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22 Feb 2008, 11:59PM PT

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11 Feb 2008, 2:35PM PT


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Smart Dossier SWOT Analysis On: CNET Networks, Inc.


Closed: 22 Feb 2008, 11:59PM PT

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A financial services firm is looking to obtain fresh Insights from alternative research, and it is interested in a qualitative assessment of CNET Networks (NASDAQ:CNET). Insights that cover strengths/weaknesses/oppportunities/threats (SWOT) for this company are a useful starting point for describing CNET's future. Speculation that Google might acquire CNET has recently surfaced, so descriptions of how CNET may (or may not) fit into Google's culture might be particularly interesting.

5 Insights


Strengths: CNet's biggest strength is that it is a widely-recognized brand within its market. CNet's News.com is universally recognized in the geek world as a credible source for news and information about the technology industry. CNet also has a deep "bench" of talented reporters who cover technology issues in greater depth than almost anyone else on the Internet. They are also actively experimenting with new media. I've been listening to their podcasts for a few months, for example, and they're top-notch.

Another CNet strength is that as a web-only play, they're not facing a painful transition to all-digital distribution. This gives them a leg up over mainstream media sites such as the New York Times. 

Weaknesses: I think their biggest weakness is probably the flip-side of the above virtues: their image is a little bit staid. CNet coverage tends to be solid, in-depth, and reliable. But it often lacks sizzle. Wired, for example, is widely identified with its opinionated and media-savvy editor, Chris Anderson, and over the last couple of years they've rolled out a series of blogs that are hard-hitting and opinionated. CNet, in contrast, has hewn to a traditional, just-the-facts, news format. This has earned them respect but probably doesn't inspire the fierce loyalty enjoyed by edgier sites. The site also seems somewhat lacking in focus. There's a ton of content on the site, and much of it is of high quality, but it can be a little unclear where to start when you visit the site.

Opportunities: CNet's size and the strength of its brand enables it to attract a broad audience for whatever new ventures it launches. For example, they are building a nice stable of bloggers that should help to build traffic to the site. As I mentioned, they've also launched some great podcasts. It's not yet clear if these will generate revenue, but if someone does figure out the right way to monetize podcasts, they'll have a significant audience to monetize.

Threats: CNet is at the top of its particular heap, but the heap is an extremely volatile one, and they will have to work hard to stay there. One threat is the rise of leaner competitors. I write for Ars Technica, so I'm probably biased, but it seems to me that Ars is a good example of the kind of site that poses a real danger to a site like CNet. Ars has a small, decentralized staff and depends heavily on freelancers. This allows it to have extremely low overhead. Ars also has an extremely efficient, Internet-focused, editing and publishing process. Writers communicate with their editors on IRC and email, and they then post their stories directly to the Ars website. This both reduces overhead and speeds the time-to-market for breaking stories.

Perhaps even more important than the lean-ness of CNet's smaller competitors is the number of them and the fierce loyalty they inspire. Ars tends to have a geekier audience with a lot in common. Ars readers identify strongly with the site in a way that I think a lot of CNet readers probably don't. The same is true of the burgeoning tech blogosphere. Sites like TechCrunch and Valleywag have Silicon-Valley-focused readerships that are passionate about the site and often feel a personal connection to the site's personalities. And of course, new sites are entering the market constantly. TechCrunch is less than three years old and it's now one of the most popular sites in technology news.

Google: I don't think a Google acquisition will happen. Google has been pretty consistent about steering clear of the content-production business. Their core competence is in organizing and filtering content produced by other people. They neither need nor want the headaches that would come with deciding how to treat "in house" content in their search and filtering tools. Google is a technology company, and the great strength of technology is its scalability: Google can develop a single application that then attracts tens of millions of users. Content-production is a more difficult, labor-intensive process, and I think Google knows it would be a distraction for them.

And as the article mentions, there would be culture clashes. A news organization operates very differently from a technology companies. Google hires the smartest engineers on the planet and pays them obscenely well. CNet can't afford to throw money at its talent. Acquiring CNet would force Google to either give all of CNet's reporters big raises, which would probably render the site unprofitable, or it would have to create a segregated company in which CNet reporters were second-class citizens. Neither approach seems likely to produce good results for either company.



Zack Miller
Mon Feb 18 2:11pm
i really like how you describe threats to CNET's content model. I agree completely that the Ars users and their fierce loyalty. Combine that with what you describe as a much leaner, decentralized publishing model and CNET must counter.

Do you think aggregation would be one way to address this issue (as opposed to rolling out more proprietary blogs which aren't particularly scalable)?

SWOT Analysis for CNET


Large user base: CNET has one of the most established, mature tech user bases online.  CNET's product reviews , tech news and gossip, and opinionated have entrenched the internet firm in an interesting way.  The professional reporting and reviews competes strongly vs. upstart blogs which don't have the credentials a firm like CNET has.  CNET's embrace of blogs and opinion also contribute to addressing the long tail.  While this user base is pretty established, CNET has done an OK job cross-pollenating its properties.  A better job would help to spray the firehose of traffic horizontally that the CNET franchise has built for itself.

Strong online content brands: CNET has tremendous brand equity in some leading tech brands. Those lesser brands and those focused on non-core activities are being shuttered for added focus. Speculation that Google would take a stake in CNET is derived from the strength of CNET's brands and user base. Similar to Google's 5% stake in AOL, the search giant may be interested in buying this inventory and blocking competitors from getting to it.


Ad network reliance: Like many Internet firms, CNET relies upon Google for about 10% of its 2007 overall revenues. CNET renewed its relationship with Google going forward. In most channels, GOOG is clearly monetizing better than MSFT or YHOO or some of the tier-2 networks. If Google's ability to monetize better going forward slips, CNET's relationship with Google could come back to hurt the firm.

Distributed publishing: Back when CNET was founded, web publishing was still the domain of the journalist. Professional writers used the Internet as an alternative distribution channel for their professionally produced content. With the advent of cheap (read, free) blogging tools and Google's plug and play advertising, the blogosphere was born. Where large, overarching sites are great at breaking news and conducting investigative jounalism, the blogosphere is SO much better at analyzing the news. CNET's value role in the content value chain, particularly in light of content aggregation sites, has been severely weakened. Creating must-read content and community is a do-or-die issue at the Internet firm.

To this end, ThinkEquity analysts recently said the following: "Our research suggests that technology advertisers are becoming more efficient in online ad spend and moving dollars away from portals and higher-priced vertical sites toward more cost-efficient, targeted niche technology sites and social networking platforms. In addition, CNET is seeing increased competition from tech-focused blogging and social networking sites... While the online tech ad market has been growing in the 30-40% range for the past several quarters, our analysis suggests that CNET's core tech ad business, which we believe represented 65% of total company revenue last year, is on pace to end 2007 down 3-4%.. "


Better monetization of remnant inventory: CNET mentioned during its last conference call that it's looking to better monetize its remnant inventory (which is about 15% of total inventory) though working with ad networks that use behavioral targeting. This inventory seems to have been previously used for house ads. "So, as I said in my prepared remarks we’re considering sales partnerships which allow us to benefit from the advances that have been made in things like behavioral targeting and other relationships which we expect could be an interesting addition to our revenue" -- Neil Ashe, CEO CNET

Year over year RPM growth was 15%, which offset a seeming 2% decline in pageviews. CNET saw 20% yoy growth in display advertising which shows the shift of revenue mix away from affiliate relationships and search revenues and a move towards deepening relationships with current advertisers to get a better share of wallet from partners.

Build out ad network with partners: CNET is currently testing a quasi-ad network. Working with content partners, CNET is beginning to leverage its own ad sales staff to sell investory on 3rd party sites. This allows CNET to monetize off-site. "We are also testing efforts to sell off network inventory. Our flagship brands and advertising relationships in technology, entertainment and business media give us a differentiated platform to complement our owned and operated packages with inventory from third party publishers. We are currently testing this in technology with CNET." -- Neil Ashe CEO, CNET

Ad networks are continuing to optimize inventory and we've witnessed CNET's shift in strategy toward partnering with networks to monetize lower-CPM inventory.

