October 09, 2002
Case Study

How to Make Money in Directory Publishing Online -- KnowledgeStorm's Evolving Business Model

SUMMARY: If you are trying to get people to register at your Web site, or
your site's success relies on visitors using your "search" box,
definitely read this Case Study because it includes "before" and
"after" registration forms (from a redesign that made a big
difference in conversions) and a link to research data on how Web
visitors use "search."

Oh, and if you are in the directory publishing business, obviously
this one is for you. (By the way, at six pages this Case Study is a
bit longer than our usual ones. We suggest you print it out to
Directory publishers shared a standard business model
for decades. You would get vendors to pay for "premium" listings
featuring their logos and some sales copy. Then you would send the
directory out to either a controlled (free to qualifieds) list or
sell it via direct mail campaigns to users.

Everybody was happy because printed directories were the most
useful source for buyers to find vendors and vice versa.

Then came the Internet. Suddenly buyers, especially those under
35, turned to search engines and portals instead of the old print
standbys to find vendors.

KnowledgeStorm, an online directory for business software buyers,
was one of many start-ups in the year 2000 hoping to take
advantage of this trend away from print. At first things were
hard because of the general noise. So many competitors
launching, so many new portals.

Then the recession hit and things got even harder. Buyers were
still surfing the Web in increasing numbers, but nobody on either
side wanted to pay for anything.

Jeff Ramminger, EVP Products & Technology, was one of the
executives intimately involved in developing KnowledgeStorm's
business model from an all-free offering to an online directory
that could actually be profitable. He shared the details with

As a new player, KnowledgeStorm initially offered free
listings to every vendor they could reach in order to build up
enough content so that buyers visiting the site would find it
useful. Nothing is worse than a lame directory.

Even though listings were free, they were not easy to get
because the process still entailed work on the vendor's side in
terms of submitting data on their products. This is the sort of
project that gets shuffled to the bottom of a busy marketer's to-
do list, especially when a directory is unproven.

KnowledgeStorm researched the marketplace and created a hit list
of potential listees. Two high powered sales reps with personal
experience and great connections in the software industry were
recruited to approach the biggest 150 software companies.

At the same time a telemarketing team approached a targeted list
of about 1,850 mid-sized firms (there are an estimated 100,000
total firms in the business software program, ASP, and consulting
marketplace). KnowledgeStorm tested outsourcing this
telemarketing but found in-house was more effective because it
was easier to train employees on all the nuances of the "fairly
complex" offering.

Both teams found that sample listings and sample leads were their
best sales tool because vendors were impressed by the depth of

Ramminger explains, "They felt they were more likely to get
quality leads from our comprehensive content than from just
having their product name in a directory." To provide leads,
KnowledgeStorm developed a back-end system that included passing
along detailed information such as purchasing authority and
company size for each prospect. (See below for info on how they
got visitors to divulge this.)

Vendor-submitted listings have long been the Achilles heel of
directory publishing because although some vendors are great
copywriters, most are not. Nothing turns off prospects
faster than stiffly-written copy littered with tech jargon, sales
puffery, or far-too-broad descriptions.

KnowledgeStorm also built an editorial workflow system in
order to vet and improve listings with a minimum of staff.

Vendors can input their details and listings changes online, but
nothing goes live until an editor first approves it. Ramminger
says, "We take what the provider gives us and go back to them
with a set of suggestions, including why we made the changes in
order for them to have success in our property. By and large
providers are happy to approve them."

Several months after the site launched in November 2000,
KnowledgeStorm began charging vendors a fairly low fee based on
how many leads they would received from the system. This pay-
per-lead system was not a big success.

"Selling leads one by one by the drink we found to be very
difficult," Ramminger says. "It was a bit of a nightmare from an
accounting standpoint. Providers did not like constantly
having a financial discussion every time they had a lead."

Finally a "smart client" nudged KnowledgeStorm into abandoning
the pay-per-lead model in favor of a subscription model.

The marketing team developed a whole package of benefits for
subscribers (see link to subscription marketing materials below).
Key benefits included:

1. Visibility in the marketplace -- Since hundreds of
thousands of qualified buyers visited KnowledgeStorm monthly,
vendors got critical brand exposure that paying on a per-lead-
basis only did not compensate for.

