When Boom Went Bust at the 'Country Club'

BY TODD WOODY

There's something unsettling about covering your own funeral.

A month after The Industry Standard abruptly ceased publication last August, I joined a group of my former colleagues from the "Newsmagazine of the Internet Economy" at federal bankruptcy court in San Francisco. We surrendered our lattés and company-issued cell phones at the metal detectors and filed into the twenty-third-floor courtroom overlooking the financial district. Seated like mourners in rows of pews were the Standard's editors, reporters, and business executives. We were there to witness one of the most successful new magazines in U.S. history being put on the auction block.

The bidding began. A year earlier when Time Inc. launched its own New Economy mag, eCompany Now, the Standard's editor-in-chief, Jonathan Weber, vowed in an e-mail to the staff to "crush them like a bug." Now we were roadkill and a Time attorney was here to pick up the Standard's paid subscription list for a paltry $500,000. The opening bid for the rest of the Standard was $150,000. A thought crossed my mind: I could buy the bloody magazine. "I can't believe it has come to this," murmured one of the Standard's founding executives sitting behind me. "It's just so pathetic."

Pathetic indeed. When it was all over, International Data Group -- the giant Boston tech trade publisher that was The Standard's majority owner -- took home the magazine's assets for $900,000 -- pocket change. So there it was. A grand total of $1.4 million for a media company that in 2000 had revenues of $141 million. A magazine that only months earlier had won a coveted Loeb Award -- the Pulitzer Prize of business journalism. A magazine whose demise occasioned an editorial tribute in The New York Times.

There was one person conspicuous in his absence: John Battelle, the Standard's charismatic thirty-five-year-old founder. Only a year earlier, Battelle audaciously predicted that by 2005 the Standard would become a billion-dollar company, "the Dow Jones of the twenty-first century." Yet here we were. The money gone, the big dreams dashed, some 180 people thrown out of work in one of the worst job markets in memory. It was a story Standard reporters had written ad nauseam as the boom went bust.

That in the end the Standard itself had become the coda to that story was not altogether surprising. From the beginning we were, to an extraordinarily weird degree, what we wrote. The magazine's internal dynamics -- the grand ambitions, the struggle to cope with outlandish growth, the pursuit of the big-bucks initial public offering, the lavish salaries, perks, and parties -- mirrored the rise and fall of the Internet economy. That certainly gave the Standard an insider's perspective that informed its journalism as it chased the hottest business story of the decade -- and a buzz that made the magazine a cultural icon in certain precincts of San Francisco, New York, Austin, and Seattle. But in this case, living the story meant dying with the story.
 
The Standard's destiny to become a publishing industry phenomenon was not readily apparent on that day in April 1998 when I walked into an unsigned red brick building at 315 Pacific Avenue in San Francisco's old Barbary Coast district. The former toy warehouse was largely empty as I made my way past construction workers to interview for a reporting position. The magazine's launch was two weeks off and an air of edgy anticipation permeated the place.
Six weeks earlier I had been on a sabbatical in Australia when I received an e-mail from a friend about a new magazine that was looking for reporters. The Internet Industry Standard, as it was then called, would purportedly cover something called the "Internet economy." It seemed, at the time, a somewhat dubious proposition. Use of the Internet certainly was growing, but it hardly seemed substantial enough to support a weekly newsmagazine. Nevertheless, a few weeks after the Standard's April 27, 1998 launch, I accepted an offer to become a senior writer. At thirty-six, I was the old man of the San Francisco newsroom.

While the business side went about building the Standard's "brand" and "mind share" -- the lingo of our "biz dev" staff was indistinguishable from that of the flacks pitching stories -- the editorial side worked to break through the growing Internet hype. "I don't want to edit a trade magazine, and I don't want to edit a magazine devoted to the glorification of the digital elite," Weber wrote in an early memo to Battelle, a founding editor of Wired, a magazine devoted in its early days to glorifying the nascent digital elite.

Weber early on made good on his promise to produce a substantive newsmagazine. In my second month on the job, he assigned me to investigate online financial fraud, giving me several months and the freedom to "get on the plane and go" wherever the story took me. (A hallmark of the Standard's company culture also emerged that first summer: when I worried about leaving my newborn son and wife over a weekend to get a cheap fare to New York, my editor told me to take my family with me.)