Ad-supported content syndication: CNET has relationships with partners in which the company syndicates its content for appearance on third party sites. CNET is begging to formalize this process and will being to syndicate entire modules of its content complete with integrated ads. This will allow CNET to monetize its content off-site. "As I mentioned earlier we launched the open content platform to effectively important and export content in a fully branded ad supported manner. Launch partners range from blogs to Monster" -- Neil Ashe CEO, CNET


Vertically-focused ad sales can hamper attempts to get higher share of wallet: CNET has traditionally segregated its sales teams by categories (Entertainment, CNET.com, Lifestyle), without fully-incentivizing sales personnel to cross-sell, attempts to gain more advertising dollars from existing advertisers can be hampered.

Slowing pageview growth: CNET is experiencing below-industy level traffic (quantcast) growth (2% year over year decline according to Morgan Stanley). That said, this decline probably can be (at least partially) attributed to the sale of Webshots.

Blogs: While CNET has done a good job seeding its own in-house blogs (like Dan Faber's of which this author is a fan), the long tail of tech content does pose a serious threat to the firm.  Rumors persist that CNET may pay top dollar for other tech blogs (like TechCrunch).  While this may or may not be true and may or may not make sense financially, the point is that larger blogs which a broad tech audience do pose a threat for CNET. 


Up front I will say I have a vested interest as I am one of ZDNet's bloggers (http://blogs.zdnet.com/Howlett)

People will have seen the news from yesterday that Jai Singh has now departed and that Dan Farber is taking the editorial hot seat. This is one of the best moves Cnet has made in a long time. If you don't know Dan then he's a smart operator, first rate editor but more important a great people mortivator. He's a person I hold in highest regard as the best editor I've worked with in some 17 years of commenting on the enterprise technology space and having worked freelance with more than 30 different editors. 

It is no secret that News.com has been drifting. It's also no secret they have some fine journalists. Dan's job will be to motivate them to start beating the ZDNet'ers and change the processes that keeps News.com asleep on the job. At present, ZDNet is trouncing them all ends up, especially on breaking news. 

Larry Dignan, who has taken over Dan's chair is a seasoned operator and equally respected as both writer and people manager. How well he is able to fill Dan's shoes remains to be seen but having some insight into his plans, things look good. When you look at the the current roster of ZDNet blog writers, it's hard to imagine a more insightful and seasoned crew. that will be continually strengthened over time.

Dan's move and Larry's promotion have been universally praised as the right action at this time. The appointment of a smart CFO also helps. All the blog contingent at ZDNet are on board and everyone is delighted. 

Given the close relationship between Dan and Larry, I fully expect to see significant cross pollination between the brands so that as a whole, the market will see a much more coordinated approach to both news gathering and dissemination. This will answert at least some of the critics while enhancing the overall brand value. It won't happen overnight but it won't take forever.

As to the Google angle? I don't see it. Google understands one thing - search based advertising. Everything else they've touched is either dormant or non-contributing by comparison. If Google bids, it would be a disaster for the News.com, TechRepublic and ZDNet brands. I expect it would raise eyebrows in the tech sector and push away some of the large, premium brand advertisers like Microsoft.

The biggest challenge would be the degree to which Google tries to control and 'manage' the independence of the journalists and bloggers who make Cnet what it is. There is no doubt in my mind that a number would jump ship almost immediately on the fear that criticism of Google and a corresponding uplift in critique of Microsoft would sully the individual reputations of those who write there. Speaking personally, I'd be one of the first over the side.

Joseph Hunkins
Fri Feb 22 10:29pm
A really interesting inside view Dennis. Do you think CNET could adopt an approach like TechCrunch's with minute by minute news but a lower standard for the stories?

