CNET: Revenge of the Preppies Southern blueblood Halsey Minor is trying to create a great online media company. Wall Street has finally become a believer--CNET is now a hotter stock than AOL or eBay.
By Andrew Serwer Reporter Associate Angela Key

(FORTUNE Magazine) – Most of the time I spent visiting with Halsey Minor was perfectly amicable. As the young CEO of CNET showed me around the bright-yellow work spaces of his San Francisco Internet company, we chatted casually about our kids and mutual acquaintances back in New York. One morning we even got in some tennis. (He pretty much thrashed me.) But later, after I asked a perfectly innocent question, Halsey got ticked off. "Halsey," I said, "you really pulled a victory from the jaws of defeat in your deal with NBC. How did you do that?" Long pause. "You know," he began, "I'm kind of tired of people saying that we got lucky with this or with that. Why won't people give us credit? Why don't people recognize that what we've done has worked!"

Here's why I struck a nerve. CNET was dreamed up one morning seven years ago when this Southern, blue-blooded, preppy Wall Streeter was home in bed with the flu, watching television. And ever since, even as the company has grown, become profitable, and joined the ranks of star Net stocks, CNET and its founder have been ignored, written off, and even ridiculed. This isn't too surprising. If there is such a thing as a typical Internet company, CNET is not it. CNET isn't the product of some business plan hatched by the Sand Hill Road and Stanford crowd. It isn't a portal. It isn't even an e-commerce company.

CNET is in fact a hybrid old-media/new-media company, blending elements of Consumer Reports, PC magazines, the Discovery Channel, and Bloomberg. First and foremost it operates a network of Websites (the central one is that rate and review technology products. These sites steer buyers to online retailers that actually sell the PCs, printers, and Palms. CNET also produces television programming about technology and runs an online tech news service. The lifeblood of the company is sales of online ads, as Minor disdains subscription-based businesses.

In Netland, businesses like this, founded by people like Minor, haven't gotten much respect: Minor is not an engineer, and the whole thing just doesn't have an aura that highbrow geeks think of as visionary. But this year the world seems to be coming round to Halsey Minor. While other Net stocks have faltered, CNET has been, well, behaving like an Internet stock. In fact, since the beginning of this year it has outperformed each of the Internet's Big Four--Amazon, AOL, eBay, and Yahoo. eBay leads that bunch, up 137%; CNET's stock price is up a scorching 386%.

Why? Well, it may be because Minor's model seems to work--CNET earns money. Last year it had profits of $2.6 million on sales of $56.4 million. In 1999's first quarter, it made $3.4 million on revenue of $19.6 million--and analysts say it's on track to earn millions more. And maybe, just maybe, Wall Street is starting to care about profits for Net companies. The best evidence of this is Amazon, which has lost more than $14 billion in market cap since mid-April, when it pushed back its target date for profitability.

If profits are in fact beginning to matter for Net companies, CNET might even grab a market cap that rivals Amazon's. Which would make sense to Minor, who professes to be baffled by why CNET has a valuation one-quarter Amazon's. And which would also keep him from having to answer any more skeptical questions like the one I asked that ticked him off.

To understand CNET, you have to try to understand Halsey Minor, because first, this has been his baby all the way, and second, he has made himself a public manifestation of this company. A controversial and paradoxical figure, the 34-year-old owns 13.5% of CNET's stock (excluding options), now worth some $570 million. "Handsome in a Brooks Brothers-model kind of way," to quote an admiring female buy-side analyst, Minor can be gracious and charming, and doesn't suffer from an inferiority complex. Fans consider him the industry's leading young visionary. At industry conference after industry conference, he does indeed go on about the future of mankind, the Internet, content, etc., etc., etc.

Yet something about his spiel is unconvincing. When you look closely at Minor and the course he has charted for CNET, you realize that he's not really a tech visionary. In truth, Minor is an unadulterated opportunist, an ambitious, aggressive entrepreneur--the kind of guy who puts up a LUNCH IS FOR SISSIES sign in his office. Not that there's anything wrong with that. Yes, his venue is the Internet, but if he had been doing this 15 years ago, he would have been in the cable business.

Then there's Minor's background, which is about as different from the techie stereotype as you can get. Minor is a preppy in a world full of nerds. He comes from a prominent Virginia family. The original University of Virginia Law School was named after his great-grandfather John, who according to official school history saved the university from being destroyed by the Yankees.

Minor tells me that he was a "computer nerd" at prep school (Woodberry Forest). But his teachers remember him more as a popular, rabble-rousing, all-American boy who played baseball and chewed tobacco. Apparently he did tool around on the school's Digital PDP 11, and when he moved on to U.Va. he created a computer service that helped people find apartments. In fact, after graduating in 1987 with a degree in anthropology, Minor was tempted to make a business out of his service. Instead he went to work at Merrill Lynch, where, as a consultant, he hired and then partnered with a young Princeton grad named Jeff Bezos. Bezos, of course, is now CEO of, which may help explain why Minor keeps such a close eye on that company.

