ClassiFACTS, an Internet Casualty, Leaves Newspapers in a Spot

By: Steve Outing

Colorado-based ClassiFACTS, one of the first companies to help newspapers publish and market their classifieds in electronic formats, is out of business. The company, founded in 1991, shut down its 800-number newspaper classifieds employment service, which featured jobs classifieds from 56 U.S. newspapers, and laid off most of its staff of 60 earlier this week. Its recently introduced Internet classifieds system for newspapers, called "WebCLASS," is also a casualty, although the technology will live on. ClassiFACTS has sold the technology to another company, which for now remains a secret.

For the handful of newspapers that had signed on to use ClassiFACTS' Internet classified solution, the company's demise has the papers' executives scrambling to keep their classifieds online. At the Atlanta Journal-Constitution and the Santa Rosa (California) Press Democrat, new media managers are implementing temporary measures to continue publishing their classifieds on the Web while trying to line up a permanent classifieds solution -- possibly with another vendor. And at the San Francisco Chronicle-Examiner, the papers' Web site is without a solution for getting display ads onto the Web.

Shift to Internet: Too late?

Privately held ClassiFACTS has been ailing for some time, with its flagship service, an 800-number newspaper-employment-ad clipping service called "JobFinder," reportedly a money loser due to the current low U.S. unemployment rate, which reduced demand for the service. A new CEO, Gene Tye, a former Times-Mirror executive, was brought in last October to help the company, and during his tenure ClassiFACTS was making the transition to an Internet company. As the company closed its doors, it had about 60 employees, down from a peak of 90.

The company began marketing its "WebCLASS" Internet product line in February, and the system seemed to be well received by the newspaper industry. WebCLASS was a behind-the-scenes technology solution for newspapers. A Web site running WebCLASS sported no logos or identification other than the newspaper's -- a characteristic that most publishers liked. Publishers paid a licensing fee for WebCLASS, and hosting fees for running a paper's classifieds on ClassiFACTS' servers. The company operated a Web Services Bureau that could host a paper's classifieds operation entirely, or the paper could operate its own server at ClassiFACTS' data center.

The feature that distinguished ClassiFACTS' offering was the ability to convert print display ads automatically for Web presentation, and this feature was one of the major reasons that the company's first newspaper customers cited for choosing ClassiFACTS. WebCLASS provided import capability for classified liners from most newspaper front-end systems to the Web, a "logo library" feature for inserting company logos into liners, and a sophisticated Web search engine.

Tye says that WebCLASS was well accepted by newspapers, and the company had a dozen or more papers that were ready to begin doing business with ClassiFACTS. In addition to Atlanta and Santa Rosa being live with WebCLASS, The San Francisco Chronicle-Examiner and Cincinnati Inquirer had been testing the service and were close to going live. But as Tye explains it, the up-front costs of developing a new Internet technology are high, while revenue streams can be far off. And the investor-funded company didn't have access to sufficient capital required to sustain an Internet strategy, Tye says.

The company had been "for sale" for the last couple months, and Tye had hoped that an acquisition by a media company would allow ClassiFACTS to continue to pursue its Internet strategy. He says that a major newspaper company was close to buying ClassiFACTS, but the deal fell apart, prompting the last-minute sale of the technology assets of the company. Tye declines to name the buyer during the due diligence process. (I'll report on it here when it's announced.)

Steve Brotman, CEO of AdOne Classifieds Network in New York, which has created a national classifieds network of 200-plus small and medium size newspapers, says he was approached and considered partnering with ClassiFACTS, "but I didn't think their business model made sense." AdOne already had the technology for legacy system translation of liners, and currently is beta testing its own system for conversion of display ads to Web format, so Brotman opted not to buy ClassiFACTS' technology.

Newspapers killing vendors

Dean Welch, classifieds director for the Atlanta Journal-Constitution, a WebCLASS client, says the newspaper industry has a history of killing vendors who rely too closely on newspapers. Papers are very slow to make decisions, says Welch, and then they get very demanding. "(Newspapers) take so damn long to get things up and running" that a vendor without staying power and who hasn't correctly calculated the cost of doing business can get in trouble, Welch says.

