Big Money on Marketing

JustBalls Team: Jim Medalia

David S. Wetherell

More Online Sports

Corrections or additions?

This article by Barbara Fox was published in U.S. 1 Newspaper on

August 25, 1999. All rights reserved.

For this Online Retailer, Follow the Bouncing Balls

Since last year JustBalls! Inc. has gone through the

cute newborn baby stage and the faltering toddler stage and is getting

ready for first grade. The world’s only website devoted to selling

balls — all kinds of balls — has gotten national recognition

and has been proclaimed one of the top retailers online.

Kingston-based Justballs! (JB!) targets both ends of the market —

colleges and consumers (U.S. 1, August 12, 1998). It started with

five full-time employees, all veterans, now has 10, and plans to

expand

to 20 by the end of the year. It has sold to every state in the union

and to 30 countries. The company came out a winner at the New Jersey

Venture Fair and at a regional fair, Early Stage East. The company’s

CEO, Jim Medalia, is one of two E-commerce CEOs to speak at U.S. 1’s

Technology Expo on Thursday, September 2, at 4 p.m. at the Doral

Forrestal.

See page 4 for registration information for this free seminar.

"In one year," says Medalia, "we took seed money, built

a management team, built relationships with more than 50 vendors,

put our warehouse together, integrated our website to the warehouse’s

legacy system which generated all the pick/pack and order entry,

designed

and built the site, put it up, tested it, and are about ready to close

on the second round of funding."

As good as all that sounds, Medalia has few illusions about how far

he has to go. The balls market is worth $2.3 billion in the United

States alone ($5 to $6 billion worldwide), but so far his company

is selling only in the six figures. "Who should be nervous about

us?" he asks rhetorically. "Us."

A big chunk of his second round of private funding must go to

advertising

expenses. "It should come as no surprise to anybody that the name

of the game is marketing-marketing-marketing, and after that is

location-location-and-location,

or where you spend your marketing dollars," says Medalia.

Top Of Page
Big Money on Marketing

That Internet companies are spending big money on marketing —

as high as 50 percent of revenues — has been documented by the

Wall Street Journal (August 19) and Business Week (May 31). Compare

this high percent ratio of advertising to revenue with the traditional

"bricks and mortar" stores’ percentage of 5 to 11 percent.

But bricks and mortar retailers have other expenses (such as

maintaining

the storefront) that can count as marketing. And, as Medalia points

out, the pace of acquiring market share is much faster on the

Internet:

"You are raising money against the future value of your

company."

The successful companies are not shy about spending this marketing

money. Business Week figured out that Amazon.com generates more than

$4.50 in revenues for every marketing dollar it spends, and America

Online has nearly $7 in revenue per marketing dollar. Other companies

that get a lot of bang for their buck are E*Trade ($3.44), Ebay

($2.39),

and CDNow ($1.27).

Medalia explains how this works: "If it costs me $50, for

instance,

to acquire a customer, and if I can prove that the customer purchases

three times a year for two years, and that the amount he spends is

$50, i.e. a total of $300, and my margin is 50 percent or $150 profit

— that means I make three times what I spend," says Medalia.

"As long as that is a positive number I will spend any penny I

can beg, borrow, or steal, because in a new industry I need to get

market share."

"The key is, we are on our business plan," says Medalia.

"The

biggest competition is, in fact, bricks and mortar. Part of our

challenge

is to let people know that they can get all those products online

much more conveniently."

The convenience factor works both ways. "Cyber retailers have

to work harder at retaining that customer, because they know that

the other purchase is just another click away," says Medalia.

Aiming for customer loyalty, the site combines a jaunty ambience with

nuts-and-bolts useful information, all overlaid by a cunning

direct-mail

style intimacy.

Few retail sporting goods stores stock a good inventory of balls

(which

are low margin items) and the big-store retail clerks can’t be counted

on to give expert advice, says Medalia. In contrast, Justballs!

handholds

the customer through the selection. "At the core of our website

are product search and user-profiling features that behave like a

knowledgeable coach and seasoned sales pro rolled into one," says

Medalia, "matching the right products to the customers’ needs,

24 hours a day, seven days a week. The search function is the

centerpiece

of our store. Click on any one of them and you get a full-color

digital

image, a description, the price, and the ability to buy it."

Top Of Page
JustBalls Team: Jim Medalia

In contrast to the dotcom companies started by 20 somethings, the

JustBalls team has a few collective gray hairs. CEO and president

Medalia, the son of a Boston research chemist and an educator, majored

in film at the University of Cincinnati, and worked in Manhattan for

20 years, most recently building Internet sites. He and his wife,

Hong-Kong born E-Ping, have started several businesses together, and

they have a school-age daughter. She is trained as both an attorney

and an electrical lighting designer, and for JB! she is director of

technology and web development.

