CASE STUDY

CHALLENGE

Luke Visconti and Foulis Peacock started their own
sales rep firm nine years ago, selling advertorial sections in
magazines such as Forbes, with the express purpose of making
enough money to launch their own publishing company someday.

It was kind of like serving time in purgatory to get to heaven.

"The sections business is a miserable, horrible business to be
in," says Visconti.

"It's very, very difficult. People look down their noses at
sections." You are competing with the magazine's in-house sales
team, who hate you. You are asking advertisers to pay more per
page than they would if they bought a regular run in the magazine
itself. Everyone assumes your content is going to be pretty
dreadful, even if it is not.

However, there was a bright spot in early 1999 they had
tremendous success with one Forbes section in particular. It was
about encouraging diversity in corporate American hiring.

Visconti is a former Navy diversity recruitment officer, and
Peacock is a Muslim from Iran by way of the UK. So the topic
touched a passionate nerve for both of them.

They cashed in their savings, bagged the sections game, and
launched a new advertising-based, online-only business
publication called DiversityInc.

At first things went really well. Corporations such as Lucent
and Johnson & Johnson were pleased to support the site to the
tune of $50k-$200k for six month or annual sponsorships.

However, by early 2001 revenue growth slowed. It was not about
the recession, the topic matter seems to be fairly recession-
proof. It was about being so niche.

Visconti explains, "Our traffic grew, but we couldn't charge
advertisers any more from a CPM basis to be there. So doubling or
tripling our site traffic could not benefit us. There are a
finite number of companies progressive enough to want to
advertise with us - when you're dealing with a niche market you
have to know the extent of it. We had reached a brick wall."

CAMPAIGN

From day one the team had toyed with the idea of
making DiversityInc a subscription service, but they had held off
because they needed significant traffic for ad sales.

In May 2001 they decided to take the subscription plunge. Two
key factors played in their favor. First, DiversityInc had a
highly experienced editorial team of six full-time journalists so
the content was definitely a notch above much other free fare on
the Internet.

Secondly, the timing was right. Sponsors had already been
educated by the general buzz about sites going to subscription.
It might have seemed strange and alarming a year or two before.
Now it seemed normal, even exemplary.

"We talked to all 14 of our major sponsors individually before we
did it," explains Visconti. "They were universally supportive."

Deciding how much of the site should be free versus fee was
tough. DiversityInc tested a variety of scenarios all the way
from mostly free to mostly not, in order to see which garnered
the most subscriptions without cutting traffic too dramatically.

Visconti and Peacock decided to sell two different types of
subscriptions; individuals and groups.

1. Selling to individuals

The site had already been asking (but not requiring) that readers
opt-in for its newsletter prior to accessing articles. Six days
a week (Monday-through Saturday) the site sent a brief newsletter
to this opt-in list featuring compelling summaries of the latest
articles. (Link to sample below.)

Now when readers clicked through on "premium" stories, they were
presented with a barrier page asking them to become a paid
subscriber to read the article. Visconti tested a variety of
barrier styles, from revealing longish extracts of the story to
revealing nothing more about the story at all.

He admits, "I pulled the price out the air." Initially
subscriptions were $5.95 month/$49.95 year. Later he tested
$3.95 month/$30 year (expressed in marketing copy as "just 10
cents per day"). Students, educators, and military got $10 off,
but only for annual subscriptions. Journalists could request
free access.

2. Selling group subscriptions

Traditionally group subscriptions require a sales rep to close, as
they are not sold via marketing alone. This was perfect for
DiversityInc's team to handle, so they plunged in immediately.

First they contacted all sponsors to offer them special deals.
Visconti offered his biggest accounts some free seats as a thank
you for their sponsorship.

He also added a link to a lead generation form on the top left
corner of every page on the site. Visitors could click through,
fill out some information about their company and a sales rep
would follow-up on the phone. Customer service handles smaller
deals, while Visconti personally handles any Fortune 500 fish
that swim into the net.

When prospective customers need help getting the word out on
their end to get people to sign up for the group (which can be
especially hard for very large organizations), DiversityInc's
marketing team help with suggested email notes, intranet links,
and piles of postcards. "We give out postcards by the tens of
thousands."

DiversityInc does two things completely differently from most
publishers' group sales:

-> Not selling based on current individual subs.

