On February 24, NewsEdge Corporation made a number of key announcements about the company that included a major restructuring and the creation of a subsidiary operating unit, the discontinuation of certain products, and a report of its fourth quarter and end-of-year performance. Just one year earlier, to the day, the company had begun merging three separate companies' products, services, and organizations to form the NewsEdge Corporation, uniting Desktop Data, Inc.; Individual, Inc.; and ADP/ISS.
Recently, the company proudly cited a report from Simba Information, Inc. that put NewsEdge in the number-one slot as the "largest business online service" in the survey, with a total of 1.2 million paid, registered, or authorized users, edging out others like Dow Jones and LEXIS-NEXIS. The position was attributed largely to the successful growth over the past year of NewsPage, a Web-based news service for individual users. So, with the acknowledged growth of NewsPage, the announcements could not be viewed as surprising.
Overall, the company reported total revenue of $79.5 million in 1998, compared to $77.5 million in 1997, with a net loss of $17.2 million in 1998, compared to a net loss of $15.9 million in 1997—another example of a company bleeding red ink despite increasing customers and sales. The quarterly and year-end report actually broke revenue and operating results into three segments (Enterprise, NewsPage, and Other), which gave a clear look at the results for units of the company and justification for the newly announced strategies. Revenues from Enterprise and NewsPage customers increased 14 percent for the year while customer revenues for products in the Other category decreased 66 percent in the quarter and 54 percent for the year. Thus, the company said the product lines in Other will be "harvested or discontinued." A company spokesperson specified that this included Hoover—a service for Lotus Notes users—and HeadUp—a fax-based news service. Both of these were products formerly from Individual, Inc. and the remaining customers will be converted to other NewsEdge products.
So, after announcing the termination of this unprofitable third business segment, the company clarified how it planned to deal with its two other segments—both offering solid news products. Don McLagan, chairman of NewsEdge, said, "Now we are structuring the company's Enterprise and NewsPage business units to more readily pursue the business Internet opportunity that we see." He explained that investment in NewsPage had been constrained during 1998 as the company worked to stabilize its finances following the merger. He then announced the creation of NewsPage.com, Inc., a wholly owned NewsEdge subsidiary. He added, "Our priority for the NewsPage unit is to accelerate both revenue and user growth into the 30 percent range in 1999 and then to the rates experienced by other Internet companies. We want to take advantage of the growth of the segment of single workers who choose free, ad-supported, and e-commerce-supported Internet news services for themselves."
According to McLagan, the Enterprise business unit "will be managed to achieve the profitability and the predictable growth and enterprise market segment gains that make NewsEdge a desirable and accountable subscription fee partner for organizations and their decision makers. Our priorities for the Enterprise business unit are for it to achieve profitability, to accelerate revenue from last year's 14 percent growth rate to a growth rate in the upper teens, to strengthen its renewal rate through the 85 percent range, and to improve salesperson productivity from last year's levels."
David Scott, marketing director of NewsEdge, explained that marketing and selling were very different for two such different types of customers, and that different management styles were required as well. He stressed the importance of profitability and service to customers as the strategy for the Enterprise side of the business, and investing for growth as the strategy for the NewsPage.com unit. He also revealed that the company was currently recruiting for a president for NewsPage.com, Inc. and evaluating their options. They were definitely interested in cross-marketing agreements, partnerships, and a possible spin-off, but would wait until a president could lead the initiatives.
During a conference call with press and analysts the day of the announcements, McLagan was asked whether they would consider being acquired. He answered that it was a matter of price, and that they would consider the right offer—even specifying that he would accept a buyout for $40 a share. (Note: the stock currently trades in the $9 to $12 range.) McLagan was definitely pushing the Internet theme and agenda in preference to filling corporate intranets with news, and it will be interesting to see the level of commitment to their corporate customers. Some observers felt they were jumping rather late on the Internet bandwagon, though stockholders will surely welcome improvements by this underperformer. However, adding .com has proven to work for other companies, at least for driving up a stock price.
Refining the News
Both NewsPage and the Enterprise products will benefit from the company's recently announced investment in additional sorting and filtering technologies for news. The company announced NewsEdge Refinery, their proprietary combination of technology and human review. The new system builds on the SMART (System for Manipulation and Retrieval of Text) software engine, licensed from Cornell University, and adds additional technologies and processes. According to the company, this "makes relevant news easier to find and links users to related subject and company information more quickly."
The company promises to introduce new enhancements to their news processing capabilities over the next few months. According to the announcement, "The Refinery will make use of powerful new neural-net and artificial intelligence technology." Also, a new content-enhancement capability adds metadata to stories, including tags, URLs, and ticker symbols, to original content from news providers.
Michael Welles, vice president of news operations, said, "We've standardized the metadata from news providers all over the world, each of whom has their own way of tagging stories. This makes it easier for NewsEdge to categorize, search, and deliver just the news people most need each day. In addition, our company coding allows for more direct and faster linking to company references, SEC filings, stock quotes, and home page information to quickly digest a news event's impact."
The company claims the two-step Refinery process is unique in the industry. In the first step in the news filtering, the machine technology filters news stories daily, examining content and context, and assigning stories to a NewsEdge Review topic. In the second step, human editors refine and cross-check the assignments, eliminating duplicates and redundancies, and prioritizing the news stories. McLagan said, "We will continue to invest and lever the NewsEdge Refinery ... to clearly differentiate the services we provide and to add value to news stories for our users."
For more information about NewsEdge Corporation, visit the company's Web site at http://www.newsedge.com.