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Published in U.S. 1 Newspaper on May 3, 2000. All rights reserved.

Manifest Technology: Creating & Selling an Internet Niche

E-mail: DougDixon@princetoninfo.com

In the new wired economy, Internet E-companies explode

like supernovas. They spend millions of dollars on one Super Bowl

ad to establish their name, give away their product to win market

share, and then quickly go public to cash in on the boom market for

technology plays. So what has Russ Lockwood been doing at Stockton-based

MagWeb.com, spending four years building a military history web site,

and then daring to charge for the content that he has developed? Doesn’t

he know that content should be free?

MagWeb (short for "Magazine Web") is a throwback to the idea

that content is important. "Why do you think AOL bought Time Warner?"

asks Lockwood. "It wasn’t just for the cable systems, it was for

CNN and the magazines — the content."

So what’s the idea behind MagWeb? Well, imagine you are a military

history buff, and you like reading about commanding the British Army

in the Napoleonic Wars, or the uniforms of Spanish troops in Latin

America, or early submarines and U-boats, or British Colonial warfare

in the Sudan, or even reviews of tactical and strategic computer and

war games. Where could you go to enjoy your hobby, to find articles

in your area of interest, to discuss ideas with others who share your

passion?

You could subscribe to magazines and newsletters in the field, but

there are so many small and specialized publications. You might try

to join military history organizations or attend conferences, but

they may not be available in your area or fit into your schedule.

And even if you did all of this, how can you be sure that you would

notice all the articles in your area of interest, or that you had

not missed a great article that was published a year or two ago?

This is where the promise of the Internet comes in. Imagine instead

that you could connect to a Web site that offered articles from lots

of different publications from all over the world. And since the articles

include all the text and all the graphics from the original publications,

you can easily do searches to find material of interest to you. And

of course, the articles would accumulate over time, so that not only

current publications, but also an archive of back issues, all are

available for browsing.

This is the promise of Lockwood’s MagWeb (www.magweb.com). As of mid-March,

MagWeb hosted an archive of more than 16,000 articles on military

history from 81 magazines, plus book and game reviews, sample book

chapters, other product reviews, and discussion areas. "MagWeb.com

is the world’s largest military history and product archive,"

says Lockwood, "and equal to a Fortune 500 company’s site."

Contrary to the established Internet model, MagWeb charges for access

to this material. A one-month subscription costs $19.95, three months

costs $34.95, six months costs $49.95, and one year costs $59.95 (or

$4.99 a month). And it has found people — nearly 2,500 so far

— willing to pay for this content. Assuming that the average subscriber

gravitates to the $5 a month plan, those numbers suggest an annual

gross of over $120,000. While that might not excite the lords of high

finance and IPOs, it’s a promising revenue stream for a small, home-based

business that’s just a few years old. And it suggests that this venture

might just last longer than some of those very hot Internet IPOs that

came crashing down to earth in the recent stock market correction.

"There is a lot on the Web that is `free’ although the advertisements

can get overwhelming at times," says Lockwood. "MagWeb has

always been a `premium’ site. The Web is like broadcast TV with plenty

of free programs supported by plenty of advertisements. But the best

shows are on cable, and you pay for cable. MagWeb is the equivalent

of a premium military history cable channel. We charge a fee for our

premium content, and there are no advertisements."

Lockwood argues that "the equivalent in print subscriptions is

over $1,000, not including the out-of-print magazines you can’t find.

$5 is the cover price of one issue, and you’re getting 19 issues a

month." The Web also provides much more timely access to foreign

subscribers (over a third of its subscribers are from outside the

U.S.), who avoid the long wait for surface mail delivery and save

on overseas postage.

To help new visitors decide whether to subscribe, MagWeb offers a

free sample article from each of the publications that it hosts. It

also hosts a virtual mall with historical art, books, games, miniatures,

and other products offered by third parties.

"We find two main groups of members," says Lockwood. "One

stops by every week or two and spends a full hour or two reading articles.

The other group drops in every couple days. It’s absolutely amazing:

We put up articles two or three times a week, and these people are

checking in at lunchtime to print and read them."

