Content, Context, Community and Car Parts

Folio: The Magazine for Magazine Management, July 15, 1999 by Tony Silber

MALLOCH'S APPROACH TO INTERNET PUBLISHING GOES WAY BEYOND HEARST BUSINESS PUBLISHING'S PRINT TITLES, INSTEAD APPLYING WEB TECHNOLOGY AND ECONOMICS TO VAST DATABASE NETWORKS.

You get the sense that Richard Malloch, deputy group head for Hearst Books/Business Publishing, is just slightly ambivalent about print's role in the b-to-b media continuum. Sure, he recognizes magazines' value as a core brand around which to build other properties. But when he talks about print, it's all about the limitations of the medium--size, timeliness, business potential--and the limitations of its executives: "Many of these companies are ad-sales dominated," he says.

It's only when he starts talking about those other businesses that he gets really enthusiastic. In the five years since Malloch came to Hearst's b-to-b arm, which houses four magazines and a total of more than 20 products in the pharmaceutical, automotive and electronics sectors, the group has fundamentally transformed itself. It has gone from being dependent on advertising for about 80 percent of revenues to relying on advertising for only 20 percent of revenues.

The unit includes Motor, a 96-year-old monthly for repair-shop personnel; Electronic Products, a 120,000-circulation title for electronic-design engineers; Floor Covering Weekly; and Diversion, a 176,000, controlled-circulation leisure title for doctors--as well as 17 Web sites and a variety of guides, directories and repair manuals.

Electronic-based businesses are responsible for about 50 percent of the revenues, Malloch says, with database licenses, guides and directories responsible for about 30 percent. And while magazine ad revenue is growing in the mid-single digits, the electronic businesses are growing at a compound annual rate of 50 percent, and the print and CD-ROM directories are growing at a compound annual rate of about 30 percent, he says.

The business publishing arm of privately held Hearst is estimated to produce total revenues of more than $300 million. Malloch declined to break out revenue figures for businesses within Hearst Business Publishing.

Key to the growth of the electronic businesses is a proprietary online network linking insurance companies and body shops that helps insurers verify--through e-mailed photos damage estimates made by repair shops. Malloch says the network, which launched in 1994 and represents a partnership with CCC Information Systems, a Chicago-based auto claims and processing service, today has $13 billion in claims going over it, reaches 65 percent of the nation's body shops using automated systems (or a total of 13,500 shops), and is used by 50 percent of insurers serving the automotive market.

The network is operated under the CCC name, but all estimates include the Motor brand.

That network, and another allowing car-repair shops to order parts, is migrating to the Web and represents the centerpiece of Hearst's b-to-b e-commerce strategy. (None of the unit's 17 Web sites now include e-commerce operations.) Malloch, who joined Hearst in 1991 and has worked at the William Morrow and Avon book units, says that, mature, these network businesses could produce $400 million to $500 million in revenues.

Malloch acknowledges that these businesses go far afield from magazine publishing, but he says the Hearst magazines represent the company's eyes and ears in a market. He discussed that and other issues in a recent conversation.

Q: How do your magazines support your e-com businesses?

A: The magazines aren't really what our focus is. What we do is provide information to help people make business decisions. Where we were five years ago--and magazines are the right format to do this--is you basically inform someone. But the value-add is not only informing someone, but also allowing them to examine your information and personalize it and embed it into their own business practices. We want to be so instrumental in the way people do business that they can't do it without our information and our tools.

Q: How does this work?

A: In the collision-repair market, we have--with the help of joint venture partner CCC--really changed the way the process works. Traditionally, when you got in an accident, you'd call your insurance agent and he would tell you to go out and get estimates. You would then submit the estimates and the insurance people would authorize you to take your car in to have it repaired. But often, the insurance company wouldn't believe the estimates and they'd send out an adjuster.

Here are the tools we bring: We have a database at the collision shop, the same database in the claims office, and a network that connects the two. We have digital cameras at the repair shops. The repair professional will do an estimate, attach digital photos and e-mail them to the claims office--which literally can approve a repair that same day.

And because we're doing this now to nearly 60 percent of the market, we have a tremendous database to check not only regional norms but national norms, too. We can track how long it takes to get these repairs done and therefore reduce the number of adjusters.