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TMF Interview With
Internet.com Chairman & CEO Alan Meckler

With Dave Marino-Nachison (TMF Braden)
October 1, 1999

Westport, Connecticut-based Internet.com (Nasdaq: INTM) operates a wide-ranging series of websites geared toward the Internet professional, running the gamut from general interests like tech stock news to specific areas like streaming media. We spoke with Chairman and CEO Alan Meckler, a new media vet, about the importance of verticality and email views and why portals are waiting to die.

TMF: I've looked over your site and it seems like there's quite a bit going on there. Maybe you could tell us what it is you're doing and how you make your money.

Meckler: I hate to use the term but I guess the best way to understand it is it's a portal for people who make their living in and around the Internet space. It's a business-to-business site and it's primarily for business people who feel that the Internet is affecting their business and/or they are in development. So it's not just a development or technical site, it's a site that will have anything from public relations to Internet stocks to Internet news.

"We are the only VC in the world as far as I know that is totally concentrating on early-stage content sites."
And much like a great financial newspaper like The Wall Street Journal that you would pick up with three sections every day -- and if you went to a thousand people they all go into it in different ways and may not even get through the whole thing -- that's what Internet.com is all about. We have a network of websites, 70 to be exact, broken into 9 channels, soon to be 10. And each one of these sites is a vertical segment of the Internet industry.

TMF: Certainly there's a lot of content on there as far as print. I know there's also some software downloads.

Meckler: That's a very modest part of our site. Most of our stuff is by professional people, but we have 50 full-time writers who work for us both in our headquarters office, around the United States and around the world. In addition we have 45 freelancers who write at least once a week. So we have almost a hundred people write for us on a weekly basis.

The interesting thing about Internet.com is it's a model that the people on Wall Street still don't understand. It's actually very simple, but it's certainly different. It's based on the theory that verticality is the key to the future of the Internet in terms of content sites. So our homepage is not particularly well addressed -- in other words, our traffic doesn't pour in through our homepage. What happens is... a lot of hard-core users will come in and go to the site and jump to the other sites that they like to look at on a daily basis versus necessarily coming through the homepage.

Now, someone who's never been to the site before probably would come through the homepage. But for example, yesterday there was a very nice write-up on Internet.com in the New York Times. Now, you wouldn't have know it was Internet.com because the write-up was about our site searchenginewatch.com, but the press doesn't say Internet.com's searchenginewatch.

This happens to us all of the time. But that's OK. We don't mind because the advertisers know about it and the readers know about it and our traffic grows with very, very, very little promotion. Our traffic is growing dramatically and dynamically, as is advertising revenue. We're one of the few sites that can actually state that it will be profitable sometime in the year 2000 off of banner advertising. Most people today are saying they can't make money on banners and we can.

TMF: Well, that's certainly a question that I think a lot of people are wondering and I guess maybe the question then would be with so many people saying that, what is it you guys are doing that's making it work?

Meckler: Well, you see, the problem is that the financial press and the popular press pick up themes and ideas and they get bandied about and it becomes the gospel. The fact is, what they're really referring to is consumer sites. Consumer sites are commodities because many of them have many competitors. Consequently the type of cpms for your readers, or cost per thousand -- which is how advertising is purchased -- is very, very low.

When you have a business-to-business site such as ours where the only people that would possibly populate our site our read our pages would have to be somebody who's fairly heavy duty, you don't have a problem attracting reasonably high to very high cpms whether it be for traditional banners, e-commerce affiliate programs, and/or email news letters.

"Our site has really doubled the size in views on a monthly basis, but we get no credit for it."
Our average cpms on banners are $40, our average cpms on our email newsletters and email discussion lists are $70, and we are constantly adding inventory and growing our revenues significantly. So we have not in any way seen a diminution or downward pressure on our cpms. In fact, we've filled and been able to grow them because what started to happen is amongst the 70 sites in our network, we have some that are clearly not only number one, but there's no other, and there's such demand on the part of the types of companies that have Internet product who want to advertise to business people who are in the Internet space that we have waiting lists for spaces.

TMF: It sounds like most of the new features that you're going to be generating are going to come internally.

Meckler: We made our largest acquisition on Monday. We bought actually a site from Sweden called thecounter.com. Of the 70, 42 have been acquired and 28 have been created, so our philosophy has always been that if we feel there's an area, another vertical tangent that we need, we try to find them -- of course, before they become popular -- to see if there's one we can acquire.

If we find that there's nothing we can acquire because it isn't out there, we start one. For example, in the last four months we started streamingmediaworld.com. Now believe it or not, four months ago and even today we are the only site on the Internet that has news, directories and information about what's happening in streaming media. So that's what we do. On the other hand if we see something like thecounter.com, we will acquire it.

TMF: You've also recently established a venture fund.

Meckler: That's right.

TMF: It looks like from reading over your proxy that it wasn't really part of the plan at first?

Meckler: Well, it was in there as one of our other businesses but at the time we had just launched it so we couldn't really say very much. Now what happened is we raised $5 million for Internet.com Venture Fund One. By the end of next week, by October 7 or 8, we will have spent the $5 million on about 14 investments. We are in the midst of raising Internet.com Venture Fund Two, which should be around $25 million. And we are the only VC in the world as far as I know that is totally concentrating on early-stage content sites.

I'm not going to say we're going to have the success financially of CMGI (Nasdaq: CMGI) or Internet Capital Group (Nasdaq: ICGE). I mean, Internet Capital Group doesn't have a business, which is really amazing. They don't even have an operating company, they have one investment that's public, but their whole value is based on the fact that they have 31 investments without any track record other than one made public. We will have 28 by the end of October and we'll have 100 by June.