Charging for content on the Web is a tough business, especially for

magazine-like content (we’ll ignore investment services and game sites

and smut). Perhaps the most famous flame-out was by Slate magazine

(slate.msn.com), the general-interest online magazine owned by Microsoft.

Slate was started in June, 1996, and started charging an annual subscription

fee of $19.95 in March, 1998. By February, 1999, faced with competition

from free sites like Salon magazine (www.salon.com), Slate threw in

the towel and rejoined the Web mainstream. At the end, Slate had paying

subscribers numbering in the "high 20,000s."

Even a financial news service like TheStreet.com (www.thestreet.com)

could not support itself charging $99.95 a year for access to its

site. In January of this year TheStreet.com opened up its news services

for free access. Again, this better matched its competitors like the

Industry Standard, which supports its print publication with a free

website. While TheStreet.com was able to attract more than 100,000

subscribers to its old site, it has now shifted to charging subscription

rates for specialized services including commentary and analysis and

research. The hope is that while the number of subscribers will go

down, the revenue will be replaced by higher prices for the more focused

services.

By comparison, a well-established national publication like the Wall

Street Journal has been able to develop a Web subscription service

to complement its print publications. An annual subscription to the

Wall Street Journal Interactive Edition (www.wsj.com), including Barron’s

Online, is $59, or $29 for subscribers to one of the print publications.

The first two weeks of a new subscription are a free trial period.

The Journal’s Web subscriber base is now around 375,000.

Another approach is to offer free access to the current

issue, but then continually develop more value in an on-line archive

that can support fee-based access. The New York Times (www.nytimes.com)

posts its current issue for free on-line, and offers free headline

services by E-mail and even a wakeup call service. For access to previous

editions, however, the Times offers its 365-day archive of articles

at a flat rate of $2.50 per article for the full text (but not photos).

In New Jersey, the Star-Ledger and the Times of Trenton offer full-text

archives on New Jersey Online (www.njo.com) for a flat fee of $6.95

for unlimited usage. The Star-Ledger archive dates back to 1989, and

the Times archive to 1993.

A similar shake-out has occurred with on-line references. The Encyclopaedia

Britannica is now available for free on the Web at Britannica.com

(www.britannica.com), along with selected articles from more than

70 of the "world’s top magazines," and other database and

searching services. This is a considerable price reduction from the

full 32-volume print edition at $1,250, or even the CD-ROM or DVD

editions for $69.95. Meanwhile, Microsoft continues to charge for

an on-line subscription to accompany its Encarta Encyclopedia for

$39.95 per year.

Another august name, the Oxford English Dictionary, also recently

was made available on the Web to provide online access to the full

text and searching capabilities. Individual subscriptions cost $550

per year, compared to $395 for the CD-ROM edition, $375 for the compact

edition ("in slipcase with reading glass"), and $995 for the

20-volume printed set.

"The Web enables new content, but there are few ways to pay for

it," says Peter Krasilovsky, vice president, local online commerce,

for the Kelsey Group. "It makes sense for research, high value

content, and special services."

The Kelsey Group (www.kelseygroup.com), based in Montgomery Commons

on Route 206, provides research and analysis focusing on local advertising

and electronic commerce. "A couple years ago we believed premium

services would have a big comeback," says Krasilovsky. "The

Wall Street Journal shows you can have a truly successful service."

"Right now there are only a few ways to sell content. Newspapers

can sell their archives and bring in some revenue. They have been

under marketed, at $2 to $3 per item. Some have given up, there’s

not enough traffic for advertising. But the services need to be bundled

with other applications, like a travel service, with articles and

booking and calendar. It’s a much more pragmatic approach."

So what can MagWeb offer to the magazines that it hosts? "We work

licensing deals with the magazines," says Lockwood. "They

use MagWeb.com as their electronic version and for back issues. It’s

up to the magazines how much to share. Some are hip to this and promote

the back issues to get royalties. Some magazines like the British

`First Empire’ are adamant about being posted close to the publication

date. They get more newsstand sales as readers want to get a hard

copy."