"Most providers understood that we were paying money for that
traffic, and therefore we couldn't give it to them for free,"
says Ramminger.

2. Demographic and statistical data on listings viewers --
Although KnowledgeStorm would never reveal an individual
user's data to a vendor without that user's explicit
permission, the site was able to give vendors reports on the
number of people who viewed that vendor's various listings and
those visitors demographics.

Aside from being interesting and proving the site's worth as a
visibility tool, vendors could also use the reports to refine
their own internal product plans. For example, one company
used its reports to decide which European country to launch in

3. Leads -- The subscription also included a pre-determined
number of sales leads from visitors who were definitely
interested in hearing about that vendor's products.

KnowledgeStorm did not want to risk losing vendor relationships by
switching to a subscription model too abruptly. When the
initiative launched, all vendors new to the service had to buy on
the subscription model, but the approximate 2,000 existing
vendors were grandfathered into the system for a more graceful
conversion process.

In addition to offering subscriptions, the marketing team
invented several upsales offerings:

a. More leads -- When a subscriber has gotten around 75% of
the leads promised in their subscription package, the system
alerts their KnowledgeStorm account rep who contacts them to
see if they would like to buy an add-on package for more leads.

Just in case things get bogged down in voice mail phone tag,
vacations, etc., KnowledgeStorm continues fulfilling leads to
subscribers during the discussion even if they've passed their
official limit.

b. Highlighted search results -- Nope, vendors can not purchase
the right to put their logo in the search results that
visitors see. It is something most vendors ask for (having
been trained by print directories), but KnowledgeStorm feels
the visitor annoyance factor (extra graphics slow page load
time without adding value) is not worth it.

However, vendors can purchase the rights to put their listing
more prominently at the top of the search results.

KnowledgeStorm limits this to five listings per search term,
"We don't want the whole page filled with pay-for-placement.
There's a happy medium."

c. Logos -- Once a visitor has narrowed their search down to
your particular company, you can purchase the right to display
your logo on a page with just your products. Bigger vendors
with loads of products like to do this.

d. Lead qualification service -- KnowledgeStorm learned that
many smaller vendors did not have the staff resources to take
the next step with the leads they received, qualifying a
lead further before handing it off to a sales rep.

Now vendors can hire KnowledgeStorm's in-house telesales
team to call site-generated leads for them and ask five-to-
eight qualifying questions, and even set up sales

Ramminger notes, "If you're respectful about asking [leads]
questions, they're usually pretty willing to talk to you.
Remember, they only get called if they already said 'I'm
interested in this particular solution.'"

All of these benefits only happen if the site can generate
highly qualified leads in the first place. Although
KnowledgeStorm tested some postal direct mail initially, the site
now generates 100% of traffic through online marketing, chiefly
relying on three tactics:

- Search engine optimization

- Paid search result listings for nearly 8,000 search terms on
sites and networks such as Google, Overture, LookSmart,
About.com, Altavista, Lycos and Inktomi.

- Co-branded site sections and other content feed deals with
partners such as Yahoo (KnowledgeStorm is the exclusive
provider of Yahoo's IT Solutions section), FastCompany.com,
DevX, Hoovers, and InfoWorld.

Sometimes these are revenue sharing deals, otherwise
KnowledgeStorm pays a straight forward fee for placement.

In every case KnowledgeStorm has set up systems so they know
exactly what they are getting for their money. "We track
sources, keywords and clickstreams at our site. We take a blend
of Webtrends reports, reports coming from properties [feeding
traffic] and some magic dust custom code in the middle and merge
those together."

Every Wednesday Ramminger and the marketing team have a traffic
meeting to discuss results, sometimes down to a search keyword
level by source. "It lets us look at the previous week in
completion, and also by Wednesday trends are in place. We know
if we're going to have a good week."

Getting traffic to visit the site is only the first hurdle. Next
KnowledgeStorm has to turn those visitors into actual sales leads
to feed to its paying subscribers.

