eUniverse's Secret for Net Profits
No one would mistake the fare on eUniverse's Web sites for highbrow entertainment. One of its more than 20 sites, Flowgo.com, recently featured a cartoon bear with an American flag tattooed on its butt doing the "dance for democracy." Another site, Bigfatbaby.com, offered an animated feline presenting its resolutions, one of which was, "I will not flush the toilet while my human is in the shower."
Don't cringe. This stuff is profitable. In fact, 3-year-old Los Angeles-based eUniverse has turned a seeming Web impossibility into reality: An online entertainment site, mostly supported by advertising, that turns a profit. For its fiscal year ended in March, it expects to report $5.5 million in profits on $33.2 million in sales -- its fourth consecutive profitable quarter. For fiscal 2002, sales are expected to hit at least $40 million, with profits of $8 million.
What's driving eUniverse's success? Try tens of millions of users who surf the sites and subscribe to its newsletters. More than 20 million registered users flood its network, consistently ranking it in the top 10 on Nielsen/NetRating's list of the most-visited Web sites.
EASY TO SHARE. In addition to Flowgo and Bigfatbaby, offerings range from entertainment site Madblast to electronic greeting-card site PerfectGreeting. eUniverse also publishes dozens of e-mail newsletters, including GossipFlash, which it created in a partnership with The National Enquirer. All told, more than 50 million people subscribe to the newsletters.
Word-of-mouth advertising makes eUniverse thrive. Virtually every cartoon, joke, and funny picture of someone's crazy mutt (courtesy of another eUniverse site, yourpetphotos) has a link at the bottom allowing the viewer to instantly e-mail the content to someone else. "This is exactly what consumers are looking for on the Web," says Jupiter Media Metrix analyst Stacey Herron. "It's quick, digestible, and easy to send on to friends as a way to keep in touch." Plus, it's free marketing.
eUniverse, however, needs to move upmarket to grow. That will be a challenge given its downmarket bent. Mortgage-refinancing companies, diet-pill makers, and credit-card issuers are all big advertisers on its sites now. That's largely a function of its audience, which skews towards middle-income women without a college degree.
PLAN GONE AWRY. eUniverse is trying to attract more ads from large consumer-products makers -- but without much luck. Its first major bid to get access to such advertisers just fell apart. It had been planning to acquire L90, a direct-marketing and media company with more than 100 Web sites and a stable of major advertisers, including American Express, Dell, and Procter&Gamble.
But in February, L90 became the target of an Securities&Exchange Commission investigation, partly focused on its dealings with Homestore.com, the online real estate outfit that restated earnings because several barter transactions had been improperly recorded as cash income. The SEC is reviewing L90's transactions with Homestore and other barter deals that may have caused L90 to misstate its results.
Unwilling to be dragged into a possible Enron-style nightmare, eUniverse pulled out of the planned acquisition on Mar. 21. "We had no choice -- we couldn't risk it," says Brett Brewer, eUniverse's co-founder and president. The loss won't crimp its growth expectations, but it eliminates the short-term possibility of enlisting more blue-chip advertisers.
CUPID CALLING. eUniverse has had more success moving to a subscription-based business model. To smooth out the swings of the volatile online ad market, Brewer and CEO Brad Greenspan have been developing services with monthly subscription fees. Last July, eUniverse launched Cupid Junction, a personals site. It has attracted more than 800,000 members so far.
Then there are the ongoing experiments with paid content on some of its free sites. For $7.95 a month, surfers gain access to ad-free content or subscriber-only jokes. Today, about 40% of revenues come from subscription fees. Greenspan aims to shift the ratio to more than 50%. "Our overall strategy," he explains, "is to build up long-term, paid relationships with our audience."
Hurdles are still ahead as eUniverse competes with the likes of Yahoo!, Lycos, and other portals that also are developing pay services. "eUniverse will face stiff competition from better-branded sites," says Denise Garcia, an analyst for GartnerG2. It will probably have an easier time selling services that appeal to its target demographic group, things like those online personals. Garcia says eUniverse could sign up more upscale advertisers by allowing its content to be incorporated into their sites. Greenspan says eUniverse is working on a number of such approaches.
