions begin and end.

Still, the company hasn't tried to reinvent the wheel for every software
implementation. For instance, the company uses several Web server products
from Open Market, including OM-Transact, which enables secure credit-card
transactions. The Open Market products work in conjunction with a Sybase Inc.
relational DBMS, but Pathfinder is also testing other databases, Knowlton

The hallmarks of Time Warner's Web-hosting strategy? Spending whatever it
takes to build or buy the appropriate Web software and communications
infrastructure. Second, designing the host applications with enough
flexibility to support new products such as online catalogs and databases.
Third, learning from its mistakes.

Without a compass?

Most corporations treat the Web like it's the ultimate information kiosk.
Across the country, marketing mavens are adopting this loss-leading Internet
strategy: Promote a brand name by offering free bytes. But Pathfinder's
executives have made the controversial decision to offer a premium, fee-based
product, although the majority of Pathfinder content will remain free.

"The market perception of the Web today is that everything is free. Anybody
with a Web browser can get to almost any type of information today, although
at a very shallow level," says Toby Corey, vice president of marketing at
USWeb Corp., a Web service provider based in Santa Clara, Calif. "As the
novelty of this wears off over time, people will be drawn to information and
service sites that offer much deeper and richer value."

But there are serious doubts among Web and interactive TV experts that
pay-as-you-go will succeed. "The notion of consumers paying cash money for
information has virtually proven to be lifeless," contends Robert J.
Broadwater, managing director at Veronis, Suhler & Associates Inc., a New York
investment company that tracks interactive media. "Knight-Ridder has been
trying for 15 years to find some way to get subscription dollars on TV, and
people won't do it in a large way. There's nothing in the mass market--no
examples of consumers paying for data."

Gene DeRose, president of Jupiter Communications, a New York online research
firm, is convinced the Pathfinder subscription plan is doomed. "Are they
crazy? Yes. I think the market is too premature, and they haven't proven that
they have anything so special that merits charging while others are free,"
DeRose says.

Ironically, DeRose also concedes, "I do think you have to move toward a
chargeable model in order to sustain yourself."

Pathfinder's executives believe the key to profitability lies in value-added
applications and services such as Pathfinder Personal Edition, which features
a customized view of its Web content.

What the marketing wizards call "mass customization" is only just beginning
to be implemented on the Web by popular sites such as Pathfinder and The Wall
Street Journal Interactive. (ZD Net and HotWired have had similar features for
a while longer.) Says USWeb's Corey, "Customized Web sites will be the
future. This is the biggest single distinction between this medium and all
other prior media. Technologies such as Netscape's 'cookie' architecture and
Broadvision's system will make possible, for the first time, every
corporation's dream--delivering customized products and services at commodity

Open Market's Ghosh says that creating customized views of Web sites is not a
trivial matter. "Personalization is an easy problem to solve with low-volume
sites," he says, "but it's difficult to solve with high volume. If we can
solve it for Pathfinder, it will help solve it for smaller companies."

But the recent experience of the Wall Street Journal Interactive Web
publication underscores the difficulty of managing--or juggling--a
considerable amount of "personal" site preferences. For several weeks after
its April launch, an unknown number of Journal Interactive visitors had
trouble accessing the Personal Journal feature, which enables subscribers to
select companies and topics to follow.

Given the choice, most executives would prefer to solve the problem of
dealing with too much Web demand rather than the reverse--figuring out ways to
draw consumers or customers to a largely unknown site. Judson's no exception.
"We have a fair sense of what kind of traffic to anticipate, and we know how
to deal with that traffic," he says about Pathfinder Personal Edition, which
debuts this summer.

Meanwhile, questions linger: not only about the economics of the Pathfinder
venture, but whether the participating magazines will remain subjugated to the
larger corporate goals. Several Time Warner publications have cut separate
deals on CompuServe and America Online, and at least one well-known
brand--CNN--has shown no intention of joining Pathfinder. (The CNN situation
is also tied up in a regulatory review of the proposed Turner merger.) Warner
Bros. Studios is also noticeably absent. As is Bugs Bunny.

Despite the enormous daily traffic generated by Pathfinder, neither of its
field generals takes success for granted. Sagan's perspective: "It doesn't
bother me that it's not perfect." Judson adds: "It's a grand experiment."


What surfers do on the Web vs. online services

Ever use the Web to: ...
search for information about products/services : 55%
search for information about companies/organizations: 60%
search for other information: 73%
purchase products or services : 14%
browse or explore: 90%

Ever use online services to:
search for information about products/services : 50%
search for information about companies/organizations: 42%
search for other information: 61%
purchase products or services : 18%
browse or explore : 74%

Base: 32,000 phone interviews

Source: CommerceNet/Nielsen Internet Demographics Survey


_Obstacles _in Pathfinder's path

Pathfinder is a significant effort, one that raises intriguing questions
about Web market strategy in virtually any kind of business. Consider the
issues Pathfinder faces:

What is the value of online content when nearly everything on the Web is free?

Pathfinder's approach: Offer brand-name content such as Time magazine and
hope that consumers will respect the difference in quality between it and
everything else--enough to pay for it. The company is introducing two types of
subscription-based products this year. One is Pathfinder Personal Edition, a
viewer-customizable version of its content, which carries a low monthly ($4.95
possibly) or annual subscription fee (to be named later). The subscription
includes a software bundle: Open Market's OM-Express, an offline Web page
reader that automates Web page downloads and organizes local storage. Later
this year, a premium service, code-named Power Pathfinder, will feature "deep"
areas of content (archives of Time-Life photos, for instance) or applications
unavailable to nonpaying viewers.

Is it better to lump every product together under the corporate banner or
separate products by brand name or category?

Pathfinder's approach: "We chose to create a brand called Pathfinder," says
Bruce Judson, general manager of Time New Media. "It's fair to say we thought
there was value to establishing an online brand that stood for quality and
something distinct from our individual properties. If every product always has
the company name first, then to set up a single site makes a lot of sense. If
you have a corporate name that isn't necessarily associated with products, is
it better to push individual products?" There's no one-size-fits-all

Will the much-ballyhooed marketing concept of mass customization appeal to
Web infotainment consumers?

Pathfinder's approach: To give subscribers individualized views of Pathfinder
content, which Judson argues will save consumers time and hassle and generate
repeat visits. "People say, 'I don't have enough time,' " Judson explains.
"We believe people are looking for something that makes information relevant
and actionable. They don't want to spend hours looking for it."

Do consumers want "Web personalities" to guide them through the online
experience with audio and video clips?

Pathfinder's approach: "The Web is not a medium about text," says Paul Sagan,
president and editor of Time New Media. "Clearly, personality will be
important. The passionate relationship you have on TV with a personality
hasn't been developed yet online." For now, Pathfinder has yet to establish
such a presence.

-- R.W.