July 12, 1999
Cover

Media: The media's new messengers

Web start-ups grow -- without content or profits

BY WARREN CARAGATA

The setting would be more at home in an Elmore Leonard novel than a script for corporate success. The smell of stale beer and cigarettes lingers in a near-deserted Toronto bar; a guy wearing a light suit and a dark shirt runs an ancient freight elevator that rises to a rooftop meeting. The occasion: an appearance by Jeff Mallett, the Canadian-born president of Yahoo! Inc., who is in town to launch several new products on his company's Canadian Web site (www.ca.yahoo.com). Mallett wears an open-necked shirt, his sports jacket slung over the back of a barstool. This is California casual, Silicon Valley-style. But what makes people pay attention is the phenomenal success of Yahoo! (the exclamation point is part of the name) and Mallett's stark assertion: "We are now building the pre-eminent 21st-century media company."

That's quite a goal for a company that didn't exist six years ago and operates only on the Web. Yahoo! went public in 1996 and now carries a stock market valuation in the range of such giants as CBS Corp. It easily outdistances icons of the media industry such as the New York Times Co. and the Washington Post Co. The company, which was founded by two graduate students, now has operations in 19 countries.

What separates Yahoo! from traditional media companies is that it does not create content -- in fact it takes pride in not doing so. News comes from the Reuters and Associated Press wire services; financial information and sports from a variety of sources. And there is content that only a Web site could love: personalized home pages, free e-mail, messaging software so users can tell when friends are online, telephone directories and maps. "We're not in the content-creation business," says Mallett. "We're in the distribution business."

In its desire to leave the storytelling to others, Yahoo! is not alone. Canada's most popular Web site, Sympatico (www.sympatico.ca), is run by a Toronto company called MediaLinx Interactive LP. "We don't see ourselves as content providers," says MediaLinx CEO Shaun Purdue. "We're an aggregator." That's the Web term for those who take content, whether news or telephone and movie listings, and assemble it so users can easily find what they are seeking.

In the world of the Internet, the job of bringing informational order out of informational chaos may prove -- as Mallett clearly hopes -- to be the thing that separates the successful media companies from the also-rans. Michael O'Neil, Canadian manager for International Data Corp., a U.S.-based high-tech research and consulting firm, notes the world is now flooded with far more information than any human could digest in a lifetime. Helping people to make sense of infinite amounts of information has become, he says, "an act of creation."

Sympatico's place in Internet publishing is also noteworthy because of its parentage. MediaLinx is not owned by one of Canada's big media companies, but by the phone company; Purdue's last job was as chief operating officer of Bell. The company also owns a substantial minority interest in Canoe (www.canoe.ca), the country's second-largest Web site, whose principal owner is the newspaper publisher Quebecor Inc.

Why is the phone company now in the media business? Bell thinks strong Canadian Web sites will persuade people to buy Internet access, part of Bell's core business. If Bell is unable to establish a strong presence on the Web, says Purdue, it risks being pushed aside in the fight to retain a direct relationship with its customers. In the geek language of e-business, it's called "disintermediation." In plainer terms, "we'll be marginalized," Purdue says.

That is just one example of the blurring of business boundaries. Another is the Quicken Canada Web site (www.quicken.ca), run by the new media division of Rogers Media Inc. (which owns Maclean's). Quicken, which offers a wide range of financial information, is a partnership between Rogers and Intuit Canada Ltd., which produces financial management software. In the United States, The Hearst Corp., a publishing giant, has joined forces with Whirlpool Corp. to sell appliances on the Net through a soon-to-be-launched site called brandwise.com. What Hearst brings to the partnership is its long-established Good Housekeeping brand name.

But is anyone making money? Bell hopes that MediaLinx and Canoe will eventually turn profits. And Yahoo! is already in the black. "We have to think that profits matter," says Mallett. For a company that aspires to be the Disney or Time Warner of the Web, it can hardly believe otherwise.