500-512 Seventh Avenue
Company Perspectives:
iVillage Inc. is a media company, which operates iVillage.com, Women.com, Lamaze Publishing, the Newborn Channel, iVillage Solutions, and Astrology.com. iVillage.com is a leading women's online destination providing practical solutions and everyday support for women 18 and over. Lamaze Publishing produces advertising-supported educational materials for expectant and new parents. The Newborn Channel is a satellite television network in over 1,000 hospitals nationwide. iVillage.com is organized into branded communities across multiple topics of high importance to women and offers interactive services, peer support, content and online access to experts and tailored shopping opportunities.
iVillage Inc. is an Web-based media company dedicated to serving the needs of adult women through online communities and content areas focused on such topics as Astrology, Babies, Beauty, Books, Computing, Diet & Fitness, Food, Games, Health, Home & Garden, Lamaze, Money, News & Issues, Parenting, Pets, Relationships, Shopping, and Work. A free iVillage membership allows members to use features such as email, instant messaging, and personal homepages. At the end of 2000, iVillage reported, it was receiving about 214 million monthly visits to its sites. The lion's share of iVillage revenues are derived from advertising and sponsorships.
1990s Start Up
iVillage was conceived and created by Candice Carpenter, a complex woman, lauded by some as a visionary genius, damned by others as a pushy manipulator. A graduate of Stanford and Harvard, Carpenter served as president of both Time-Life Video and Q2, a subsidiary of QVC, before going to work as a consultant for America Online in 1995. Although she knew next to nothing about computers or the nascent Internet--she admitted to Crain's New York Business that she was "technophobic"--Carpenter immediately grasped the possibilities inherent in online culture. She found a wealth of communities lurking beneath the surface at AOL, brought together by the common interest of their members: a community for gay people, for example, one for people interested in quilt-making, another for pet owners. Carpenter's insight was that virtual communities were the future of the Internet. Her genius was to take that idea and from it create a branded media firm.
Carpenter put together a three-person team to create a business plan based on her idea. She brought in two friends who also had experience in the media sector: Nancy Evans, the founder and editor of Family Life magazine, and Robert Levitan, the ex-president of video publisher YearLook Enterprises. In September 1995, in Evans' Manhattan apartment, the three sketched out some ideas for their new network on a drawing pad that belonged to Evans' daughter. The company that came out of the brainstorming sessions was based on slogans like "Internet for the rest of us" and Humanize cyberspace." At its core would be three communities, focused on family, health, and career, but targeted at the general public, not specifically at women. They thought of the communities as virtual village greens where everyone gathered and knew everyone else. An "i" was added simply because it was the Internet prefix of choice at the time.
iVillage attracted its first major investor, Carpenter's former employer, America Online, in September 1995. The investment was a significant one for AOL--it was the first time the firm gave major support to an independent company, rather than merely an online project. iVillage agreed to develop five communities for AOL, including groups on health and work. Its first AOL channel, Parent Soup, debuted in January 1996. Other investors lined up quickly. By spring 1996, TCI Interactive, the venture capital firm Kleiner, Perkins, Caulfield & Byers, and the Tribune Company had put money into Carpenter's company.
iVillage's sharp focus also led to partnerships with companies that specialized in iVillage content areas. In June 1996, it entered an agreement to sell KidSoft's software products for children in the Parent Soup General Store. The general store was iVillage's foray into e-retailing and represented a broadening of the company's mission to giving its community members access not only to information and experts, but to "quality products from leading online merchants," as one press release put it." Later in 1996, two alliances were forged intended to make Parent Soup the preeminent site for parents on the Web. First, it merged with another Web site for parents, ParentsPlace.com. Then it set up an advertising deal with MomsOnline, another channel on AOL.
Ultimately, though, what made Parent Soup most attractive to web surfers was not its advertising or retailing, it was its content. There were directories of experts, articles of interest, forums and online chats on topics of interest to parents and access to advice on the most pressing problems, such as childhood illness, development, and nutrition, as well as interactive surveys and polls. iVillage continued to develop its other special interest networks. About Work, a community focused on career and workplace, went online in late 1996. Better Health & Medical followed in September 1997. The most significant, in the end, was the oddly-named Life Soup, a Web community where women in the prime of their lives could discuss all the problems that touched them, from finance, fitness, food, sex, and relationships.
