Will Web users ever pay for content?

Some entrepreneurs get crowned in the record books as spectacular successes. Others find themselves lumped into the losers list of spectacular flameouts. Louis Borders is that rare businessman whose name appears on both sides of the ledger.

Borders is a co-founder of Borders Group, the $3.4 billion company that today is the nation's second-largest bookseller. He also happens to be the man behind Webvan, the billion-dollar online grocer that famously failed in 2001 and became synonymous with both the magnificent dreams and the hubris of the dot-com era.

Now this self-professed serial entrepreneur is taking another stab at building a brand from scratch. On Monday, Borders launched a subscription-based digital newsstand called KeepMedia.

But he also faces the challenge of convincing Web surfers to pay to access archived online content. Despite the Web's transformation into a major publishing platform, relatively few Web users have warmed to the idea that they also should pay for content.

Borders nonetheless remains determined to prove conventional wisdom wrong. KeepMedia is a subscription-based outpost for magazines such as Business Week, U.S. News and World Report and Esquire. Though it's an idea that's already been tried and failed, Borders believes KeepMedia is different and will prove to be a superior online brand, because, he says, it offers quality publications and convenience.

He also brings to the table a rare been-there, done-that resume, which will suit him well, as he tackles what may be the toughest selling job of his career. CNET News.com interviewed Borders from his company's headquarters in Foster City, Calif., which coincidentally is the former hometown of Webvan.

Q: How and when did you conceive KeepMedia?
A: When Doug (Harrington, KeepMedia's co-founder and CEO) and I got together. We are deep believers in the Internet. Even though the dot-com bubble has busted, the Internet has really roared along. As we looked at the industry, we were scared away from music because of all the rights issues. One thing that struck us is that the movie business (gets) two-thirds of their money from their archives, while magazines are getting zero. That's a huge pool of content that's not monetized at all.

Is there a difference in the way that you think about an investment in an Internet venture in the year 2003 compared with 1998?
Oh sure, reality has set in. We've all learned that the money in the heyday of the boom was more of a curse than a blessing. It made everyone break basic business principles. Today, the start-ups are very well crafted, very well thought through.

We've all learned that the money in the heyday of the boom was more of a curse than a blessing.

One specific thing that we learned was that we wanted to have a co-marketing, co-branding model, whereas believing that you can go out and buy eyeballs to build a brand--we learned you just can't go that way. You must co-brand. Co-branding is an interesting business activity, because some of the great success stories in business are co-branding models. One specific example is when Dryers Ice Cream and Starbucks got together and made their Java Chip ice cream. It became the best-selling ice cream in the world.

How does that apply to your upcoming business?
Magazines are tremendous brands with great communities, but they're underutilized. So, if we can put them together to help us build a brand, then we can in turn give them a revenue stream that's essentially paying them to better utilize their brand. It's like a mall. You know the stores inside.

Will you get cooperation from some of the big media conglomerates that already own a collection of big-brand magazines, such as AOL Time Warner and Conde Nast?
Oh, we don't have them at launch, but we're thrilled to have 140 titles. We've had a lot of meetings with them--extremely positive meetings--and I'm sure they'll come into the platform in short order.

In your negotiations, did you get a sense of a change in thinking about paid content?
The biggest thing that happened in paid content this year so far was when AOL announced that their Time magazines were going to go behind the AOL pay wall, which is a huge statement that paid content is the way to go. We were pretty excited about that. The more content that moves behind the pay wall, the more willing people will be to pay.

Do you think the freeloader mentality on the Internet is ready for change?
I think it's at the turn of the hockey stick, because it's at about 15 percent of the Web population that's paying for content right now--that's still a low number. Very soon, you'll see that the content that's left to be free is content that will not be trusted; content that has a bias. Just like when you pick up a magazine that's free, and you don't trust it.

Why do you think Internet surfers will be willing to pay for KeepMedia?
If each individual magazine looked at how much it spends on building a site for its content and getting traffic, they'd find that the amount they spend is just not justified. But putting 140 publications on the same platform is totally justified. With the current rate of spending, our business model works very well, and if it continues to grow as we expect it to--100 percent annually--that's just going to be great. But we don't need a change in today's spending behavior to be successful.

How does your experience with Borders and Webvan play into your vision for KeepMedia?

The more content that moves behind the pay wall, the more willing people will be to pay.

I think they're all the same in the sense that the theme of my work is to build a brand that people can love and be loyal to--and is a positive thing in their lives. That's what gets me excited. Webvan--even though it failed--people were very excited about it, and it was a positive thing for them. Borders stores certainly improve communities. It's a combination of something positive and entertaining. Media is in that same realm.

Amazon.com is said to working with publishers on searchable book text. More content owners are digitizing archives. Google indexes newspaper articles and PDFs and is likely to broaden search in similar areas. A lot is bubbling up in this area. How do you see online media changing and companies like Google and Amazon competing?
I see the Googles of the world like the freeways, where you're going from one place to the next, and that's the place to go. They have a very viable business being the main artery across the Internet. Our approach is to be a walled garden, where we bring in this very high-quality content. As a consumer, you would certainly want to use the freeway and the walled garden for different needs. Amazon seems to have a product-selling focus right now. We're more of a pure-play of retailing just for content.

Where do you think previous ventures in selling content, such as Contentville, failed?
Contentville is an interesting example. In some ways, it was the right idea. But it was the wrong time, because people were not paying for content three years ago. They also did some things that killed them--mistakes that we won't make. One is they created content and distributed it, so anyone in the business was leery of being on its platform because they saw it as a competitor. We will never do that. Another was an execution error: They mixed really high-quality content with Joe's dissertation on something. And strongly branded publishers don't like to see their content next to second-rate content.

Now that you've had the benefit of a couple years to reflect, what do you think was the biggest mistake you made with Webvan?
I look back at Webvan, and I think it had excellent execution. People really liked the brand. It had great demand. And Webvan was not too early; we had tremendous demand, but we didn't quite service it as well as we could have. The fundamental mistake there was the company began growing before it had proven its model. And that broke a very simple principle of retail: You prove the model, and then you grow. And, of course, the money enabled people to grow and then prove the model, which was a terrible mistake. I wasn't at Webvan after the IPO, so I didn't have a lot to say about the company after it went public. I stepped down as CEO right before the IPO.

Some supermarket chains have branched into online delivery. Were you just a few years too early?
Webvan had plenty of demand. We had $100 million in annual revenue just in the Bay Area--that's big business. The S.F. Bay Area got right to breakeven. The problem was they had too many facilities before they had proven the model.

What makes you excited about the Internet right now?
The Internet is for real. The bubble has burst on the dot-coms, but it's amazing--its traffic numbers, its usage. I'm amazed at how much smarter people will be just because they have access. Here's a funny thing: A few years ago, people said: "They're not going to shop on the Internet," or "They're not going to pay for content."

What do you consider your biggest success to date?
I feel as if I finally know how to build these brands--things that you can be proud to be loyal to. Many brands disappoint you. They become too focused on making money in the short term, like paid inclusion does. I'm a fanatic about that--I just think that's a horrible thing. If you're telling people that you're paid to do this, like Google does when it separates its paid links from the rest, that's fine. That's good business. If you're not telling people, however, it just seems disingenuous, and it is certainly no way to build a brand.