Reed Elsevier Announces Major Internet Strategy to Drive Growth
Paula J. Hane
Posted On February 28, 2000
Hmmm, seems to me I've used this "major Internet strategy" headline before… Yes, in fact, it was just a week ago: "Reuters Announces Major Internet Strategy." Well, it seems to be a trend, folks. The mega-publishers awaken and realize they need to make a definitive statement about their plans to migrate their businesses to the Internet—and back it with solid investments of capital and commitment—or risk losing users and investors to the dot-coms. They need to find new ways to leverage their hefty content in the Internet venue.
Since coming on board as CEO of Reed Elsevier last September (see our August 9, 1999 NewsBreak "New Chief Executive Appointed for Struggling Reed Elsevier, as Lower Earnings are Reported"), Crispin Davis has worked hard on a major strategic review of the company. Now, while reporting end-of-year results for the company, he gave an eagerly awaited report on its key conclusions, new strategy, vision, and program of action.
The results for 1999 were disappointing, with only a 3 percent growth in revenue and a decline in adjusted profits before tax of 9 percent. He announced that the new strategy for growth would capitalize on the potential of the Internet, and that the company would back this initiative with a significant investment of $1.2 billion over 3 years. The company hopes to achieve earnings growth of at least 10 percent by 2002, while implementing an aggressive cost savings program, part of which calls for cutting 1,500 jobs, amounting to about 6 percent of its 26,000 employees. Most of the cuts will be in the U.S. and specifically at LEXIS-NEXIS.
Factors that had impeded the company's progress were identified as weak markets, especially at Cahners; strong competition, which particularly affected LEXIS-NEXIS; and management issues. The company's goal is to build a global capacity and market leadership across its three core focus markets of scientific, legal, and business-to-business, each to be addressed through its own business unit. Each of these markets is estimated to be large and growing at 4 percent to 7 percent annually. All three businesses provide high-value content to professional customers and are making the transition to electronic.
Each business unit will be headed by a global chief executive officer, as part of the company's commitment to significantly upgrade management effectiveness. Derk Haank has already been appointed to head Science, and recruitment of the other two positions is underway. According to a company representative, these are to be external appointments, and there is a strong possibility that the other two CEOs will be based in the U.S. The U.S. market currently represents 56 percent of sales, while the U.K. market is 14 percent. The company will also be appointing a global chief technology officer, and other key management appointments are promised.
Davis said: "Reed Elsevier has powerful and valuable assets: leading brands and market positions, high-quality and in-depth content, scale, professional people, and financial strength. Coupled with the exciting opportunities opened up to us by the Internet, this represents a strong platform for growth. We are determined to build aggressively on this with a new management team and new strategy in place."
Davis also indicated that the company was committed to "deliver demonstrably superior Internet products and services" that offered high value-added content, ease of use and functionality, and customization, with the goal to offer solutions, not just information. The company will work to provide more effective marketing and sales programs, and expand geographically, both in content and marketing.
Finally, Davis indicated that the company would continue to target acquisitions and alliances to reinforce its Internet strategy for growth, and would be establishing a venture fund of, initially, up to $100 million to make early stage investments in Internet related businesses. This should allow the company to stay closely tuned in to new market and technology initiatives, as well as offer financial return. The similar Greenhouse Fund of Reuters Group has had considerable success. A Reed Elsevier spokesperson said they have already taken minority stakes in some companies, such as Mindspring and China.com.
Meanwhile, a number of media outlets continue to speculate about a Reed Elsevier merger with Dutch publisher Wolters Kluwer, and about the possible purchase of the business publishing of Miller Freeman and of ZD Events, producer of the COMDEX shows. A company representative said that they did not comment on market rumors.
Some media coverage of the announcement touted headlines that emphasized the 1,500-plus job cuts, but company representatives indicated that this number includes some staff reductions that have already been made over the last few months. Janet Brewer, senior director of corporate communications for LEXIS-NEXIS, downplayed the potential impact of the announcement, indicating that LEXIS-NEXIS has already lost about 300 positions in the last few months from attrition, restructuring, and open positions not being filled. That company still has about 8,000 employees. She also indicated that it was creating new jobs in a number of areas, including staff for writing legal case summaries. She said that the company was trying to realign its hiring with current needs, which now include sales, marketing, and new product development.
What is puzzling is the change of the unit name to just "Legal" from "Professional," which encompassed legal, business, government, tax, and educational businesses. Is legal the only thing they plan to emphasize? Most of the discussion in Davis' report related to plans for the legal operations, and he called lexis.com and Butterworths Direct in the U.K. the "flagship products." The strategy for the division is stated as follows: "To be the leading, preferred global provider of information services and information-based solutions to legal professionals." I wondered whether the company was preparing to move NEXIS to another unit or to sell it off.
A company representative said that we "shouldn't read anything into the name change." It was changed to Legal to better reflect what that business segment does, and the legal market provides the largest portion of revenues. He acknowledged that it has been a tough 2 years for NEXIS, but that the service is making the transition from just being a provider of full-text information to one that offers solutions-based products and desktop tools, and customization to integrate NEXIS into intranets.
Davis was under a lot of pressure with this announcement. Market expectations were very high after the Reuters announcement, and Reed Elsevier's stock had gone up in advance of the report. Despite the commitment to Internet initiatives, Davis did not promise a quick turnaround or pull out any surprise announcements, so there was some disappointment among analysts and investors, which sent the stock down. Time will tell whether the publishing giant has moved as far and as fast as the Internet environment demands.