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Cost of Running Internet Content Sites Is Soaring

January 05, 1998|GREG MILLER

Undermining perceptions of the Internet as an egalitarian medium that gives equal voice to the mighty and the meek, a recent study by Forrester Research Inc. concluded that the costs of running a typical content site on the Net--that is, one purveying information rather than retail services--are skyrocketing.

Content sites cost an average of $3.1 million to operate in 1997, up 300% from two years earlier, according to the report, which predicts that costs will double again before the end of the century.

That trend favors companies with deep pockets and spells trouble for small firms and late arrivals hoping to elbow into the business, said Bill Bass, an analyst at Cambridge, Mass.-based Forrester.

"If you are a subsidiary of a traditional media company, you're probably in good shape," Bass said. "But if you don't have a strategic reason to be [on the Web], you're just going to lose money."

The study is based on a survey of 38 companies that operate content sites, ranging from small Internet start-ups to others backed by media giants such as the Wall Street Journal.

The study examined only content sites, which supply news, weather, gossip or any other kind of information. That excludes many other types of sites, including search engines such as Yahoo and retail sites such as the one operated by Dell Computer that sell merchandise over the Internet. Also excluded are private Web pages posted by individuals or groups.

Costs are being driven largely by rising sales and marketing expenses incurred as sites struggle for attention in a cluttered market. Site operators spent an average $400,000 on online advertising campaigns, print advertising and public relations last year, according to the survey. Sales and marketing costs accounted for 28% of overall budgets, but could surpass 40% within three years, according to the report.

Staffs have grown considerably as well. Sites averaged 32 employees, compared with just a handful several years ago. Half the employees at a typical site are engaged in creating original content or repackaging existing material, such as news stories that appear in other media.

Technology costs have held steady at 20% of the total budget, partly because companies that once bought servers and hosted their own sites increasingly contract now with Internet service providers and others who handle the technical side of the business.

Despite the soaring costs, sites that survive an expected wave of consolidation over the next few years could come closer to profitability. As average monthly page views climb from 6 million to a projected 30 million in 2000, the cost per page view will shrink from 4 cents to less than 2 cents, according to the report.

There is grim news, however, for companies still hoping to squeeze into the online content business. Funding is getting scarce.

"Every venture capitalist who's worth anything already has a money-losing Internet company," Bass said. "They don't need another."

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