TMF: Could you detail what you consider to be the key properties in your venture fund?

Meckler: Well, I'd be happy to do that. Of course as I said, we have not publicly announced the next five or six that we're going to do next week. But we will be doing that next week. But of the first -- off the top of my head -- seven I'd be happy to run through a few of them.

The first one that we're very excited about -- which was our first investment about 10 weeks ago -- CreativePlanet.com. This is a Los Angeles-based site patterned very similar to internet.com. It's a network of sites for creative people in the entertainment industry. They now have about six or seven sites under their network, about to make several other acquisitions.

[Another] one which I'm very excited about is tutor.com. Tutor.com comes out of the Princeton Review. Ex-Princeton Review people have created this and Princeton Review owns part of it. Internet.com Venture Fund One is the lead VC in the first round and that's already up and running. It is the largest site right now for anybody who is a tutor. They can register and give their credentials on the site at the same time. That's a great site for whether a business person needs training for a task for professional purposes or a student or a parent needs to find someone for a student.

MDLinx is even more exciting as far as I'm concerned. MDLinx is an active website right now based on software that internet.com actually owns. What's very exciting about MDLinx is obviously there's been a lot of money thrown around and a lot of value on Wall Street in some of these things like Healtheon (Nasdaq: HLTH), or WebMD. But what this is, this site is only geared to professionals and I think in many ways can be more valuable -- I'm not talking about in terms of market capitalization if it's able to go public, but much more valuable as a professional site -- than these others.

These others again are much more consumer oriented, whereas MDLinx is the umbrella site and then underneath MDLinx there are 35 medical specialties. For example, you can go to heartlinx.com, which is under MDLinx, and when you get to heartlinx what you find is the ability to read on the site in 15 different categories the top articles of the day that have come down in 15 different specialties for cardiology. So, for example, if you were interested in arrhythmias which is a very important area for a cardiologist, you can find the headlines -- with a search bot, if you've gone out of town for the day -- with an abstract.

TMF: That's certainly something a lot of content sites are doing, trading a broad reader base for a more specific one that is more reliable in terms of revenues.

Meckler: Exactly. And my belief has been -- and I've been in business for quite a long time. I of course created Meckler Media, Internet World, and now internet.com, but I was in the scholarly publishing business for 25 years and I always understood verticality. You're starting to see more and more articles about the subject that portals and other horizontal sites that cover a lot of topics that are broad-based are going to be failed models. Over the next year or two I believe you're going to see their value decreasing significantly and that the values are going to go to whether it be consumer business to those very vertical niches where people can specifically find the information that they need, whether that's e-commerce for buying something or even more importantly for information, because as we know, you can't keep up anymore. None of the search engines cover more than a few percentage points of the Web. So the opportunity is huge and that's where our venture fund is. We're using that theory.

TMF: Well, since you brought it up, if you were going to try to address the broad consumer space online, how would you go about it?

Meckler: Well, I would stay away from that with a ten foot pole. My belief is that it's virtually useless. As the Web gets bigger and bigger, people will gravitate through bot technology and viral marketing in the sense that as people have special interests whether they be business interest or consumer hobby interest start to learn about sites that get right to the point that these sites will become the darlings of Wall Street and also the darlings of VC.

TMF: So, where internet.com is concerned, you're not particularly worried about whether people realize it's all part of the internet.com network as long as they'll visit?

Meckler: Exactly. You are the first, this is the honest truth, you are the first analyst, reviewer, even having done a road show -- you know we did a road show in late June -- that has ever said that and that is exactly right. In other words, what I said to you early on that we're a sophisticated, but very simple model, we believe that all the rules are wrong. We don't care that anyone doesn't know our brand -- I mean we'd like someone who buys our stock to know our brand. All we want to know is that if you're interested in search engines -- our name internet.com is splashed all over the searchenginewatch area on Internet.com. But the fact is that Joe Jones goes to searchenginewatch.com every day and he's got blinders on and he doesn't see the Internet.com brand. I couldn't care less. The more important thing to me is that IBM (NYSE: IBM) knows about it and other advertisers -- there are over 600 advertisers that we have on our site that are growing by a hundred every quarter with 90% retention rate.

TMF: What would you consider the most important metrics investors should use when they're trying to measure your growth?

Meckler: Well. I think there's three very important facts. First of all, there's us and nobody else in terms of covering the information for someone making their living in and around the Internet. There is nobody else who does what we do in the depth that we do it.

Secondly, when you take the massive number of page views we have -- we're now at 65 million page views a month just in this vertical Internet area and then I'll give you a metric again that you may never have thought of -- I'll give you credit and maybe you have -- but Media Metrix has never thought of, never see it written anywhere -- our site has really doubled the size in views on a monthly basis but we get no credit for it.

Between email views and discussion list views ... we deliver another 60 million a month, and someone would say well, who cares? I tell you the cpms on email newsletters and discussion lists is almost 100% higher than our banners and our banners are one of the highest in the country, if not in the world. So it's time that the Media Metrix's of the world and the Nielsen's and the Wall Street Journals and The Motley Fool and whatever start to realize that there's a metric out there that nobody's ever understood. What that really means is that our site has over 100 million views or page views equivalent because they're actually more valuable than banners.

The other thing to look at, and of course we are a public company so I can't specifically state where our revenues are going, but we will be reporting our revenues on Oct. 20th for the third quarter and you're going to see that in terms of anything that has been written about us, we're going to blow away all of the numbers.

TMF: Well, Mr. Meckler. I appreciate your taking up some time to talk with us. I hope we get the chance to talk again. I enjoyed the conversation.

Meckler: Well, thank you very much.

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