Also on the founding team are Joshua Worby (vice president of

marketing,

formerly licensing manager of NBA Properties), Steven J. Gerke (vice

president of merchandising, on the team that started the Lady

Footlocker

stores), and Joe Ruggear (vice president of logistics, former director

of inventory control at Tiffany and Co.) Incidentally, Medalia found

Ruggear through his job-wanted ad in U.S. 1.

The Jay Group is doing the fulfillment (storing and shipping the

product)

through its warehouse in Lancaster, Pennsylvania. John B. Evans

(founder

and chairman of http://www.biztravel.com and Daryl Peck (founder/CEO

of

Cyberian Outpost) are on the advisory board.

Medalia has been interviewed by Business Week and the Wall Street

Journal, and JB! has achieved the distinction of having one of the

top 10 sites in the industry, according to the trade publication SGB

magazine.

Medalia also points to a 4.5 rating (out of five) from an independent

firm that rated more than 700 E-commerce sites; fewer than 50 earned

the 4.5 stars overall, and only two other sites — REI and Chipshot

— sell sporting goods. The company planned and designed its

website

but hired InfoMech, based in Alexandria, Virginia, to integrate

databases

with the website architecture. Freelancers in Arizona and New York

City did the design and the copywriting. The site does not have

different

pages for quantity customers but does have buttons on every item

inviting

coaches to call for quantity pricing. The high-traffic hosting

facility

is Exodus in Virginia.

The firm has negotiated online contracts and deals with such companies

as Lycos (majority owned by one of Medalia’s major investors), USA

Today, and GoTo, and has done a number of radio campaigns, including

a very successful Mark McGwire souvenir baseballs. "The key thing

was not that we sold a lot of baseballs but that we sold a lot of

product into the St. Louis area, and continued to sell from that time

into the Superbowl," says Medalia.

Medalia is looking for mind share. "In building our company, when

we do our PR we have to think about appealing to the financial

community,

the sporting goods industry, and then to the end consumer. Our

challenge

is also to get institutional sales." He points to a recent

agreement

with Rider University to provide all balls on the campus, not just

for varsity but also for intramurals and physical education, right

down to the ping pong balls for the student center.

Don’t save your pennies to invest in a JustBalls! IPO, because that

may not happen any time soon, if at all. Medalia’s investors are,

he says, "very patient, very deep-pocketed." They are not

worried about cash flow problems and, in fact, they might prefer a

cash cow — a company that consistently has good income — to

a quick sell.

Top Of Page
David S. Wetherell

The lead investor, David S. Wetherell, is chairman and CEO of

Massachusetts-based

CMGI Inc. Services. He has been called a genius because he picked

such Internet investments as Lycos and GeoCities. Together, his firms

exceed all but Microsoft and America Online in Internet traffic. CMGI

is a public company but its investors also have privately-owned

venture

capital funds, and in a Wall Street Journal article on August 18,

in which Wetherell was criticized for his level of compensation for

CMGI, it was clear that his net worth is in eight or nine figures.

At the September 2 seminar don’t expect Medalia to answer questions

about an IPO. "We are here to create as much value as we can,

and that may or may not mean an IPO. Executing our business plan is

our focus," he says. "If you care about and look after the

downside, the upside will take care of itself."

Medalia has the successful entrepreneur’s philosophy: "If there

is an obstacle big enough, we put time and energy into overcoming

it, or we step aside and put time and energy somewhere else. You can’t

be daunted by bad news or surprises because you are running a

minefield,

and the mines are going to go off."

Justballs!, 4478 Route 27, Suite 102, Kingston

08528. Jim Medalia, president and CEO. 609-497-2400; fax,

609-497-0113.

Home page: http://www.justballs.com.

— Barbara Fox

Top Of Page
More Online Sports

People will pay to get the sporting goods they want,

says Richard Lipsey, who sponsored a Harris Poll on this topic. The

consumer’s insistence on quality over price, says Lipsey, "is

so different from what the industry expected."

Last year Lipsey, a 1952 graduate of Wharton with a University of

Chicago MBA, opened a fee-based Internet site to sell market research

and industry news on sports (U.S. 1, August 12, 1998). He licenses

the research from the National Sporting Goods Association, archives

12 trade magazines and newsletters, and adds federal commerce data.

Libraries, manufacturers, and service agencies by the service for

$250 per quarter or $750 per year.

To the current website service he will add the current hot technique

of the day, push technology. Specify Nike or any other topic and he

will send a Topic Alert that the database has a new item about the

company. "It is a reason for people to stay with it," says

Lipsey. He is approaching annual gross sales of six figures.

Sports Business Research Network, 25 Magnolia

Court,

Lawrenceville 08648. Richard A. Lipsey, president. 609-896-1996; fax,

609-896-1903. Home page: http://www.sbrnet.com.


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