Then, one day in 1992, Minor stayed home to nurse the flu and had an epiphany while watching TV. Back then all the talk was about the 500 channels our TV sets would soon receive. Well, Minor thought, why not create a cable TV channel and some online content about technology? It may have been a good idea, but Minor's timing was way off. "You can't imagine how hard it was selling a concept like that in 1992," he says. "I mean, it was bleak." Minor began scraping together cash from anyone who would buy his pitch, mostly friends and family. Then he was introduced to a young investment banker named Shelby Bonnie, who was working at Tiger Management, Julian Robertson's powerful hedge fund. Bonnie liked the business plan and started to help out. "One time I was on a boat in the Caribbean with some friends," says Bonnie. "And Halsey called. He was at the end of his rope. He needed $25,000. So I wired it to him."

Bonnie is now CNET's vice chairman, with 15.3% of the company's stock, worth some $640 million. He's the hidden half of CNET's management team. Bonnie and Minor have remarkably similar backgrounds: Bonnie, a scion of Boston's Winthrop family who grew up on a horse farm near Louisville, is also a 34-year-old U.Va. grad (the two didn't know each other at Charlottesville). Their personalities, however, are polar opposites. While Minor is the polished, big-picture, Mr. Outside, Bonnie is the folksy Mr. Inside. Everybody likes Shelby. "He isn't just a banking guy," says his old boss, Julian Robertson. "Shelby has some of the best people skills of anyone I've ever met. That's good for CNET, because it means the company wasn't just built on people chasing stock options but by someone who is really good with people." Says another person who knows both Bonnie and Minor: "They're a great team, really. You'd want to invest in a company run by Halsey, and you'd want your daughter to marry Shelby."

In 1993, when Bonnie left Tiger to join Minor full-time, he cajoled a number of acquaintances to put money into CNET. Those investors have been richly rewarded, but they slogged through some tough times. "It was a struggle in the beginning," says Bonnie. "I remember we would rip the numbers on checks to outside vendors because we heard it took longer to process checks if they were like that." After being turned down by every venture capitalist or media company on planet earth, Minor finally persuaded Paul Allen to give them $5 million in 1994, on the condition that the lads land a distribution deal for their TV programs. Only after they signed on with USA Networks was CNET--by then relocated from New York to San Francisco--on its way.

The long wait for funding turned out to be a blessing, for just as CNET was getting its TV programming off the ground, Minor was becoming intrigued by the commercial possibilities of the Internet. "We realized that the Internet was going to give people a new way to buy and sell technology, and we wanted to be there," he says. So in June '95, CNET launched became an Internet company. If at first the online business existed to serve the TV business, it soon became clear that the model would be turned on its head. Soon thereafter Paul Allen upped his commitment to $11 million, and Intel bought a big slug of stock. And in July 1996, Morgan Stanley took CNET public. It was a respectable enough IPO--the stock climbed from $16 to $21 (this in the days before the moon-shot Net IPO)--but then the stock languished.

You see, neither Silicon Valley nor Wall Street had much use for an online media company. Portals (they were called search engines back then), yes, and e-commerce, okay--but new media? How does that make money? Furthermore, the Silicon Valley elite resented the company, as in "Who do these guys think they are? A couple of young carpetbaggers from Wall Street think they can come to San Francisco and clean up? They aren't even heavy-duty techies! And that Halsey Minor, is he full of himself or what?"

A bigger problem was that Minor and Bonnie just didn't seem to be executing. CNET developed a reputation among analysts for missing its quarterly earnings estimates, anathema to Wall Street. Analysts were led to believe, for instance, that the company would be profitable in the fourth quarter of 1997. In the end, CNET lost 62 cents for the quarter. Says Andrea Williams of Volpe Brown Whelan, who is now bullish on the stock: "It was a tough stock to cover back then, because we were all trying to figure out what was going on." Minor and Bonnie don't apologize. Says Bonnie: "Sometimes doing the right thing for a business isn't the right thing for Wall Street."

Bonnie and Minor's most controversial move came in 1997, when they diverted $25 million and 150 employees to create a new Web portal called Snap--years after Yahoo, Excite, and Lycos were up and running. The decision, kept secret from Wall Street at first, was universally booed, and CNET stock tanked. But to Minor, creating Snap was simply a response to an obvious opportunity: "I saw there was more demand for portals than supply. I swear on a stack of bibles that I thought we could sell a piece of Snap. I said we could create it for $25 million and sell it for $200 million. And we did a lot better than that." Indeed, in the deal that he recently completed, Minor essentially traded CNET's 40% stake in Snap (it had sold 60% to NBC last year for $26 million) for 7.1 million shares of NBCi (which contains the merged assets of Snap and a company called Xoom) that are now worth $486 million.

Snap paid off in the long run. But the portal was really a sidelight. Minor concentrated mostly on building a series of Websites that were linked into, including (for software) and (for easier price comparisons of tech products). But even as it became easier to see how all CNET's content worked together, the stock wouldn't budge. At one point, with the stock down near $6 a share (adjusted for a two-for-one split) Minor and Bonnie took their own cash and went into the market to buy shares. A friendly hedge fund manager called up Morgan Stanley analyst Mary Meeker: "I told Mary, 'Look, these guys are using cash to buy their stock in the open market. No one does that!' But she didn't upgrade her rating."