EARLY MISCUE. Indeed, eUniverse owes its survival to the nimbleness of its founders. Greenspan and Brewer, buddies at UCLA, started the company in 1999 by scraping together $7 million, buying the music retailer CD Universe, and then going public by "reverse merging" into the shell of a defunct company.
It wasn't long before they realized they had made a mistake. With 10% profit margins on the CDs, and virtually no ad budget, they couldn't make a profit. A year later, they sold CD Universe back to the original owner. Instead, they focused on the entertainment sites they had purchased to funnel music lovers to CD Universe.
Today, they still sell some products on the Web but only those with high margins -- and little competition. For example, Allyoucanink sells recycled ink-jet cartridges. "The margins are much better," Greenspan explains, "and we're not dealing with a juggernaut competitor like Amazon."
"CONSUMERS WILL PAY." Now, the partners are experimenting once again. Their efforts will be aided by Sony's 550 Digital Media Ventures, which last July bought a 20% stake in eUniverse for $17 million. The two are working together to develop cross-marketing opportunities. "We believe consumers will pay for high-quality content," says Thomas Gewecke, senior vice-president for business development at Sony Music and an eUniverse board member. "eUniverse is a great testing ground for figuring out how to intertwine community, services, and content."
Greenspan is searching for other potential partners. On Apr. 8, the site teamed with Versaly Games, which distributes interactive entertainment to mobile-phone users. Eight of eUniverse's properties will be added to Versaly's menu.
One thing eUniverse won't do is grow beyond its means. Greenspan and Brewer have always operated on a shoestring. They prefer to sell many ads themselves rather than hire a big sales force, and they bought much of their computer equipment for pennies on the dollar from failed dot-coms. Even their conference-room table is a converted pool table. "We had to stay lean and mean," Greenspan explains.
That conservative approach didn't bring them the hype and acclaim that greeted other entertainment sites in the Web's early days. But now they can look back at a field strewn with failed dot-coms and ask: Who has the last laugh now
Don't cringe. This stuff is profitable. In fact, 3-year-old Los Angeles-based eUniverse has turned a seeming Web impossibility into reality: An online entertainment site, mostly supported by advertising, that turns a profit. For its fiscal year ended in March, it expects to report $5.5 million in profits on $33.2 million in sales -- its fourth consecutive profitable quarter. For fiscal 2002, sales are expected to hit at least $40 million, with profits of $8 million.
What's driving eUniverse's success? Try tens of millions of users who surf the sites and subscribe to its newsletters. More than 20 million registered users flood its network, consistently ranking it in the top 10 on Nielsen/NetRating's list of the most-visited Web sites.
EASY TO SHARE. In addition to Flowgo and Bigfatbaby, offerings range from entertainment site Madblast to electronic greeting-card site PerfectGreeting. eUniverse also publishes dozens of e-mail newsletters, including GossipFlash, which it created in a partnership with The National Enquirer. All told, more than 50 million people subscribe to the newsletters.
Word-of-mouth advertising makes eUniverse thrive. Virtually every cartoon, joke, and funny picture of someone's crazy mutt (courtesy of another eUniverse site, yourpetphotos) has a link at the bottom allowing the viewer to instantly e-mail the content to someone else. "This is exactly what consumers are looking for on the Web," says Jupiter Media Metrix analyst Stacey Herron. "It's quick, digestible, and easy to send on to friends as a way to keep in touch." Plus, it's free marketing.
eUniverse, however, needs to move upmarket to grow. That will be a challenge given its downmarket bent. Mortgage-refinancing companies, diet-pill makers, and credit-card issuers are all big advertisers on its sites now. That's largely a function of its audience, which skews towards middle-income women without a college degree.