In addition, the magazines get worldwide exposure to the MagWeb subscribers

that they could not gain individually, and that draws new subscribers

and new advertisers. "They get exposure in a niche market,"

says Lockwood. "We have anecdotal evidence that magazines have

picked up circulation. I can tell you that we have not lost any from

MagWeb, and we haven’t put any out of business."

And it seems to be working. MagWeb was founded in 1996, and went on

line with eight magazines on July 1, 1996. "We waited until we

had at least five magazines," says Lockwood. "Some were quite

forthcoming and said they thought we would be dead within six months."

Lockwood promises his subscribers that MagWeb will post at least 10

new issues a month. He actually averaged over 22 in 1999. MagWeb posted

267 issues last year, with around 5,300 articles, building the archive

to around 15,075 articles and 12,624 images. That’s a rate of 100

new articles a week.

"We have just under 2,500 paid subscribers, and are doubling every

year," says Lockwood. "We hope to reach 5,000 by the end of

this year as we build the archives. We’re about on our five-year growth

plan."

"Our original concern was that readers would subscribe for a month

and then go away until the archive built up more. But we’ve found

that approximately two-thirds of our members subscribe for one year,

like a magazine subscription. We retain around 75 to 80 percent of

our members."

Lockwood’s interest in military history began at an

early age. "My father [an entrepreneur near Totowa, in northern

Jersey] taught me chess at around age 6," he says, "with kings

and queens and knights and castles. It was a thinking game, and I

started reading up on medieval knights. I then graduated to World

War II because the library had more material on it."

"History is important to understand how things work, and who we

are. And wars were distinct turning points in history. The more we

understand them, we get into them less. But eventually we forget.

Bosnia was a mess back in the Ottoman Empire. In Vietnam, the OSS

helped the Vietnamese in their guerrilla war against Japan, which

they then used against the French."

In high school Lockwood covered town meetings for community newspapers,

and wrote for history magazines on topics including profiles of weaponry.

After earning a BS in journalism with a minor in history at Syracuse

University in 1981, he joined the New York Times Information Service

as a financial staff writer preparing news summaries. "It was

the perfect melding of writing and computers," he says. "A

giant on-line database, charging $150 an hour in the early 1980s to

access summaries and full text. A pretty neat idea."

After the service was sold to Lexus/Nexus, Lockwood worked with several

Ziff-Davis publications, including serving as assistant editor of

the pioneering Creative Computing magazine. He then was a senior editor

at Personal Computing magazine, which was then bought by Ziff-Davis.

"We had over 500,000 circulation in the late ’80s, and were in

the finals of the National Magazine Awards against the likes of Newsweek,

Esquire, and National Geographic. We did a lot of articles about how

people used technology to actually do something."

For three years, Lockwood was a sysop (system operator) for ZDNet,

running the Compuserve forums AfterHours, Computer Gaming World, and

PC Magazine. After AT&T bought the Ziff-Davis online service in 1995,

he served as editorial director of AT&T’s New Media Services Web division,

"I had a vision of media services online for small business and

consumers," says Lockwood. "We had 300 people working on a

vast on-line consumer project. But they shot the consumer side; I

remember the quote: `consumers don’t want to be online.’"

MagWeb was founded by four partners, Lockwood, his wife Susan ("she

said it was a great idea"), and two long-time friends and fellow

history buffs, Tibor Vari and Bill Abernathy. "Like other Internet

companies, everybody is a VP. We have three VPs, and they do everything,

including trade shows. We outsource PR and marketing."

Lockwood is CEO, and works fulltime on MagWeb doing the article scanning,

page coding, and business development. Vari works a couple of hours

a day and weekends, maintaining the database, memberships, and customer

support. Abernathy provides the custom code behind the site, including

the credit card handling and secure server. Susan Lockwood handles

the paperwork, checks, and "administrivia." All three work

in high-tech software sales at different companies.

But scanning the magazines and updating the Web site is a lot of work.

"Posting magazines can take quite a bit of time," says Lockwood.