Couldn't CNET do a *LOT* more to create an active reader community? I hardly even comment over there because of (minor but nagging) log in plus I rarely get the feeling I'm going to get a thoughtful reply as I might with, say, Mike Arrington or other bloggers.
Dennis Howlett
Sat Feb 23 4:42am
There have been debates about the commenting system and the registration 'paywall' in the blogger community along with the issue of short extracts versus full feeds.

I have lobbied for full feeds and ZD Net will be experimenting with that in the near future among those who have requested the feature.

On quality - ZDNet has no desire to compete directly with TechCrunch. It attracts premium ad rates for its properties which allows it to attract quality writers.

It is important to recognize that ZDNet, TechRepublic and News.com are not aiming at TechCrunch's 'bubble crowd' but a broader audience that wants a deeper form of analysis than is found among the new players. That's not to say that over time, TC, GigaOm etc won't encroach but they will need far deeper pockets than they currently have.


CNET Strengths:

Brand awareness and brand respect.   CNET has been one of technologies most recognizable and respected brands for many years, and continues to maintain the high respect of the technology community.

Writers.  CNETs technology writing and analysis is recognized as some of the best in technology.  Unbiased reviews and authoritative articles from seasoned technology journalists are the mainstay of CNETs content. 

Editorial staff.  CNETs reputation for editorial and quality control is unsurpassed in the industry.   

Dan Farber promotion.  Dan Farber is one of technologies most informed and seasoned professionals.   As a blogger who is extensively familiar with and actively participating in social media Dan was a great choice to help guide CNET into a more aggressive social networking posture.

Huge internet traffic.  CNET remains one of the most visited news sites on the internet.

High revenues with potential for high profitability.   CNET's revenues are strong despite significant earnings declines in the past year. Zacks analysis suggests a modest profit downturn in the coming year, but CNET is still generating very substantial revenues and some profits.   Under a JANA acquisition scenario the aggressive management for profit could boost earnings significantly. 

CNET Weaknesses:

Labor intensive content production.  CNET's quality writers and editors are her blessing and her curse.   Writers cost money and good writers, collectively, cost a lot of money.    Blogging and the social media revolution have led to an online environment that creates a tidal wave of quality tech-focused content every day at very low average cost per article.

News delays.   Although CNET remains very current, it simply cannot always compete with the 24/7/365 blogging community that is posting (and increasingly scooping) CNET and other media outlets when technology news breaks.  Again, the editorial standards force CNET to delay where bloggers and online journals will report first and ask questions later.  The practice is questionable from a journalism point of view, but usually it is just fine for advertisers and certainly helps with traffic generation as the early reports often garner the most page views. 

Earnings declines.   CNETs earnings are down significantly, placing huge pressure on the company to cut costs and increase monetization for content.    CNETs early success may have led them to incorrectly assume they would remain unchallenged in the tech news space where they are under pressure from both bigger players like Yahoo and smaller players like TechCrunch.

CNET Opportunities:   

Socialism!   CNET's attempts to build an online CNET-centric community at the website have been modest and in many ways have failed.    With a sterling brand and reputation, CNET is in a great position to leverage the existing tech-centric user base into a number of community endeavors.   One small example would be to create more niche CNET communities online and then evangelize these communities via CNETs advertising as well as Facebook, Myspace, and other social media powerhouses.   Even more powerful would be to facilitate the creation of much more reader-driven content.   For example make registration for CNET simpler with just an email signup and encourage far more guest articles.   Digg style rankings for CNET articles would be another positive step in this direction.  

Be more like TechCrunch.  Mike Arrington has brilliantly leveraged the fast pace of internet journalism, modest journalism standards, advertisement flexibility, and most importantly the powers of social media.   Where TechCrunch initially produced content at a fraction of the cost of CNET using freelance writing and little office overhead, it also distributed and monetized this content in more powerful ways such as massive emailings and very aggressive social media participation and real socializing.   Once again however CNETs high journalistic standards provide some barriers here.   