PLAN GONE AWRY. eUniverse is trying to attract more ads from large consumer-products makers -- but without much luck. Its first major bid to get access to such advertisers just fell apart. It had been planning to acquire L90, a direct-marketing and media company with more than 100 Web sites and a stable of major advertisers, including American Express, Dell, and Procter&Gamble.
But in February, L90 became the target of an Securities&Exchange Commission investigation, partly focused on its dealings with Homestore.com, the online real estate outfit that restated earnings because several barter transactions had been improperly recorded as cash income. The SEC is reviewing L90's transactions with Homestore and other barter deals that may have caused L90 to misstate its results.
Unwilling to be dragged into a possible Enron-style nightmare, eUniverse pulled out of the planned acquisition on Mar. 21. "We had no choice -- we couldn't risk it," says Brett Brewer, eUniverse's co-founder and president. The loss won't crimp its growth expectations, but it eliminates the short-term possibility of enlisting more blue-chip advertisers.
CUPID CALLING. eUniverse has had more success moving to a subscription-based business model. To smooth out the swings of the volatile online ad market, Brewer and CEO Brad Greenspan have been developing services with monthly subscription fees. Last July, eUniverse launched Cupid Junction, a personals site. It has attracted more than 800,000 members so far.
Then there are the ongoing experiments with paid content on some of its free sites. For $7.95 a month, surfers gain access to ad-free content or subscriber-only jokes. Today, about 40% of revenues come from subscription fees. Greenspan aims to shift the ratio to more than 50%. "Our overall strategy," he explains, "is to build up long-term, paid relationships with our audience."
Hurdles are still ahead as eUniverse competes with the likes of Yahoo!, Lycos, and other portals that also are developing pay services. "eUniverse will face stiff competition from better-branded sites," says Denise Garcia, an analyst for GartnerG2. It will probably have an easier time selling services that appeal to its target demographic group, things like those online personals. Garcia says eUniverse could sign up more upscale advertisers by allowing its content to be incorporated into their sites. Greenspan says eUniverse is working on a number of such approaches.
EARLY MISCUE. Indeed, eUniverse owes its survival to the nimbleness of its founders. Greenspan and Brewer, buddies at UCLA, started the company in 1999 by scraping together $7 million, buying the music retailer CD Universe, and then going public by "reverse merging" into the shell of a defunct company.
It wasn't long before they realized they had made a mistake. With 10% profit margins on the CDs, and virtually no ad budget, they couldn't make a profit. A year later, they sold CD Universe back to the original owner. Instead, they focused on the entertainment sites they had purchased to funnel music lovers to CD Universe.
Today, they still sell some products on the Web but only those with high margins -- and little competition. For example, Allyoucanink sells recycled ink-jet cartridges. "The margins are much better," Greenspan explains, "and we're not dealing with a juggernaut competitor like Amazon."
"CONSUMERS WILL PAY." Now, the partners are experimenting once again. Their efforts will be aided by Sony's 550 Digital Media Ventures, which last July bought a 20% stake in eUniverse for $17 million. The two are working together to develop cross-marketing opportunities. "We believe consumers will pay for high-quality content," says Thomas Gewecke, senior vice-president for business development at Sony Music and an eUniverse board member. "eUniverse is a great testing ground for figuring out how to intertwine community, services, and content."
Greenspan is searching for other potential partners. On Apr. 8, the site teamed with Versaly Games, which distributes interactive entertainment to mobile-phone users. Eight of eUniverse's properties will be added to Versaly's menu.
One thing eUniverse won't do is grow beyond its means. Greenspan and Brewer have always operated on a shoestring. They prefer to sell many ads themselves rather than hire a big sales force, and they bought much of their computer equipment for pennies on the dollar from failed dot-coms. Even their conference-room table is a converted pool table. "We had to stay lean and mean," Greenspan explains.
That conservative approach didn't bring them the hype and acclaim that greeted other entertainment sites in the Web's early days. But now they can look back at a field strewn with failed dot-coms and ask: Who has the last laugh now