The standard sales approach most publishers use is to call a
company and say, "Hey we've got 50 of your employees subscribing
- why not upgrade to a group sub?" However, as part of his
stance on reader privacy, Visconti refuses to reveal his
individual subscriber's names to anyone, even their employers.

Instead he counsels organizations that they should either get a
company-wide site license or at least enough seats to cover 20%
of their mid-upper-level executive team. This allows for the
typical number of staff who are ethnically diverse (or female) as
well as some white businessmen interested in the subject.

If some of the people they pay for already have individual
subscriptions, Visconti will not reveal the duplicate name to the
company, although customer service will definitely consider
individual refunds if those individuals approach them. (This happens
very rarely.)

-> Seats are not transferable.

The price per seat at the group level is low enough that if
DiversityInc offered to change names on who got each seat, they would
lose money servicing the changes.

Limited group accounts simply get a list of passwords for their
list of names (if you buy 50 seats you get 50 passwords). If,
for example, an exec leaves and you need to give their
replacement a subscription, you have to buy a new password.

Unlimited group accounts are tracked by IP address. All traffic
coming in from the member organization's computers (with the
exception of traveling execs using other systems) gets in free.

DiversityInc offers groups the option of getting a weekly version
of the site newsletter instead of getting the daily. Larger
groups can even get a custom version. However, most people still
opt for the daily because they prefer it.

Visconti did not rely on subscriptions alone to make the
difference. So far he has tested five ancillary revenue ideas
(with more to come):

#1. A directory of consultants

Diversity-related consultants pay $25k per year to be included in
the 'Diversity Resource Directory,' which is plugged on the home
page. It is one of the few areas of the site that is still
available for free.

#2. Employment classifieds

The site's Career Center launched last November. Visconti
distained the onesy-twosy sales for a flat rate for unlimited
postings ranging from $17k-25k based on organization size.

He positions the service as an add-on to-not a replacement for the bigger Internet classifieds. "If you're not using Monster,
you're foolish. They'll deliver the haystack. We'll deliver the
needles - dozens of them - but we're going to have those diverse
professionals, or if you get a white guy you know it's a white
guy who's interested in the subject."

#3. Online bookstore

The bookstore mainly sells books written by the consultants in
the directory. They like the visibility, and it is a little
revenue stream. To save effort, the books are all fulfilled by
arrangement with the American Management Association (which
publishes most of them) or their authors.

#4. A hard copy of the site's articles

Why pay for a printed copy of a site you already get full access
to as a subscriber?

Visconti says, "People don't want to read more than two pages
online. We always see substantial drop-off from page one, two,
three, four. It cascades down. I do not even like reading this
stuff online. Short articles look really good up there, but when
you have got 2,500 word articles, people will print it out and take
it offline."

The team gathered more than 300 of the site's best articles
and had them printed up nicely in a three-ring binder "so people
can take pages out and copy them."

Whoa! Is having your content fed into big corporate copying
machines not the stuff of most print publishers' nightmares?

Visconti explains, "It's a sales tool for us. They hand it out,
saying 'See this Case Study, here's a great graph, this is why we
should be caring about diversity.'" The more the marketplace
is educated, the more likely they are to buy something more in
the end.

Again, Visconti chose the initial price on gut instinct, "I
pulled it right out of my shorts." He started at $175 per copy
and raises it a bit for every year's new edition. (It is now at
$225.)

5. Event tickets

Although DiversityInc does not run any events currently, the site
has begun selling tickets to a few carefully selected related
events. In this case though, Visconti declines a revenue share
in favor of swapping services.

"We get signage, a plenary session, tickets to formal events that
we can invite customers to."

Visconti plans to continue launching new test ancillaries on an
annual basis. However there is one revenue stream he refuses to
dip his toe into: Syndication. "That would kill us. Our core
is our content, if it appears elsewhere it will destroy our
brand."



RESULTS

DiversityInc is profitable, with no corporate debt and
no outside investors. The Company has 25 employees, all of
whom are remarkably passionate about their subject. The
Company's total revenue pie slices roughly into these pieces:

- 70% advertising, including sponsors, classifieds & consultants
- 25% subscriptions including group and single
- 5% bookstore and printed site binder

More details:

-> Offering lots of free content, and even summaries of paid
articles for free did not work.

"We slowly pulled it in because we didn't see the subscription
numbers we thought we would. We were disappointed. At this point
you don't even get the synopsis. We found people really don't
want to spend the money unless you pull further and further back.
At first we got plenty of nasty email, but let's face it we gotta
eat."