That first year we produced a thin book that was light on advertising. We did enjoy above-average salaries and free beer on the roof deck on Fridays, but the Standard had yet to become what some competitors would later deride, not a little enviously, as "the country club."

Still, the magazine had clearly tapped into the zeitgeist of the times. Through foresight and no small amount of luck, Battelle had launched a weekly magazine just as the Internet was evolving from a technological curiosity into an economic powerhouse. Whole sectors of this new economy were emerging overnight. There was no online health industry to speak of in September 1998 when I met with a twenty-eight-year-old Atlanta entrepreneur about to launch his WebMD online service for doctors. Within six months, it was a full-time beat and WebMD had become a $20 billion company after its merger with a rival.
As the summer of 1999 approached, the magazine's profile was growing as the number of Internet IPOs exploded and readers sought the latest news on the latest deals. The Friday rooftop beer bashes had become catered affairs -- what other magazine had its own doorman for special occasions? -- packed with Prada-clad "evangelists," "launch specialists," and other functionaries of what was called, without irony, the Internet Revolution. There was, of course, a genuine socio-economic transformation being wrought by the Internet. It was that upheaval that we as journalists were chronicling, albeit through the relatively restricted prism of business reporting. We suspected, though, that for the martini-swillers on the roof, the real revolution was this: money for nothing.
It became clear at the Standard's "Internet Summit" that summer that the company's executives were no longer content to merely provision the digital vanguard with news and booze; they wanted to play the game themselves. Like other business publications, the Standard had started putting on conferences to "extend" its "brand" among readers and to diversify its revenues. But this was less a confab than a giddy, glittery coming-out party for the movers and shakers of the Internet economy, not least of which was the Standard. The summit was held at the Ritz-Carlton, Laguna Niguel, an opulent Mediterranean-style resort overlooking a pristine stretch of southern California beach. One image stays with me: on a bougainvillea-covered bluff outside the hotel, half a dozen blue-shirted, khaki-clad young Turks stand in a row with their backs to the spectacular view of sand and surf, jabbering on their cell phones. In the middle of it all was the Standard's founder. The poster boy of California new-economy cool, the perpetually tanned Battelle -- known to answer the phone with "Shake it!" -- was in his element, endlessly networking with the assembled venture capitalists and fellow c.e.o.s.

The messianic optimism that pervaded the summit would, in the coming months, seem, if anything, understated. The ads began flooding in as Internet startups, flush with IPO cash and venture capital, began vying for attention along with old-line tech companies seeking to show they "got it." By September, the magazine had more than doubled in size.

The Standard, of course, wasn't the only magazine growing fat, and competition for editorial talent became a free-for-all. Veteran journalists from high-profile publications could expect six-figure salaries (but not necessarily a desk or working phone -- a hiring binge was turning 315 Pacific into a high-tech tenement). By the November 1, 1999, issue, the magazine was up to 216 pages.
Incessantly ringing phones and the ping-ping of hundreds of arriving e-mail pitches from Internet companies produced a wall of white noise in the newsroom. Each day, the mailroom dumped a new load of dot-com tchotskes -- T-shirts, shot glasses, a toy monkey in a space suit -- on our desks as companies tried to break through the information overload. One morning, a giant rabbit slipped past the receptionist and made it to the newsroom to hand out chocolate eggs bearing his company's logo.

For the magazine's veteran journalists, accustomed to banging on the doors of people who expressly did not want their story told, the unrelenting flack attacks and rock-star treatment constituted a disconcerting role reversal. Some worried that cub reporters would grow used to having "news" spoon-fed to them from sycophantic sources who hobnobbed with the magazine's business executives. Weber began sending out periodic e-mails cautioning reporters not to get too close to the story. Adding to that challenge: a ravenous copy beast that grew hungrier with each ad-bloated issue. The Standard then was woefully understaffed on editors, who worked eighty-hour weeks to move stories. Needless to say, not all the stories lived up to the Standard's marketing slogan of "99.9 percent hype-free."
 
But most did. The free-wheeling, give-it-a-go ethos of the Standard and the no-questions-asked expense accounts gave the magazine's reporters license to pursue the unfolding narrative of the Internet boom wherever the story took them. I spent one month flying from city to city to report an in-depth feature on Ivy League schools that went into business with an online education company associated with the financier Michael Milken. A few weeks later it was back on the plane to document how information technology was transforming genetic science and the drug industry.

