BUSINESSWEEK ONLINE : NOVEMBER 22, 1999 ISSUE
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The Industry Standard: Dot.com Glossy
With an IPO, The Industry Standard aims to be part of the hot story it covers

Every Friday night outside a four-story brick building in downtown San Francisco, a line of people winds around the block to get into one of the city's most happening parties. It's not a hip dance club--it's the weekly rooftop fete held by The Industry Standard, an upstart weekly that bills itself as ''the newsmagazine of the Internet economy.'' What draws attendees to the Standard's cocktail party is the same phenomenon drawing readers and advertisers to the magazine, the desire to get the inside track on an overwhelming, giddy revolution. Free drinks help, too.

By offering a glossy magazine, a daily news Web site, a swatch of free e-mail newsletters, plus the occasional conference, the 19-month-old Standard is one of a slew of new and old magazines vying to become the primary read for Webheads (table). What sets it apart, says John L. Battelle, its president and CEO, is that many of its top journalists are from the mainstream press and its target audience is executives responsible for Internet strategies rather than folks toiling in the computer room. ''Rather than a culture or a technology story,'' says Battelle, ''we decided the Internet is a business story.''

IPO, ANYONE? Now, the Standard aims to become part of the story: It's planning on its own IPO around the middle of next year. The magazine's owner, Boston-based publishing group International Data Group, confirms it has hired investment bank Hambrecht & Quist Group (HQ) to sell a minority stake to private investors as a prelude to taking The Industry Standard public. If all goes as planned, according to sources familiar with the sale process, privately held IDG will parlay a roughly $25 million investment in the money-losing startup into a 40%-45% stake in a business valued between $300 million and $450 million. ''It has happened much faster than even I had expected,'' says Patrick J. McGovern, IDG's chairman.

And if it all works, Battelle and his co-workers, including Editor-in-Chief Jonathan Weber will come out of an initial public offering with 20% of the company's stock. To pull it off, their challenge is to not repeat the mistakes of Wired, the grandpappy of Web magazines, which had bold dreams of being a multimedia giant but twice failed to go public because investors were leery of its losses. The Standard has to convince readers, advertisers--and now investors--that it is not merely a trumped-up trade magazine capitalizing on a one-time advertising boom but is on its way to becoming a big-league multimedia company. ''It has quickly become a must-read for a lot of the venture capital community and the Internet community,'' says Dana Lyon, the publisher of Wired. ''But I'm not sure the average consumer would buy it. It's a phenomenal success but [Battelle] has a lot of eggs in that one basket.''

If McGovern is right, though, it's a mighty big basket. He says $16 billion of venture capital and public money was pumped into Internet businesses during the 12-month period ended in September. Of that, 10% has been kicked back at the media through advertising, marketing programs, and sponsorships, as hordes of unknown dot.coms struggle to establish brands. The $1.6 billion windfall, he says, compares with a mere $100 million over the previous 12 months. Moreover, McGovern says another $33 billion of venture capital is set to pour into tech companies, with a portion destined for media coffers over the next three or four years. That should help the Standard, which has lost about $14 million to date, reach the target it is disclosing to prospective investors of turning a profit by next year.

To get there, Battelle has to persuade readers that his product is worth paying for. So far, the magazine has 125,000 subscribers, although the vast majority--90,000--are on free trials. Battelle says he aims to have 200,000 subscribers by next year and to see traffic at thestandard.com more than double, to 1 million separate visitors per month.

It may not have a lot of paying readers, but The Industry Standard does have buzz. Charles C. Wu, managing director of Panasonic Digital Concepts Center says he has made the Standard ''must'' reading for execs in his e-commerce incubator. ''They're factual, and they've got a lot of numbers and statistics in it that one can analyze and overanalyze,'' he says. ''They're something that simply can't be ignored.'' The Standard's ''metrics'' section is a popular feature, giving a heads-up on the week's Net IPO pricings as well as those coming up.

And editorially, the magazine has managed to grab a few scoops, such as its July, 1998, story on the creation of drugstore.com. Much credit goes to Editor-in-Chief Weber, 38, who joined in January, 1998, from the Los Angeles Times. The Standard launched in April that year with an editorial staff of 13 that has since ballooned to 53--not counting Kayla, Weber's Shepherd/Husky mix, who roams the magazine's halls. ''The growth has been so dramatic that we've been chronically stretched,'' says Weber.

FASTER, FASTER. Indeed, if there are faults with the Standard, they are its bland design and that it feels rushed, especially as its writers pump out enough copy to fill issues like the 225-page Nov. 15 edition. ''We haven't had an investigative piece in months,'' gripes Battelle.

Managing growth is only one challenge. Battelle, 34, knows only too well the difference between chronicling hot Web companies and being one. He spent most of his career at Wired, serving as U.S. publisher and head of corporate development. After its failed IPOs, the magazine was sold by its founders to Conde Nast Publications Inc. in 1998. Now it is flourishing alongside all the other media enjoying the dot.com ad boom. Wired's Web business was sold separately to Lycos Inc. (LCOS) this summer, with the print and online versions bringing in proceeds of about $300 million.

Battelle first conceived the idea of a weekly like the Standard in 1994 and was hooked up with McGovern through a headhunter three years later. IDG had attempted a monthly Web magazine-- called The Web--that failed, but McGovern still wanted to cover the nascent phenomenon. His $2.4 billion-a-year group already counts 290 trade publications including such titles as Computerworld and CIO, research group International Data Corp., and a book division that produces the popular ''...for Dummies'' series.

Though IDG is privately held, McGovern says the Standard IPO is critical to attracting and keeping its top people. The company is close to bringing in a partner to buy 20% of the company for as much as $40 million. Then, by the second or third quarter of next year, the plan is to sell another 20% of the company to the public, putting more than $60 million in its coffers to keep the business growing. Says McGovern: ''You bite your fingers because everyone says the day of valuation correction is going to come.'' Of course, if a market meltdown were to slow the Standard's rise, at least it would make for a heck of a story.

By Richard Siklos in New York and Janet Rae-Dupree in San Francisco

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