Late 1990s Web Site for Women
By 1998, the introduction of an iVillage community specifically for women was inevitable. Although the company's first communities were planned as virtual meeting halls where any interested parties could participate, it was soon evident that visitors to the sites were overwhelmingly women. What's more, iVillage sites were powerful magnets to high-income, well-educated women, a market segment advertisers considered difficult to reach. iVillage was drawing more women than any other Web site. It had more than twice as many women visitors as its nearest competitor, Women.com, and it promised to attract even more in the short-term future. At the time, it was projected that 34 million women would go online for the first time in the next two and a half years, that the number of women using the Internet would increase five times over from 1996 to 2000.
If it could draw together this vast and influential group, iVillage was clearly on to something of interest to advertisers. Its Better Health & Medical site, the first to include content aimed specifically at women, attracted $3 million in sponsorships from Tenet Healthcare and pharmaceutical companies Merck and Astra-Merck. Making its new direction explicit, the company modified its name to iVillage.com: The Women's Network. It began pursuing revenue from three different sources, advertising, e-retailing, and sponsorships of specific areas of iVillage sites. Candice Carpenter predicted that iVillage would turn its first profit by the end of 1998.
A spring 1998 investment drive showed that iVillage was riding the wave. A diverse group of ten companies that included Tenet Healthcare Corp., the National Bank of Kuwait, and Technology Crossover Ventures, a California venture capital firm, pitched in about $32.5 million, $12 million more than the iVillage had hoped to raise. The sum brought the total already invested in the company to $67 million. iVillage planned to use the latest funds to raise its profile through an advertising campaign on television and radio.
In November 1998, iVillage signed two-year deal with AT&T to establish a new Internet access service, called iVillage Online. It would be on the order of America Online but geared specifically to the Web needs of women. It was a project iVillage had been looking to pursue for the better part of a year. In return, AT&T became the exclusive provider of communications services to members of iVillage.com. iVillage closed a third big deal the same month, when NBC obtained an equity share in iVillage of undeclared value. The agreement involved no cash, it was an swap of services. In exchange for iVillage content on NBC.com, NBC agreed to advertise iVillage on its TV networks, NBC and MSNBC, as well as on NBC.com and the MSNBC pages of the MSN.com site. The NBC deal was seen as an important one for iVillage, even though no money was involved. TV was the only way to reach the mass of untapped mainstream users and was expected to draw even more women to the iVillage sites.
Going Public in 1999
By the beginning of 1999, iVillage and its investors were ready to take the service public and an offering was scheduled for mid-March 1999. Investors were attracted to the fact that iVillage's membership base made it so attractive to advertisers. Its $9.1 million in advertising revenue outweighed income from sponsorships and product sales by a wide margin, accounting for 82 percent of iVillage's income during in the first nine months of 1998. The relationships with NBC and AOL were critical too; some Wall Street analysts believed the company needed to raise its public profile, particularly through exposure on prime-time TV, if the stock offering was to be successful.
Other factors, though, were working against the company. Although membership had increased dramatically during 1998--from 170,000 members to nearly three-quarters of a million in just ten months time--dollar losses were multiplying just as quickly. The 1997 $14.5 million in red ink had more than doubled to $32.4 million loss in 1998. Just days before the offering, iVillage lost one of its fastest growing sites, Armchair Millionaire. The site for beginning investors, which reportedly accounted for ten percent of visitor traffic at iVillage, had been bought back by its founder Lewis Schiff. Some analysts believed the loss of Armchair Millionaire would hurt iVillage's value on Wall Street. Others observed that 70 percent of the visitors to Armchair Millionaire were men, which cut against the grain of iVillage's core constituency. They reasoned that the loss of Armchair Millionaire would merely tighten iVillage's demographics and make it all the more attractive to advertisers.
Even darker shadows were cast over the IPO by lawsuits against iVillage that were made public just days before the stock offering. One former employee charged the firm with reneging on a promise to give him the stock options he had been promised with hired. Joanne O'Rourke Hindman, an ex-iVillage Chief Financial Officer, made the same accusation, but went even further. She alleged that when she was hired as CFO in September 1997, she became aware of irregularities in iVillage accounting practices. She told Candice Carpenter that the company was claiming revenues in its financial statements prematurely, sometimes even before letters of intent were signed. As a result, Hindman claimed, Carpenter demoted her shortly afterwards and fired her two months later. Hindman's allegations drew attention to the unusually high rate of employee turnover at iVillage, a problem laid at the door of Carpenter's mercurial personality. However, neither the lawsuits nor the charges of financial impropriety, nor iVillage's employee attrition rate was expected to hurt the stock offering.