The opportunity to do such work, free of corporate penny-pinching and with a minimum of newsroom politics, had begun to attract reporters and editors from The Wall Street Journal, Newsweek, and The Washington Post. Of course, the generous salaries were no small lure. As the good times rolled on, management bestowed such dot-com goodies as massages, gym memberships, and subsidized childcare. In this new California Gold Rush, it was not out of place to return to the office from a day of reporting, get a massage, and walk into the newsroom to find the editor-in-chief handing out four-figure bonus checks to celebrate a profitable quarter. Reporters, myself included, grew accustomed to jetting around the country, staying at hip hotels, and dining at chi-chi restaurants. If we ourselves weren't awash in dot-com millions, our reporting life-style offered a reasonable facsimile. "You don't know how good you have it," James Fallows, the Atlantic correspondent and Standard columnist, told us in wry understatement as we sipped a fine California Merlot at a January 2000 editorial-retreat-ski-holiday in Lake Tahoe.

But there was one perk I wish we had never received: stock options. The thud of those packets of potential riches landing on our desks was, in my opinion, the death knell of the magazine. Like the companies we covered, the Standard wanted to turn its cachet into IPO cash. That strategy would dictate an unsustainable spending spree to position the Standard as a diversified global "information services" company. If you wanted to justify a double-digit share price, simply publishing a profitable magazine wasn't going to cut it.

There were reasonable arguments to be made for going public. Unlike nearly all of the companies the Standard wrote about, we were profitable despite our profligate ways. An IPO would free the company of IDG, the stodgy trade publisher that owned the magazine. And then there was the unspoken, if no less compelling, subtext: a successful IPO would make the Standard's top executives very, very rich while giving the rank and file perhaps a down payment for one of those $600,000 San Francisco condos. In January 2000, Standard Media sold 15 percent of the company to venture capitalists for $30 million. There was no turning back now. The Standard's new owners would demand an "exit strategy" in the form of an IPO or sale.

By April, the magazine was running as many as 360 pages a week. Then came the Nasdaq Internet stock market crash. the end of the beginning declared the April 17, 2000, cover. "Many startups must now scramble to change their business models," warned senior writer Jonathan Rabinovitz. the party's over acknowledged a headline in the following week's Standard as the great Internet bubble finally burst.

While the Nasdaq burned, the Standard partied like it was 1999. If the magazine's business executives were reading their own magazine, you wouldn't know it from the second anniversary bash the company threw on April 27, 2000, at San Francisco city hall. Even given the license of the times, it was over the top, a celebration of fin-de-siecle Internet-age excess. As bands played in both wings of the majestic beaux-arts building, thousands of invited guests lined up double deep at the martini bars and oyster bays, nibbling sushi on the grand staircase.

Over the spring and summer of 2000, the magazine continued to chronicle the downturn with cover stories like "IPO Market Unravels" and "Pink Slips in Paradise." The Standard began to hit its stride as disintegrating dot-coms -- leaving lawsuits and disgruntled employees in their wake -- provided fodder for some of the magazine's best journalism. Reporter Dan Goodin spent months of dogged investigative reporting to tell the inside story of Pixelon, a digital video company founded by a convicted con man.

It was a redemption of sorts. During the boom, we often wrote about Internet companies' grand plans and predictions. We scoured financial documents and did our best to point out hype, but often felt like shills. Now, however, we had sources who did not bring p.r. entourages to meetings and who most certainly did not want to see their names in the magazine. There were legal papers, liens, and property records to be unearthed in county courthouses; it was necessary to train some staffers on the art of locating information that didn't come out of the box on their desks.

The disconnect between what we wrote as journalists and did as a company grew by the month. April's Nasdaq debacle didn't delay hiring for a monthly spin-off magazine called Grok, which would debut in September. Despite the stock market chaos, the Standard remained fat throughout the summer and so did expectations. Plans to launch a European edition proceeded apace. Although an IPO now looked less imminent, the company continued to spend untold millions of dollars to create an independent financial infrastructure, duplicating the payroll, accounting, and personnel systems managed for the Standard by IDG. Hiring continued and there were nearly 500 people on the payroll.