JANA board coup:  If JANA succeeds in the fight to change the direction of CNET, and this appears likely, a new focus on monetization and innovation will lead to a stronger and more viable CNET.     Unfortunately profitability is probably going to call for a reduction in journalistic standards and quality coverage, but from a company health perspective CNET is likely to benefit from a leaner, faster, broader, but more superficial approach to tech news coverage.

CNET Threats: 

Diminished advertising revenues.   The coming recession may not hit online advertising as hard as some other sectors but online advertising spending growth is likely to slow in the coming year and possibly even go down.   Financial sectors, for example, were huge spenders last year and may be unable to continue spending at the same levels due to the housing crisis.  

Blogging and the social media revolution.   These represent a substantial threat to CNETs long term prospects and profitability.   Blogs and non-traditional media coverage are generating huge volumes of quality content every day, and technology focused content is especially abundant since blogging's early adopters tended to be technology enthusiasts.  Bloggers are increasingly respected as quality journalists and analysts who in some cases have more expertise than the technology journalists that are covering the same story, product, or events.   Yet the average cost to produce a blogged story is effectively zero as many bloggers are writing simply for the fun of coverage and the internet soapbox.   Monetization of blogs is also becoming easier and more lucrative in the form of Google Adsense per click advertising as well as projects like Federated Media which match publishers to advertisers - a service for which advertisers are increasingly willing to pay a high premium.

A Google aquisition of CNET?

Despite the reasonable assumption that CNET has significant potential for a valuation far beyond current capitalization of approximately 1 billion,  I consider a Google aquisition *unlikely*.      Google's actions and stated intention for many years have been to concentrate on content *monetization* and avoid content production.    Also, Google stresses the value of machine scalability which is not compatible with the labor intensive content and editorial style of CNET.   

That said, I think that CNET and Google cultures would be fairly compatible.  Not because they are similar but because they would have a high degree of mutual respect as leaders in their respective fields.  Where Google is relaxed, fast paced, and extremely innovative CNET culture appears to be more formal, professional, and along the lines of a traditional journalism environment with attention to detail, high journalistic standards, and an older workforce.    This is probably an acceptable recipe for a comfortable working relationship.


CNET Linkage:

JANA Board Fight:

Zacks YHOO summary:



Dennis Howlett
Sat Feb 23 4:49am
There is a fallacy that TechCrunch has done a great job. It has shaken many of the players but it is tiny in comparison to the giants. How for example is it going to attract the premium players to take it seriously when it is using a blogging platform that was never designed for large scale? How will it re-engineer its platform? How will it attract the quality of writer it needs to break out of the Silicon Valley bubble?

I thoroughly disagree with the notion that Google and Cnet people could get along. It's important to remember that quality comes from the independence the writers enjoy. Google ownership could never guarantee that and tensions would always exist.
Joseph Hunkins
Sat Feb 23 1:16pm
Fallacy or not, TechCrunch is wildy profitable, runs very lean, and is *the* key player in the internet startup community. Blog platform scalability is not a significant barrier to growth.

CNET is certainly much larger and it's possible that they cannot duplicate these TechCrunch business virtues which come in part from journalistic compromises (sensational titles, rumor reports, social media leverage, etc), but what is clear to me is that legacy approaches to writing are decreasing in viability with every keystroke.

Two examples of my key point in all this:

1) Fox news. Profit trumping journalism. Note that CNN is
moving towards the FOX model, not the other way around.

2) I'm a fan of Dan Farber who is a superb tech journalist. I noticed he was covering CES a few months ago and we both attended Jerry Yang's Yahoo talk. We both wrote stories. I'm sure his was better written and perhaps more thoughtful, though I did get an interview with David Filo. Dan's story about this cost CNET x,000 in expenses and salary. My cost to others was effectively zero. This trend is powerful and CNET simply cannot fight it with "high quality reporting".

Although people would say they *want* objective, quality reporting they will spend more time *reading* about rumors blog fights, and sexy startups. Ergo, CNET must cheapen itself - literally and figuratively - or continue to languish.

