How Tech Publisher IDG Grows Revenues During Recession

This is one in an occasional series on MediaShift where I discuss issues in-depth with thought leaders in online media. The format has changed to give you a profile of the person, as well as more of our dialogue — including audio clips. If you have suggestions for future Q&As or want to participate yourself, drop me a line via the Feedback Form.

Profile

Patrick McGovern

Age: 71

Hometown and Current Location: Grew up in Philadelphia and his main residence is in Hollis, NH. He and his wife also have a home in Hillsborough, Calif.

What Makes Him a Thought Leader: McGovern is founder and chairman of pioneering technology trade magazine publisher IDG, starting Computerworld magazine in 1967. The private company also runs trade shows, has a research arm, and started doing business in China back in 1980 and now has more than 40 publications there (including an exclusive right to launch Chinese versions of various American magazines). In 2007, IDG decided to make online its top priority, with print coming next, and pushed flagship publication InfoWorld online-only.

Awards Won: Robert L. Krakoff Lifetime Achievement Award from American Business Media; the Magazine Publishers of America’s (MPA) Lifetime Achievement award; Lifetime Achievement Award from the American Society of Business Publications Editors; and a Top Innovator in Business Publishing Award from BtoB Media Business magazine.

Stats for IDG:

> Annual revenues in 2008: $3.2 billion.
> More than 450 websites worldwide.
> 48% of revenues come from online revenues.
> The IDGTechNetwork of tech sites and blogs averaged 40 million monthly unique visitors last year (according to an Audience Development article)

Q&A

Give me an update on how things have progressed since you made the move to make online the highest priority at IDG.

Pat McGovern: Before, we were 35% online [revenues] and now we’re at 48% online and want to make our goal of 50% online in 2010, and print will be 35% of the total and 15% will be conferences and events. It’s been very well timed because as we move into a recession, there’s a shift from image and brand advertising into performance-oriented advertising. We have a huge B2B (business-to-business) audience and we’ve been really focusing on generating sales leads for our clients. In fact, our clients have shifted from the ad manager at the agency to the sales manager because they have money to spend to keep their sales force on quota.

With lead generation through webcasts and white papers and with other techniques, we generate a nice profile of someone who’s really in the buying process for a product. And we try to describe for a client the next logical step in the buying process. We can then survey the leads after two or three months. We can find out, for instance, if we gave them 500 leads and found that a third of them bought a product in May, and that means $660 in total profit per average lead. And if we’re charging them $100 per lead we can go to them and say, ‘We’re giving you $660 in cash profit and you’re only paying us $100.” So we’re doubling our price to $200 and aren’t finding real sales resistance.

The interesting thing about leads is that we’ve been able to double the income per lead by demonstrating its profit contribution to the client.

So you’re finding lead generation to be even more profitable than advertising?

McGovern: Yes, we definitely get more revenue for the same amount of effort in terms of presenting information to the account. There’s a lot of pressure on CPM advertising, and there are more networks of sites online for an advertiser to buy. Leads are giving them a cash profit so it’s easy to charge more than you could if you had to compete with other people.

What did you learn from the changeover at InfoWorld to online-only from a print magazine?

McGovern: Well of course we were nervous because the weekly brand of the print publication would be decreased. For a couple months we had a dip in the visitor level, but then we found that the editors, not needing to coordinate the presentation between print and online, suddenly became more creative and tried many new ways to intrigue and involve the reader. We came up with prediction information, InfoClipz and educational animations about new technology.

And then our audience numbers and frequency of visits soared. Even though we gave up 40% of revenues from stopping print, we actually had 10% more revenue growth absolutely. The online revenue didn’t only make up for the missing print revenue, but we actually had absolute growth. Without postage and printing costs, we had a 37% profit margin vs. a 3% loss before the change. For both revenue growth and audience growth, it was an encouraging experience. There was most definitely life after print.

Did other IDG publications make the switch to online-only?

McGovern: Yes, PC World in Denmark, as well as PC World Australia both made the same change. We had launched ComputerWorld in the UK as a website only. We surveyed the audience to see if they wanted a print publication, but found that the audience was so happy with online that they said there was nothing we could add in print, so don’t bother chopping trees down to send us print publications.

So have you launched any print publications lately?

McGovern: We’re a global company, and in India print is hot, and only 3% of people have Internet access. The number of people learning English is developing nicely, and there are some other smaller countries where we have launched print publications. We launched ComputerWorld Pakistan recently. In the U.S., I don’t see us launching print business publications. For consumer titles, in China, we publish about 20 print publications. We are the only international company able to publish magazines in China because we made an investment there before there was a prohibition on foreign investment.

In China, how does the split differ in online use vs. print usage in comparison to other countries?

McGovern: If you look at the business-to-business market, it was a little slow to move online until a couple years ago and then they really hit the accelerator. There’s now 450 million Internet users in China, more than the U.S., so the advertisers decided to shift ads from being 20% online to about 60% online, so we’ve seen a corresponding jump in online usage for our B2B titles.

In consumer titles, there’s an aspirational experience — the fine graphics, the big spreads of fashion, jewelry, high-performance cars. They love the print titles, so in [consumer magazines] only 5% of revenues come from online because people enjoy the print magazine experience. And we launched five new magazines in China, including a Harper’s Bazaar for Men — the first one of its kind in the world. There’s a real desire to show affluence in China, so people read these magazines in expectation of being able to afford all these luxuries that they read about.

With your IDGTechNetwork you serve ads into other people’s online publications and you recently made a deal with GigaOm. Has that been a tough business selling ads into blogs? Some of those networks have hit hard times now.