Keeping the stock afloat while mainstream Wall Street steered clear was a loyal core of institutional shareholders, some of whom were original investors brought in by Bonnie. These included hedge funds like Blue Ridge Capital and Maverick (run, respectively, by John Griffin and Lee Ainslie, two Tiger veterans) as well as Gilder Gagnon Howe of New York and Husic Capital of San Francisco. They even stepped in to buy during periods of weakness, which may explain why CNET stock often rose mysteriously in the wake of negative news. But over the past year or so CNET has been bought by dozens of institutions, which is why the stock has climbed even as Paul Allen and Intel have sold their positions.

Just as CNET's ugly duckling phase was the result of several factors, its transformation into a swan isn't attributable to any single element. For one thing, it's clear now that online tech companies are hotter than print trade magazines--after all, the most hard-core tech shoppers are on the Web, so why do they need print? CNET's direct competitor is Zdnet, an online spinoff of trade publisher Ziff Davis. Meanwhile, other online media companies, like CBS MarketWatch and, have won favor from Wall Street. That comparison only goes so far, as Minor made clear to the staff in December 1997 when he sent out an e-mail reading, "Some people think our mission as a company is to do great editorial. It is not.... Great editorial is not a goal in and of itself...."

What has been a goal is winning the favor of Wall Street, which is why Minor has brought in some top-flight management over the past year. CFO Doug Woodrum, was hired from Heritage Media. Another grownup, former Time Warner exec Robin Wolaner, was recruited to head online operations. A new president, Rich Marino from PC World, comes on in June. A little growing up might be a good thing. Walking around CNET's offices you sometimes feel you've stepped into a Jewel video. The bright-yellow open spaces are populated by 515 shiny, happy, gung-ho people whose average age is 30. (Hey, one of Al Gore's daughters interned here last summer!) There are 35 people older than 40 in the whole company.

With the grownups on board, Minor's focus is on new sources of profits. For years CNET's sites worked like this: You want to buy a laptop. You go to, search for laptops, and read reviews. You decide on the Sharp Actius PC-A150 UltraLite (a CNET editor's choice). Comparing prices, you choose one of the ten vendors linked to CNET that sell that model. Then you click to that vendor's site and disappear from CNET's world. CNET collects only banner ad revenue and fees for favored placement of listings. (But never for favored reviews. CNET says all its editorial content is independent.)

But wait. Why should the vendor get CNET's users free? That's what Minor wondered. So last summer CNET started charging for some click-throughs, which it gets paid for whether or not there's an actual purchase. Williams of Volpe Brown estimates that CNET generated 104,000 leads per day in the first quarter (up almost 16% from the previous quarter). She figures the company gets about 30 cents per click on about 50% of those leads, resulting in about $1.4 million in high-margin revenue in the first quarter.

Another reason Wall Street is more favorably disposed toward CNET is that Minor and Bonnie have put together an impressive investment portfolio. Besides its $400 million-plus position in NBCi (for which it paid $22 million), CNET owns $200 million worth of Vignette, a hot Net software company that was indirectly spun out of CNET. Total cost there: $500,000. CNET also owns 750,000 shares of, an online software reseller, worth $22 million. "And we have $210 million of cash on our balance sheet," says Minor.

As for CNET's future, even the harshest critics have to admit the company has the wind at its back. It has, after all, become the leading online provider of information about the world's biggest e-commerce market: technology. At Hambrecht & Quist's tech conference in April, Minor told a ballroom full of buy-side analysts that more than $50 billion of the $116 billion that businesses and consumers are expected to spend online this year will be on technology products, and less than $2 billion of that will be on books and music.

But remember, CNET can't actually sell any of that $50 billion. It makes its money by informing users and by steering buyers to sellers. That's fine for a company with $94 million in annual revenues, which is what Williams of Volpe forecasts for this year. But to take the company to the next level, it's pretty clear that Minor needs to make CNET a major brand. Let's face it, CNET is nowhere near as familiar as, say, Yahoo or even eToys. Geeks know the company, but analysts say that one of the biggest untapped segments of the online tech business is the potentially huge consumer market. If they're right, Minor will have to make his company at least as well known as the one run by his old buddy Bezos. The question is, Does Minor want CNET to be an online trade media company or a mass-market media company? If it's the latter, that suggests CNET should run major TV ad campaigns on the likes of ESPN. Which suggests mega marketing costs. Which suggests maybe falling into the red again. Which suggests behaving like an "old line" Net company. Possible? Minor doesn't rule it out.

This is Minor's next great challenge. He is beginning to earn Wall Street's respect. Now can he move the company forward and please his shareholders too? Minor's greatest strength may be his opportunism. Unlike other Net CEOs wedded to certain technologies or business models, Minor has shown that he can redirect, adapt, and change. If Halsey Minor wants CNET to take the Internet center stage along with the Yahoos and the Amazons--and you have to believe he wants that--he'll have to make CNET an Internet star.