In Pursuit of Profitability, Nerve Gets Personal

Folio: The Magazine for Magazine Management, Nov, 2001 by Greg Lindsay

The founders of "literate smut" site Nerve.com are setting their readers up with each other through an online personals service, and they'd like your readers to join them.

When Nerve.com began publishing its brand of "literate smut" in the summer of 1997, its tack was to recruit name-brand authors like Nicholson Baker (at name-brand prices) to pen the thoughtful, erotic essays that Nerve's founders hoped would bring in the same young, overeducated, desirable demographic as themselves. Four years and a severe media recession later, they're now banking that their audience would rather read the pithy musings of other Nerve readers instead of the high-priced works of Nerve authors.

So far, these musings--Nerve's online personal ads business--are stored in 250,000 live ads; active users (about 20 percent of that number) pay, on average, $15 to $20 per month for the privilege of responding to them. The business should generate $500,000 in revenue this year, $3 million in 2002, and has already carried Nerve to break-even, according to CEO Rufus Griscom.

The company's sudden shift is a telling statement about what it means to be a young media company at a time when advertising has fallen off a cliff. Nerve began as an ad-supported Web site, then started a bimonthly print magazine to avoid dependence on said Web site, and then closed the magazine this summer when that became a dubious business model as well. Now the company is trying this venture to round out its offerings yet again. Griscom has split the business in two. He'll run Nerve's multimedia concerns; CFO Louis Kanganis takes over the personals business, which will be called Spring Street Networks. This way, they hope, the companies will be able to scale the business without scaring either the longtime Nerve readers or the more mainstream newcomers. It's a tricky gambit with a brand, and the future of Nerve and its spin-off lies in how well Griscom and Kanganis pull it off.

WHO NEEDS ADVERTISERS?

As successful as Nerve.com may have been in building an audience, there comes a time when all companies must turn a profit. As Griscom says, "It's very frustrating to succeed by pulling in one million people with passionate loyalty to your product and still not generate revenue. The way you make money is by charging money for this interest [in meeting people] instead of waving your hands in the background and trying to sell an Audi." (Nerve is also pushing its content as the basis for books, movies and television--a series on HBO based on Nerve's magazine is also set to debut next spring.)

So instead of hunting for advertising, Nerve would rather just charge users for advertising themselves to potential mates. To hear Griscom tell it, personal ads are the Net's next great franchise and are already the foundation of AOL Time Warner: "In effect, AOL has been used as one huge personals service for years. The user profiles have been used as personal ads since its inception." He describes Nerve's personals business as an "eBay of people selling access to one another." He adds that it's a natural beneficiary of the "network effect," which says that the importance of a network increases as its size increases.

And that's why, Griscom and Kanganis argue, your magazine should sign up to run on Nerve personals right away. Charter partners include Salon.com, Gen-X feminist magazine Bust regional magazines like Time Out New York and alt-weeklies like Minneapolis City Pages. Griscom says the online network UGO has also signed up, and another dozen are "in various stages of joining the network."

Lonelyhearts who sign up for the personals service are asked to design their own ad(s), which include responses to questions like "What was the last great book you read?" and "What's your favorite on-screen sex scene?" Posting an ad is free; responding is not. At first, Nerve charged a straightforward subscription fee, on a monthly or yearly basis. But after realizing just how addictive its service could be, the company switched to a credit system, where users pay upfront for blocks of credits (25 for $14.95 is the smallest package) used to respond to ads and start instant message sessions. "This is a beautiful, trackable, swiftly growing business," Griscom says.

Partners are expected to cajole their readers into signing up for the service (for which they receive a cut of their users' fees that is no less than 50 percent, according to Kanganis), but those ads are potentially included in any search by any subscriber.

And therein lies the rub. The missions of Nerve, the brand, and Spring Street Networks, the business, are at odds with each other. Nerve's ecosystem of readers is a delicate one. Adding new users might annoy stalwarts who have to dig through the ads of the new people--and scare newcomers who aren't used to bisexual twenty-something artists who all seem to live in the hip parts of Brooklyn.

That's not an exaggeration--nearly a third of Nerve's current database (roughly 80,000 ads) have been placed by a young, self-selecting demographic around New York City who identify with Nerve's founders (who are also habitues of the service). The effectiveness of its personals service to date stems much more from the strength of Nerve's brand than its technology. That brand even bleeds over onto the sites of its partners, where Nerve's interface, with its fifties-kitsch photographs and plugs for sex columnists "Em & Lo," dominates. If most of the value resides in Nerve's contributions to the database, why should partners lend their brands and promotional muscle to supporting Nerve? "We're partnering with strong brands and companies that spent time and resources to acquire readers," Kanganis says. "We don't have an ad budget, so everybody ends up coming here by word of mouth. Any other personals service out there, a large part of their budget goes to advertising."