McGovern: We’ve done well. The idea is that we saw a lot of people coming out with niche content, like data center security, where the author might be an expert and might have engaged five or six other content creators. But for the people who started it, the sites were almost a hobby run out of their home and they don’t have a good way to commercialize it. We thought as long as the quality of the audience is good, why not represent them? So now we have 153 such sites that are in the IDGTechNetwork and we’ve been growing that revenue about 40% to 50% every month and it’s been growing really well.

[The site owners] might be doing it and think that $2 or $3 per thousand [in ad CPMs] is pretty good, but we think that the value of their audience is higher, more like $15 or $20 per thousand. By being their representative, we can value the audience that they have and price it at a fair market value. So we could increase the revenues for them by fairly valuing their audience.

Hear McGovern explain why the IDGTechNetwork has done well while other blog ad networks have stumbled:

How do you control the content on those sites if you don’t own them?

McGovern: We tell them what it is that the buyers want to have. But the ultimate way we control that is that we only put them into the network if they pass our quality test. And if the content deteriorates for some reason and the audience is of less quality, then we would tell them, ‘I’m sorry we’re not going to affliliate with you.’ They find it advantageous to be in our network so they pay attention if we have any issues about any of the content.

Is that division profitable?

McGovern: Yes it is. We’re selling someone else’s content, and we get about a 40% sales commission, so it’s an interesting business because the sites weren’t expecting to get ad revenues and someone goes and sells ads for them. So they’re really pleased with the results so it’s happy for both of us.

If you find a good independent site, how do you decide whether to buy it, represent them with your network, or aggregate their content?

McGovern: What we typically do is that if we see something with content that would fit with IDG, then we would offer them the opportunity to introduce them to the audiences of other sites that we’ve acquired. We provide them with a baseline of income a year, and then they get so much share of revenues or profits from the site. We might do that initially. What we did in the early days was take on a site and they would triple their revenue in the first six months and triple again in the next six months. And someone else would come along and say, ‘You’ve got a goldmine here, you’re already up to $2 million in revenues so we’ll buy you for $3 million or $4 million.’ So the person would say this is unbelievable good fortune and sell out.

So now what we do is a long-term contract for five years, and we’ll provide a minimum level of business, and if they are bought out by someone else, then we’ll have an iron-clad guarantee that if the new owner doesn’t want us to have that [stake in the site] then they would have to buy out our contract. That way we can share in the economic growth and value of the enterprise.

Hear McGovern discuss the success of the new Industry Standard site and its forecasting business model:

I saw that one of your online publications had 60% user-generated content. Is that something you’re pushing into more?

McGovern: On the B2B side it’s very important because our readers have a lot of knowledge and they’re often happy to share their experiences with a product, the pluses and minuses. Or they might share a case study of a problem they had and how they solved it and then they’ll get a lot of people commenting about it. I think the user content is going to grow. Often when we ask people what they like about a site, the user-generated content is rated as most valuable because they feel it’s absolutely trustworthy in telling them what’s happening in the real world. They believe it more than what they see as self-promoting comments from the industry or sellers.

Do the journalists feel threatened about it?

McGovern: They feel that their role is changing from being the exclusive information provider to being an information manager. One of their jobs is to get contributors. Maybe they used to get print writers before to contribute and now they have contributors who are CIOs or CTOs or in important positions in information technology. Their insights are rated very highly. The journalists are more coordinators of information rather than being a simple writer of a story about what’s happening.

What do you think about the future of print publications? A lot of people think newspapers won’t end up in print in the long haul, and certain magazines might disappear. Where do you see the future of print?

McGovern: Well if there’s a time value to the information, because I want to know something as soon as possible because there’s an action I need to make about a product, then they would naturally go to the web. They can get the most urgent news right away. If there’s information that’s just nice to know, like case studies about applications that you can read when you have a chance — or the aspirational side of consumer magazines, home and garden and fashion, then there’s no time urgency and they prefer the tactile feel of the magazine. In those consumer titles, they don’t have the same emotional experience going to a website.

What about in developing countries? As they get more Internet usage, will they follow the same pattern in going more to online than to print?

McGovern: That would be a logical development. Human nature is the same pretty much everywhere. The only change is that people will get it on their mobile phone because it’s moving so quickly to become the remote Internet access device, so they can make buying decisions 24/7 because they have the Internet right there in their hand. In India, there are 30 million people with Internet access, [more people are getting] mobile phones, many with 3G capabilities, for a total of 400 million people who can get information on their mobile phone vs. 30 million on the PC. Maybe 50 million to 60 million of those mobile phone users can access the Internet.

How has the downturn hit your company? I saw a prediction that PC sales would be down this year by 12%. How is that affecting IDG?

McGovern: The shift has been away from image and brand advertising and toward performance-oriented sales. At print publications for image advertising, we’ve seen a drop of 20% in advertising of the print titles, but we’ve seen a big growth — 30% to 40% — in the lead generation business. Overall we’re probably growing 8% to 10% in revenues, which is better than what is happening with print-based publishers who are experiencing this decline. They’re losing out on image and brand advertising because they believe the consumer isn’t spending as much.

McGovern talks about syndication deals with sites like NYTimes.com and how the trades work:

With your 8% to 10% annual revenue growth, do you attribute that to lead generation or also to your push online?

McGovern: It’s the growth of revenue online, which was 35% to 48% over the past three years. If you were only looking at online ad revenues, then the growth might be 3% or 4% but that’s the CPM-type advertising. But since we focused on cost-per-lead (CPL), we’re getting much higher revenues. About 50% of our growth is from price increases and 50% from volume increases, so at a time when most people are having difficulty retaining price integrity, we find that we don’t need to discount because they show the economic value of the lead.

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What do you think about IDG’s moves online and success with lead generation? How does their TechNetwork differ from other ad networks? Share your thoughts in the comments below.