ClassiFACTS' demise was unpleasant news at the AJC, which is now trying to come up with a replacement system to keep the classifieds on the papers' Web site. Online director Nancy Nethery says that the AJC had bought its own server for running its Web classifieds using WebCLASS to convert print ads to Web format. The server resided at ClassiFACTS' Aurora, Colorado, data center. She's moving the box out and trying to figure out what to do next. A likely course of action is to contract out handling the Sunday papers' ads only, then return to publishing daily classifieds on the Web at a later date with a new system -- either another vendor or an in-house solution.

Nethery is even-tempered about the situation. "It's a setback, but it's not insurmountable," she says. "And this is probably not the last experience (of having a vendor fail) that we'll have. ... It's hard to second guess how we could have known that this might happen." Says classifieds director Welch, "This is a mosquito bite. We'll get over it."

At the Santa Rosa Press Democrat, another WebCLASS customer, "we're kind of in panic mode" since the ClassiFACTS announcement, says director of online publications Jeff Moriarty. "All of a sudden, we can't update our (Web site) classifieds. We had virtually no notice. It's been really difficult."

Moriarty is talking to other vendors like AdOne and Electric Classifieds of San Francisco and assessing his options. In the interim, he expects to set up a bare-bones system of publishing liners online on the paper's new server, which conveniently -- and coincidentally -- arrived this week. (The Press Democrat site had been running at a local Internet service provider.) It's important to continue providing the service to online users who have gotten used to finding the paper's classifieds on the Web, Moriarty says, but they may have to settle for browsing the ads without a search engine or any other bells and whistles for a while.

This experience has made Moriarty a bit more wary of outside partnerships, "but we have to do it. Partnerships (with outside vendors) are a necessity," he says. A paper the size of the Press Democrat (circulation about 100,000) simply doesn't have the resources to develop a WebCLASS-quality classifieds system on its own.

Moriarty had been hoping to move next on getting a real estate service on the Web soon. "This (WebCLASS system) was working and doing well. Now, it's back to square one," he moans.

At the San Francisco Chronicle-Examiner's Web site, The Gate, classifieds Webmaster Stan Kadani says ClassiFACTS' demise won't affect the existing in-house classifieds Web service, which is liners only and uses a WAIS search engine. Kadani had planned to use WebCLASS only to convert print display ads to searchable Web format. Now he's looking for another vendor with that capability, considering doing it in-house, or hoping that ClassiFACTS' technology will be available again soon from WebCLASS' new owners.

(I've been able to identify only two vendors with display-ad conversion capability: AdOne and the Rosetta Stone Consultancy in The Netherlands. (For the latter, contact Guy Spriggs, rosetta@simplex.nl.) A third company, Seattle-based Pantheon, intends to add this capability to its forthcoming Internet newspaper classifieds system in the coming months.) Tye, while trying to close down ClassiFACTS in an orderly manner this week, says a transition team is trying to assist WebCLASS customers in finding alternative classifieds solutions with other vendors. Until the buyer of the technology makes its intentions known, WebCLASS is not available as one of those solutions.

Addendum

I feel it's appropriate to note here that I have in the past year been an occasional consultant to ClassiFACTS, assisting the company in developing its Internet strategy. I am of course saddened to learn that the company's financial woes prevented the ClassiFACTS team's vision from being played out.

Quotable

KOZ vice president Mark Markwell, with a follow-up comment on my column last week about his company's strategy to help newspapers independently battle online city guide companies like CitySearch, Digital City and Microsoft's "CityScape":

"Cutting such deals with the above is strategically NOT in the local publishers' best interests. The local publisher has spent too many years and too many dollars in building his customer base to so easily hand them over to the wolves in sheeps' clothing."

Contact: Mark Markwell, markm@koz.com

Steve

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