By the fall of 2000, Battelle and the Standard's leadership were not just drinking the Kool-Aid; they were mainlining the stuff. At a staff meeting, Battelle sat on a stage in a hotel ballroom where several hundred Standard staffers had gathered. Behind him a large screen read "BHAG (Big Hairy Audacious Goal)." He launched into his spiel about how Standard Media International would become a billion-dollar-a-year, 900-employee company within five years. Battelle reached an evangelical pitch when he revealed the key to achieving this astonishing scenario: CRM. Customer relationship management. Through an elaborate software program, the Standard would track our "customers'" needs and desires and sell them an array of products and services -- conferences, newsletters, a job bank, market reports. Battelle hardly mentioned the magazine, though it contributed some 80 percent of the company's revenues that year. I listened in vain for the word "journalism."
 
That fall, the slowdown began to hit home. As the Standard launched a European edition in October, Grok, the new spin-off magazine, was faltering and would be shut down shortly. When I became a senior editor for the magazine's Policy & Politics section in October, I was told to hire additional reporters. Within weeks those plans were shelved. Around the time of the December 11, 2000, issue -- engine trouble: is the tech-driven economic boom flaming out? -- layoff rumors began circulating. In January, the Standard fired three dozen business-side staffers.

That month at the annual editorial retreat, Battelle vowed that "things would have to get pretty bad" before the ax would touch the newsroom. Things did. In February, eighteen editorial staffers lost their jobs. stop whining! why these bad times look pretty good admonished the cover story that appeared a couple of weeks later. That was wishful thinking. By March, the tech advertising meltdown had reduced the magazine to 112 pages, down from 264 in December. The page count had fallen to 80 by April when the European edition was shut down, six months after its launch.

And so it went. Another round of layoffs hit in June. The magazine's coverage dovetailed with its struggle to survive. desperation finance: what to do when the bank (and everyone else) says no read the June 18 cover. A few weeks later Weber informed the editors that The Standard was about broke and seeking new financing. severance: who gets what in the layoff payoff was a cover line on the July 2 issue as we were told that another round of layoffs was imminent.

Management hinted week after week that a deal to save the Standard was nearing completion. The magazine's final two issues telegraphed some of the obstacles to such a happy ending. crm money pit: should you pay the price? was the cover line for an August 6 story on the failure of customer relationship management software to live up to its billing. CRM, of course, was Battelle's holy grail and the Standard owed millions of dollars to license such software. The August 20 issue highlighted an even deeper money pit. real estate mess, read a cover line, the legacy of outrageous leases. Battelle really did believe the Standard would soon employ nearly a thousand people and the company reportedly had signed some tens of millions of dollars' worth of leases at the height of the insane San Francisco real-estate boom. Any would-be savior would assume those not-insignificant liabilities. Attempts to impose financial discipline on a company that never much bothered to budget were too little too late. A tighter travel budget finally had been imposed on the newsroom in late March. But it wasn't until August that anyone bothered to review cell-phone use in a company where everyone was issued a phone.

Finally, on August 16, IDG pulled the plug after its executives and the Standard's leaders and their VC backers failed to agree on the terms of a new round of financing. A line on the magazine's last cover said it all: the party's over. now the blame game begins.

The final issue of the Standard did not look like that of a dying magazine, and therein lies the sadness and anger many of us felt at what we considered to be its needless death. Volume 4, Number 31 was a respectable eighty-eight pages. Its advertisers were a stable of such blue-chips as Mercedes-Benz, Microsoft, and Absolut. The masthead remained strong, a collection of talented mid-career journalists and promising young reporters who shared a genuine camaraderie. The journalism was maturing as the Standard, freed from chronicling the dot-com mania, expanded its coverage. Whether the Standard could have survived the economic fallout from September 11 is problematic. Even by the time of the company's bankruptcy hearing two weeks later on September 24, the magazine already seemed a relic of a fast-fading era.

As I write this, I'm back in Australia, in the same spot overlooking the Pacific where I was sitting when I received that first e-mail nearly four years ago. I'm reminded daily of the technological transformation we covered as I manage my finances from halfway around the world, keep tabs on news at home, and post video of my three-year-old son on the Web for his grandparents in the States. But ironically, in the aftermath of the Standard's collapse, I found I could no longer read online what I wrote about the revolution; the archives of The Industry Standard, the late, great chronicler of the Internet age, have been wiped from the Web, de-Googled. Thankfully, IDG, which owns the magazine's electronic remains, recently revived the Standard's library. Some dead dot-coms do tell tales after all. *
 
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Todd Woody (todddwoody@yahoo.com) was a senior editor at The Industry Standard. He currently is a free-lance journalist based in Sydney, Australia.