Reader's Digest's gifts.com hits the Web

Put together a list of the most techno-savvy media companies, and the77-year-old Reader's Digest Association (RDA) is very unlikely to make thecut. The company is saddled with an image as an old-fashioned, paternal,conservative and even stodgy organization that wouldn't know a byte froma dog bite.

Put together a list of the most techno-savvy media companies, and the 77-year-old Reader's Digest Association (RDA) is very unlikely to make the cut.

The company is saddled with an image as an old-fashioned, paternal, conservative and even stodgy organization that wouldn't know a byte from a dog bite. Yet that rep isn't totally fair, especially since Chairman and CEO Tom Ryder took over the reins last year.

Ryder, a former top American Express executive who ran a magazine group for AmEx that included Travel & Leisure, knows a lot about media. Almost 10 years before local became the byword of Bill Gates, AOL, Barry Diller et al, Ryder was working at building a network of city magazines for AmEx that had much the same concept in mind. That it didn't ultimately work had more to do with AmEx's hesitation about being in the media business than the actual strategy (the company has since handed its magazine group to Time Inc. to run.)

Ryder is now working at transforming RDA into, at least in part, a digital company with the greatest smarts in direct marketing in the business. Although it's not been trumpeting the fact, RDA owns a stake in LookSmart, an up-and-coming portal, and the company is also developing a big health site with partner WebMD. But RDA is also launching a major destination shopping site, gifts.com, in partnership with StarTek, Inc., a public company that handles e-commerce solutions for partners.

The idea here is to set up a top gift site in time for the holidays. RDA and its subsidiary, Good Catalog Co., will own 80.01 percent of gifts.com, and StarTek will hold the other 19.9 percent. This under 20 percent stake allows StarTek to avoid posting whatever losses gifts.com racks up to its own bottom line, per SEC rules, but it is a major commitment from RDA, which has seen its own stock tumble about 20 points from the over-$50 a share it reached about 4 years ago.

As a sign of an independent brand identity, or perhaps to remove any traces of stodginess that still cling to the Reader's Digest brand, gifts.com will not be branded with the Reader's Digest name or logo. Instead, the site will offer 400 different products from name brands like Laura Ashley, Burberrys, Lenox, Nautica and Escada. StarTek also build a bunch of special features, including a Gift Finder, a Gift Calendar with e-mail reminders, and customized gift cards.

The launch of gifts.com is a major push from RDA, including a $20 million marketing push for the holiday season starting next month, supported by ads from Young & Rubicam. RDA is clearly spurred by numbers from Forrester Research that say online gift buying will grow to $1.8 billion in 2003, from about $300 million last year.

Keith Fox, director of new media at Reader's Digest, says the company is aware that it can't grab all of the gift market just because it has a good URL. "If someone wants to buy a book for a friend, they will go to Amazon, but if you want to buy someone a housewarming gift, you ll go to us," he said. Fox won't characterize just how much of the gift market RDA is targeting, but he notes it's well over 5 percent.

This may be a bit of a watershed in the new media/old media paradigm, one of the first times that a traditional media company takes top ownership of a major e-commerce play, and invests the dollars, the impact on the bottom line, and the many, many difficulties inherent in Internet economics. It will be fascinating to see how well RDA and its CEO Ryder can sustain it. What do you think gift.com's chances are? Let me know in the talkback below.

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