Candice Carpenter's reportedly abrasive temperament was interpreted as a sign of the business genius that had made iVillage possible in the first place. Some observers went as far to say that the allegations were timed to hurt the stock offering. However, two years later, when iVillage's stock price was already hitting the skids, more suits were brought against iVillage by former employees for deceptive recruiting practices, such as offering compensation packages that included stock options that were never delivered.
Despite such apparent setbacks, the iVillage public offering was one of the most spectacular debuts in Wall Street history. A week earlier, Goldman, Sachs, the underwriters, were planning to price the shares at about $14. Two days before the offering, Goldman, Sachs raised the opening price range to $22 to $24--at that price iVillage would have a market value of about $588 million. However, when trading began on NASDAQ, the opening bid was $95.875, valuing iVillage, a three and half year old company that had never had a profitable year, at $2.22 billion. By the time the day had ended the firm had sold 3.65 million shares. The share price finally settled at $80.125, but not before soaring as high $100.
By the end of 1999, iVillage had pumped its membership up to nearly two million and was registering about 5.5 million visits to its sites every month. It had acquired a lucrative online shop for baby goods called iBaby and announced a deal to promote and sell Ralston-Purina products. The deals helped boost e-commerce revenues to 28 percent of total revenues, which had grown to $25.3 million. Losses kept pace, however, climbing to $86.7 million for the first three quarters of 1999.
The ongoing losses did not tarnish iVillage's glittery appeal to other firms. In February 1999, it announced a major partnership with Unilever, the Dutch producer of consumer brands such as Dove, Vasoline, Q-Tips, Wisk, Lipton, Ragu, and Breyers Ice Cream. iVillage was attractive to Unilever, because 85 percent of its products were purchased or used by women. The two firms each chipped in $100 million to start a new Web site, called Substance.com, devoted to women's personal care and beauty issues. Although Unilever cosmetics and beauty products would be prominently featured on the site, the firms claimed the primary purpose of the site was not to sell goods--in fact, Unilever refused outright to sell its products on the Web site. Its purpose was to help women solve specific problems and provide Unilever with consumer feedback. The site finally launched in spring 2001.
Reality was beginning to catch up with iVillage's share price by spring 2000, plunging from highs around $100 to less than $10. The company reacted by naming Doug McCormick, the former CEO of the cable TV Lifetime network and a member of iVillage's Board of Directors, as president, a new position at iVillage. According to Candice Carpenter, the post was created to oversee international growth and iVillage bandwidth expansion. However, most outside observers were convinced that McCormick's appointment was part of a management shake-up meant to wrest the company out of its financial doldrums. McCormick's first public action was to sell the iBaby online store off to BabyGear.com, a move intended to make iVillage even more attractive to advertisers by not competing with them for sales. As such, it also represented a move away from e-retailing and back to a pure media orientation at iVillage.
The management shake-up continued in iVillage's uppermost rank in July 2000, when founder Candice Carpenter stepped aside as Chief Executive Officer and was replaced by McCormick. Various reasons were given for Carpenter's departure: there was the company's poor earnings record--it had never reported a profitable quarter; there was Carpenter's abrasive, frequently alienating management style--the firm had one of the highest employee turnover rates in the online industry; there was the apparent lack of vision at the company--iVillage had started out as a group of general communities, then focused on women, swerving from a pure media orientation into e-commerce and then back again; and finally there were questions about Carpenter's handling of the firm's finances--iVillage had gone through a whopping five Chief Financial Officers in just four years time. Carpenter denied being forced out as CEO, and she remained as a member of the iVillage board. Within a year, though, Carpenter had left the board and the company she created.
The media questioned the wisdom of saving a Web site for women by appointing a man its head and public face. Man or woman, McCormick had his work cut out for him. The company was perceived to be in such bad shape that its share price had dropped to around $1 and NASDAQ was threatening the company with delisting. McCormick took decisive action. In February 2001, he oversaw the "merger" of iVillage and its main Web competitor, Women.com, a move that consolidated the two into the largest sites for women on the Web. It was a complicated deal. iVillage purchased Women.com for $25 million in stock. At the same time, however, the Hearst Corporation, Women.com's largest stockholder, made a $20 million cash payment to iVillage and received a 30 percent interest in the combined company, which continued to go by the name iVillage. Hearst also promised another $15 million for production and advertising, and put many of its women's magazine titles online at iVillage.
In October 2001, iVillage reported the first profitable quarter in its history. Largely responsible for the scant $0.4 million in earnings was the July acquisition of the Women's Business Network, a profitable operator of fee-based databases of women's organizations and Web sites.
Principal Competitors: Lifetime Entertainment Services; Martha Stewart Living Omnimedia Inc.; Oxygen Media Inc.
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