This isn't a good thing - it's an inevitable thing.
Joseph Hunkins
Sun Feb 24 10:36am
quality comes from the independence the writers enjoy. Google ownership could never guarantee that

I don't follow. Google could and probably would guarantee at least as much editorial independence as CNET writers now enjoy. MSNBC does not have trouble reporting Microsoft news or Yahoo news reporting Yahoo news. Ideally you'd have some sort of wall between them and I'm guessing Google would provide that.

However as I note above I don't think Google wants CNET because content is not what Google likes to do.
CNet is a sprawling content giant with little real innovation. That's the real story behind its 148 million unique monthly users (or about 4.93 million unique users a day). In the last quarter, CNet racked up an average of 83 million daily pageviews. (They're using a new reporting platform which appears to have created a drop from the 91 million average in the previous quarter.) CNet became a content powerhouse when it acquired Ziff-Davis media in 2001, and they're continuously buying up new content — without any obvious strategy beyond maximizing pageviews. In 2006 CNet acquired Chowhound, the cutting-edge restaurant review community, just for example, and while their most-recent acquisition was FindArticles.com with its 11 million articles, they've also set aside a $250 million credit line for more acquisitions.

This makes CNet a remarkably pure content play. It's possible their long-term strategy is simply to grab enough web real estate to make themselves attractive for acquisition. Meanwhile, all the acquisitions are continually cutting into its profitability, and investors have complained CNet is singularly ineffective at capitalizing on their properties, CNet acquired Consumating.com in 2005, and a little more than two years later, they've just announced that it's closing next month — despite the fact that CNet owns the domains Chat.com and Community.com.

In fact, CNet also owns some truly valuable domains, including News.com, Mp3.com, Computers.com, browser.com, auctions.com, Help.com, Download.com, TV.com, and even com.com. There some obvious opportunities to monetize those valuable domains which CNet hasn't yet taken advantage of.

Ultimately this lack of innovation could really hurt CNet. They're the classic case of having too many eggs in one basket: most of their revenue comes from online advertising. With forecasts of a tightening market in 2008, CNet really doesn't have a fallback plan — and CNet's lackluster performance could make them an even more attractive acquisition target. CNet already gets a lot of its revenue from Google, which purchases a lot of ads on CNet's properties. So acquiring CNet could make sense for Google, simply to reduce the cost of appearing on CNet's properties. Yahoo was suggested as possible CNet partner (since Yahoo has much more original content), and both Microsoft and Yahoo are also advertising heavily on CNet properties.

But there's a more compelling reason for a CNet merger with a search engine. CNet would finally have some industry-leading expertise for optimizing their massive traffic. And the search engines would appreciate having the extra 83 million daily pageviews. Google has also expressed an interest in tracking surfing patterns, which would have to be easier with another 83 million pageviews staying within their network each day.

CNet sometimes seems like it's running to stand still. Even though their per-share earnings exceed expectations last quarter, it wasn't by much, and the web will only get more crowded with more and more content competitors. Currently there's even a messy lawsuit about CNet's recent adoption of a "poison pill" to fend off activist investors who want faster growth.

But the ultimate criticism of CNet comes from anyone who's actually used their properties. I'll follow a link to a CNet article, or download a piece of software from Download.com. But then — I'll leave. In their 10+ years of operation, CNet has never found a way to build an effective community around any of their brands. "Social media" is becoming increasingly important, with mega-sites like Digg and Fark claiming larger shares of the time spent online. Static libraries of "expert" content may become less of an asset in the years ahead.

There's real challenges coming — and CNet would stand a better chance of facing them by working with some ambitious content innovators.
Dennis Howlett
Sat Feb 23 4:52am
Cnet enjoys significant revenues from other sources including syndication and the delivery of additional content such as white papers.

I don't buy the community argument as espoused here. The problem is not as described. The problem is of execution. That's why some ZDNet blogs will be experimenting with full feeds.
David Cassel
Wed Mar 12 3:42pm
Well, it depends on what you mean by "significant". But we agree on the larger point that C|Net Networks could definitely be doing more with their "execution" on monetizing their existing content.