The site's staff constantly measures and refines the three
critical steps:

-> Step #1: Providing useful search results

If visitors can not find vendors or products that are right for
them, they will bail. Providing useful search results is

Ramminger credits a research article from IEEE's Computer
Magazine (link to PDF of the article below), and input from
KnowledgeStorm's search tech provider Inktomi, with much of the
team's initial understanding of how people use search.

KnowledgeStorm also elicits visitor feedback throughout the site,
and one staffer spends a chunk of her time replying to these
comments every day. She also does outreach, contacting up to 20
different users daily to learn how the site can be improved to
serve their needs.

In addition the tech team study site reports to learn how
visitors use search.

Through all of these efforts they have learned that users tend to
be fairly lazy. People type in one word or a very short general
phrase hoping it will produce exact results. If it does not,
often they will abandon the site.

Therefore instead of just showing a long list of specific results
to a general search, the site also shows users a list of related
sub-categories that the user can click on to get to listings that
better meet their needs. For example, someone typing in 'CRM'
will see links to 11 categories such as 'sales automation
software' and 'customer service ASPs' in addition to the list of
383 vendor solutions.

-> Step #2 Getting visitors to register with the site

KnowledgeStorm needs visitors to register their contact data and
purchasing authority details in order to provide useful sales
leads and general user data to subscribers. Converting
visitors to registered users is not easy.

"We experimented with the placement of where we asked for
registration," Ramminger says. "Initially we tried to ask early
in the process, but [visitors] objected to that. You could see
it by looking at the abandonment rate. When we were being pretty
aggressive asking for registration on the home page people looked
at it and said, 'I'm just not going to do this.'"

Undaunted the team moved the registration page deeper into the
site to a spot where visitors had already had some success with
their search results and were now being asked to take the next

Then two more factors proved critical for success:

- Length of search result descriptions. Initially the
descriptions were very short (one line). The team expected
visitors to click to another page to see a longer
description, and then after registering or signing in, to a
third page to see the fully detailed listing.

No way, no how. People wanted to see enough detail in the
initial listing to make an immediate decision about whether
they would click further or not. Then they wanted to go
straight to the complete details page.

- Better copywriting and presentation. Although the
registration page was developed by a navigation and
usability-savvy Web developer, Ramminger thought it could be
improved. So KnowledgeStorm hired a full-time copywriter
who immediately revamped the wording and look of the page.
(Link to before and after pages below.)

-> Step #3 Getting users to request more information from the
vendor behind a specific listing

When visitors got to the specific product or service level,
KnowledgeStorm presents them with a second sign-up page the
Company calls a "bridge page." (Link to sample below.)

Again the Web team tested a variety of designs and copywriting to
figure out what would get the most visitors to raise their hands
and request to be sent sales materials by the vendor in question.

"We learned our initial wording was confusing," says Ramminger,
"and rather than make the wrong choice, people made no choice at

Tests and revamps have helped the page raise conversion rates
96.5% higher than original conversions, which proves the work
was worth it.

Ramminger is pleased to announce that the site will
hit profitability on schedule by the end of this quarter,
despite the fact that many competitors have gone out of business.
During the last four consecutive quarters, the site has averaged
24% sales growth.

Of the now approximately 4,000 vendors listing products and
services on the site, the vast majority have converted to paying
for a subscription. 81% of original vendors who joined the site
at the very start are still involved.

Subscription pricing started in the hundreds, but the team
quickly learned they were under pricing for the value they
provided. Now the average subscriber pays $7,500 a year.
Vendors purchasing extras such as Solution Center premium
listings pay "in the tens of thousands" each.

On average half a million unique visitors visit the site each
month. Ramminger notes that the "best traffic" comes from
targeted sites such as InfoWorld. However, he says deals with
broader properties such as Yahoo are critical to true success.

"If we had put all our arrows in just IT properties, we wouldn't
be nearly as successful as we are. In the tech business, users
and potential buyers are everywhere. You name the site and there
are people interested in IT. You need to be where the users are,
and the users are all over the place."


Click for samples of KnowledgeStorm's registration form (before
and after revamping), revamped 'bridge' page, subscription
marketing materials, and a PDF of that IEEE article referenced


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