"The largest magazine is 192 pages and the smallest are some back

issues that are one side of one sheet. The average is around 75 pages,

which reduces to around 45 to 50 without the ads."

And the magazines come in all kinds of formats. "We do get electronic

files from some of the publishers. But the back issues from the ’60s,

’70s and ’80s need to be hand scanned. It’s a 12-hour stretch with

a lighted diode. And the character recognition rate can vary from

99 percent down to 12 percent with some of the tiny newsletters that

were typewritten and then copied. The graphics is the toughest part;

fiddling with PhotoShop to repair ugly pictures that are dark and

faded."

"There’s an art to crafting magazines to online," says Lockwood.

"You need the pages to load quickly. On MagWeb, 80 percent of

our pages average under 30 seconds on a 28.8 modem. The illustrations

need to be cropped. Some period maps have very tiny type, so we scan

them in two versions, a smaller version for the main page and a second

at jumbo size to see all the detail."

The MagWeb pages for each magazine also share a common design theme.

"We lay out all the pages with a colored bar down the left side

of the pages, with a different color for each magazine. This gives

you space for a three-hole punch if you print the pages. Studies have

also shown that you read 5 to 7 percent faster on screen if there

is a vertical bar on the left hand side of the text for your eyes

to return to."

But Lockwood knew what he was getting into. "I chose military

history because I was a history buff," he says. "Working 12

to 14 hours a day for six days a week, I must like what I’m doing."

In his spare time, Lockwood also writes occasional book reviews for

his site.

Lockwood is in for the long haul. "I want this to be a sustainable

company," he says. "It would be nice to have a chunk of money

to really develop the business. But you know what happens to the founder

with VCs. The CEO gets maybe 3 to 4 percent, and then is forced out

due to a difference in philosophy. I want to see this through."

"We started with a business plan in 1996 and are sticking to the

timing," says Lockwood. "Last year we came within $314 of

breaking even. We dumped it all back into P.R. and marketing. That’s

with no salaries, besides a part-timer helping with scanning. I know

we’ll do much better in 2000. Our first two months beat the last quarter

of ’99."

"We’re building the number of magazines and the archive of back

issues. Now the magazines are starting to call us. After four years

of toil we’re starting to get some notice. I’m a big fan of steady

progress. We’re reaching out to larger publishers."

MagWeb has also begun to pick up some visibility on the Internet and

in the press. Computer Currents picked MagWeb.com as a "Link of

the Week" in January, 2000, joining a "Hot Site Award"

from USA Today newspaper in 1999. PC Gamer magazine also had a positive

review as a research site in the March, 2000, issue. MagWeb also won

a 1999 Internet Excellence Award in the Media category from Technology

NJ.

"We’re reaching the end of the incubatory period," says Lockwood.

"We’ve figured out how this stuff works, how people use it and

react to it. Information is infinite malleable. We’re building the

largest archive of military history that can be used in many ways."

But MagWeb is a larger vision. "We called it MagWeb for a reason,

not Military History Web. We’ve figured out the back end of print

to electronic media. We can do other niche areas in publishing, not

big areas like sports or financial. We’re also developing special

projects this year to augment the military history focus."

"The first wave of the Web was the technology, hardware and software.

The second wave was E-commerce, with Amazon.com and MotherNature.com

and Pets.com just selling things as middlemen. The third wave is content.

With my journalistic background we can provide content for a narrow

niche, provide the expertise behind it, and build a community."

"We’re getting recognized. It’s like a strap-on booster rocket.

The publishers think it a good idea. They’re steadily increasing,

and none are dropping out. It’s gratifying building the awareness

of the product out there."

— Doug Dixon

Coalition Web Inc., 161 Lambertville-HQ Road,

Stockton, 08559. Russ Lockwood, CEO. 609-397-4265. E-mail: magweb@magweb.com.

Home page: www.magweb.com.

Does your business have technology that is transforming our personal

or business lives? Send suggestions to U.S. 1, 12 Roszel Road, Princeton

08540, fax 609-452-0033, or E-mail info@princetoninfo.com or ddixon@acm.org.


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