Now all content, with the exception of the Career Center, the
guide to consultants and some news stories fed from AP, is
available to paids only.

-> Visconti and Peacock were highly concerned that pulling back
would slash site traffic. However, traffic has remained at an
even level, reflecting the fact that enough new users are
visiting to make up for those who left. It is not growing much
anymore, but that's ok for now because it was not the site's aim
to grow readers so much as it was to grow revenues.

Currently the site has about 125,000 unique visitors per month
and about 60,000 opt-in or paid daily subscribers. Visconti
plans to grow that number by early next year when he hopes to
launch a print magazine with an initial circulation rate base of
100,000.

Perhaps the greatest indicator of traffic success is the fact
that every month the site's top 10 most-read stories are
completely dominated by paid-only content. The directory of
consultants is about the only free content that ever makes it in
to the top 10 list.

-> The subscription price decrease was immediately successful.
Visconti says now at least 30% more readers are converting to
paids, which makes up for the smaller amount each pays.

-> Initially about 30% of subscriptions were monthly, however now
that the annual price is lower even more people are choosing it
over monthly. This pleases Visconti because he views the monthly
subscription model as a losing game; credit card fees and
cancels make them less profitable than annuals even at a higher
per-month rate. (Note: most experienced publishers agree with
him.)

-> Group subscriptions account for about 50% of total
subscription seats sold, however Visconti predicts that by next
year the ratio will be 80% group/20% individual "easily." Both
Ford and Johnson & Johnson have purchased 2,000 subs each. Small
businesses are also buying groups.

However, based on conversations with the marketplace, Visconti
predicts that the future of group subscriptions will be selling
content into intranets rather than protected access to a Web
site.

"Companies are starting to limit employees ability to get out
onto the Internet. Someday it will present a very big problem."

-> The group sales contact is nearly always someone at a high
level in the company who was probably an individual subscriber to
start. "We don't deal with the corporate librarian until after
the sale is closed 98% of the time, however we regularly get
emails from the VP level and above."

-> Even with a pretty good email program, sending email using an
in-house system was harder than Visconti expected. "We had too
many problems with configurations and security." The Company
switched to an outside vendor to send email for them.

-> Monday is the best day of the week in terms of response to
DiversityInc's emails. (Note: This is possibly the first time
we have ever heard an emailer say this, and it may be due to the
fact that they publish Saturdays.)

-> Ad sales appear to have been unaffected by the switch to
subscriptions. "We didn't even lose Lucent this year," says
Visconti gleefully. However, he notes some banks and Ernst &
Young pulled out due to the economy.

-> Both the printed binder and bookstore products have been
popular, if not revenue avalanches in comparison to other
offerings. "It's not a big money maker, it's better as a
service. It's good to have."

-> Unlike subscription pricing, the printed binder's price
increase from $175 to $225 has not affected sales. "There's no
fatigue. It just keeps coming in. It's a really great thing to
see stacks of them leaving the office every day."

-> Companies are definitely paying to post jobs in the career
center. However, even though the pricing is flat rate for
unlimited jobs, many only post a small percent of their openings
there. This dumbfounds Visconti. "Some giant companies only
post two or three jobs."

The future:

Visconti is most concerned about the s^pam epidemic. "I think
s^pam's going to kill our business. We need to learn how to stop
s^pam because it prevents people from seeing our own mail. I
don't want my mail to be caught in the garbage."

One way he avoids that now is by never mailing late at night. "I
like sending something out mid-morning. If it's sent in the
middle of the night, it's highly likely I'll delete it mixed in
with the 40-50 s^pams I get then."

His team also read delivery reports obsessively, hoping to spot
it when filters are stopping issues. "When our response rate
from a corporation goes to zero, we make a phone call to figure
out what went wrong. It's a constant struggle."

In the meantime, he is rightfully proud of the Company's success.
Although he admits, "We're very good sales guys," he insists that
the profits are due to the content. "The content has to be good.
We spend money on this. That's where you have to."

USEFUL LINKS:

You can learn more about avoiding filters in an article published
by our sister-newsletter EmailSherpa today at:
http://www.MarketingSherpa.com/sample.cfm?contentID=212


Link to sample daily newsletter:
http://contentbiz.com/creative/diversityinc.html

The vendor DiversityInc uses to broadcast its newsletters
http://www.lyris.com

The software package DiversityInc uses for subscription and
content management
http://www.membergate.com