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(June 4, 2001) The folks at TMP are a bit loose lipped about their game plan. "Monopoly Court", the insiders say, "is how it's going to work." In other words, the object of the game is to develop a monopoly and then defend it in court. Actually, we think it's an admirable substitute for a more detailed vision.

Historically, no player has been able to amass a market share larger than 4% in the staffing-recruiting-recruitment advertising sector. While "monopoly", as a surrogate for a more detailed view, is enough to drive a company, the strategy got us to wondering about real monopolies in related segments.

Now, we're hardly a think tank full of anti-trust lawyers. But, there are some emerging information bottlenecks that leave us wondering, in particular, about the newspaper industry.

As you know, there are three major newspaper initiatives in our universe. CareerBuilder, once publicly traded, was used as a vehicle to convert the winnowing assets of CareerPath (remember them?) into usable pieces of the next phase solution. CareerCast, the tiny technical job-shop, is being used by a fair number of newspapers as an experiment in avoiding the higher costs of the CareerBuilder solution. Finally, there is BrassRing.

Setting aside BrassRing (we'll get to them next week), let's take a look at the implications of network distribution in the newspaper business.

Historically, the advertising agencies owned the customers for newspaper classified advertising. Over the years, the sales teams in the newspaper business atrophied as the agencies continuously brought increasing revenues to the table. By the time the Internet reared its head, the newspapers' control of their own advertising revenue was theoretical at best. (The situation...losing control of the channels of sales distribution... is not uncommon, a close look at the struggles at Peoplesoft will show that the loss of channel control ultimately results in the choking of the core business).

The underlying goal of the three newspaper initiatives is to regain channel control. The costs involved, however, are hard to stomach. The newspapers, forced to compete directly with Monster/TMP, simply shrivel at the thought of making those sorts of investments. Learning to retake control of the channel involves deep pocket investing.

Operated as massive entitlements (trust funds), the newspapers are fixated on the notion that the opportunities in online recruiting are theirs as a right. Investing in rights is a hard thing for a good CFO to swallow. Like others in the industry, the newspapers always show up a day late, a dollar short and looking for the cheap way out (particularly if they can avoid actually selling anything at the same time).

Here is the rub

The only way that networks make sense as revenue producing vehicles is if they are very open systems. The newspaper investment in the network approach (currently featuring CareerBuilder as a centralized source and CareerCast as a decentralizer), because it is so extremely skimpy always wants to offload cost in favor of cheapness. The current hot example involves the JAD companies we covered in our recent analysis.

Each of the JAD players (some much more sophisticated than others) wants to develop a relationship with each of the newspaper entities. With 700 separate newspapers and a growing number of JADs (currently 24 if you include CareerCast in the mix), the cost of negotiating 15,000 separate agreements is staggering. (we estimate that solid, predictable, working alliances take between $50,000 and $250,000 to get going). But, everyone of the JADs needs everyone of the newspapers and vice versa.

The CareerBuilder answer is to draw a line in the sand. Their answer is that they "are" the network and can not and should not participate in other diluting answers. It's a predictably closed system answer to the question, robbing the newspapers of revenue in order to protect turf. It's also an astute way to avoid the inherent conflict of interest involved in the alternatives.

The CareerCast solution is to centralize authority and expand directly into the job ad distribution business. With a variety of support from within the newspaper industry, CareerCast is now acting simultaneously as the agent of the newspapers (its customers) as it negotiates the deals for access to online posting while building a Job Advertising distribution business of its own.

The situation is evolving this way because the newspapers do not want to shoulder the expense of becoming fully articulated businesses with Marketing and sales arms focused directly in our industry. The internal claims of profitability in the job board arena will only hold water if the form classified advertising managers can maintain their cost structures. It's fairly typical trust fund thinking. By taking this tack, the newspapers are forcing CareerCast (whose management is far too inexperienced to understand the issues) into a liability laden bind.

A player with embedded conflict of interest who engages in deals in order to build an internal business can get away with it when the stakes are low. That's just not the case in the newspaper industry which has regulatory watchdogs.

Our bet is that the reluctance to invest will continue and the resulting flaps will keep the newspapers from maturing their "new new" economy businesses.

That should accelerate Monster's trip to Monopoly Court.

- John Sumser © TwoColorHat. All Rights Reserved.

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