CNET Networks: Strengths, Weaknesses, Opportunities and Threats

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 |  About: ChinaNet Online Holdings, Inc. (CNET)
by: Joseph Hunkins

CNET (NASDAQ:CNET) is back in the news as yesterday brought layoffs and ominous internal memos, so I thought I’d put out this CNET SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis I did over at the Techdirt Insight Community not so long ago:

CNET Strengths

Brand awareness and brand respect. CNET has been one of technology's most recognizable and respected brands for many years, and continues to maintain the high respect of the technology community.

Writers. CNET's technology writing and analysis is recognized as some of the best in technology. Unbiased reviews and authoritative articles from seasoned technology journalists are the mainstay of CNET's content.

Editorial staff. CNET's reputation for editorial and quality control is unsurpassed in the industry.

Dan Farber promotion. Dan Farber is one of technology's most informed and seasoned professionals. As a blogger who is extensively familiar with and actively participating in social media, Dan was a great choice to help guide CNET into a more aggressive social networking posture.

Huge internet traffic. CNET remains one of the most visited news sites on the internet.

High revenues with potential for high profitability. CNET’s revenues are strong despite significant earnings declines in the past year. Zacks analysis suggests a modest profit downturn in the coming year, but CNET is still generating very substantial revenues and some profits. Under a JANA acquisition scenario the aggressive management for profit could boost earnings significantly.

CNET Weaknesses

Labor intensive content production. CNET’s quality writers and editors are her blessing and her curse. Writers cost money and good writers, collectively, cost a lot of money. Blogging and the social media revolution have led to an online environment that creates a tidal wave of quality tech-focused content every day at very low average cost per article.

News delays. Although CNET remains very current, it simply cannot always compete with the 24/7/365 blogging community that is posting (and increasingly scooping) CNET and other media outlets when technology news breaks. Again, the editorial standards force CNET to delay where bloggers and online journals will report first and ask questions later. The practice is questionable from a journalism point of view, but usually it is just fine for advertisers and certainly helps with traffic generation as the early reports often garner the most page views.

Earnings declines. CNET's earnings are down significantly, placing huge pressure on the company to cut costs and increase monetization for content. CNET's early success may have led them to incorrectly assume they would remain unchallenged in the tech news space where they are under pressure from both bigger players like Yahoo (NASDAQ:YHOO) and smaller players like TechCrunch.

CNET Opportunities

Socialism! CNET’s attempts to build an online CNET-centric community at the website have been modest and in many ways have failed. With a sterling brand and reputation, CNET is in a great position to leverage the existing tech-centric user base into a number of community endeavors. One small example would be to create more niche CNET communities online and then evangelize these communities via CNET's advertising as well as Facebook, MySpace (NASDAQ:NWS), and other social media powerhouses. Even more powerful would be to facilitate the creation of much more reader-driven content. For example, make registration for CNET simpler with just an email signup and encourage far more guest articles. Digg style rankings for CNET articles would be another positive step in this direction.

Be more like TechCrunch. Mike Arrington has brilliantly leveraged the fast pace of internet journalism, modest journalism standards, advertisement flexibility, and most importantly the powers of social media. Where TechCrunch initially produced content at a fraction of the cost of CNET using freelance writing and little office overhead, it also distributed and monetized this content in more powerful ways such as mass emailing and very aggressive social media participation and real socializing. Once again, however, CNET's high journalistic standards provide some barriers here.

JANA board coup: If JANA succeeds in the fight to change the direction of CNET, and this appears likely, a new focus on monetization and innovation will lead to a stronger and more viable CNET. Unfortunately profitability is probably going to call for a reduction in journalistic standards and quality coverage, but from a company health perspective CNET is likely to benefit from a leaner, faster, broader, but more superficial approach to tech news coverage.

CNET Threats

Diminished advertising revenues. The coming recession may not hit online advertising as hard as some other sectors but online advertising spending growth is likely to slow in the coming year and possibly even go down. Financial sectors, for example, were huge spenders last year and may be unable to continue spending at the same levels due to the housing crisis.

Blogging and the social media revolution. These represent a substantial threat to CNET's long term prospects and profitability. Blogs and non-traditional media coverage are generating huge volumes of quality content every day, and technology focused content is especially abundant since blogging’s early adopters tended to be technology enthusiasts. Bloggers are increasingly respected as quality journalists and analysts who in some cases have more expertise than the technology journalists that are covering the same story, product, or events. Yet the average cost to produce a blogged story is effectively zero as many bloggers are writing simply for the fun of coverage and the internet soapbox. Monetization of blogs is also becoming easier and more lucrative in the form of Google (NASDAQ:GOOG) Adsense per click advertising as well as projects like Federated Media which match publishers to advertisers - a service for which advertisers are increasingly willing to pay a high premium.

A Google acquisition of CNET?

Despite the reasonable assumption that CNET has significant potential for a valuation far beyond current capitalization of approximately 1 billion, I consider a Google acquisition unlikely.

Google’s actions and stated intention for many years have been to concentrate on content monetization and avoid content production. Also, Google stresses the value of machine scalability which is not compatible with the labor intensive content and editorial style of CNET.

That said, I think that CNET and Google cultures would be fairly compatible. Not because they are similar but because they would have a high degree of mutual respect as leaders in their respective fields. Where Google is relaxed, fast paced, and extremely innovative, CNET culture appears to be more formal, professional, and along the lines of a traditional journalism environment with attention to detail, high journalistic standards, and an older workforce. This is probably an acceptable recipe for a comfortable working relationship.

CNET Linkage: