Who's Afraid of Monster.com?
By Olga Kharif
Monster Worldwide (MNST ), best-known for its flagship job site, Monster.com, has suffered along with the economy. Last year, its revenues declined 23%, to $1.1 billion. The outfit, whose businesses apart from the job site include being a traditional headhunter and an online and offline ad agency, swung from a $69 million profit in 2001 to a $535 million loss in 2002 as unemployment climbed and available jobs dwindled. But that may be mild compared with the jolt the company will absorb at the end of this year, when Monster.com will disappear from the screens of its two major sources of visitors -- the America Online service of AOL Time Warner (AOL ) and Microsoft's (MSFT ) MSN network.
On Aug. 4, Monster announced that it had decided not to renew the agreements that, since 1999, had made it the exclusive job board for both America Online and MSN. The outfit said it no longer wished -- or needed -- to pay a combined $50 million a year or so for the portals' support, even though those deals had been a key factor in making Monster the world's No. 1 job site.
Sources tell BusinessWeek Online that at the last minute, Monster reconsidered -- and was willing to cough up more than the $30 million a year AOL finally accepted from rival job site CareerBuilder, which also bought the space Monster has been occupying on MSN. However, AOL execs walked away, sources say, because Monster wouldn't post 100% its listings on the Internet service. And Monster had some frustrations of its own, says Michael Sileck, chief financial officer of Monster Worldwide -- primarily what he calls poor branding of its services on the portals. In any case, CareerBuilder was more flexible, agreeing to post all of its listings on AOL, according to industry sources.
So Monster and AOL divorced, apparently with little love lost. "I think that they made a terrible mistake, and they're going to pay the price," says Lisa Brown, AOL's president for interactive marketing. What happened at Microsoft is a little harder to fathom: MSN had "a good relationship with Monster," says Lisa Gurry, group product manager for MSN, who claims that separation was a mutual decision.
Ending those two partnerships could be a bigger deal for Monster than Wall Street seems to think. After falling 14%, to $22.51, on the day of the announcement, the stock has risen, closing at $26.22 on Aug. 20. Yet investors may not be fully factoring in the potential impact on Monster's market share. Since 2001, Monster's cut of the $880 million online job-search business has slipped from 43.1% to 39.4%, according to Morgan Stanley. And its traffic could fall sharply when the AOL contract expires on Dec. 1, followed by MSN's a month later. While revenues may not decline proportionally with the number of visitors, viewership is a key metric that corporations use to decide which job site they'll use to post jobs. Monster says it plans to spend the money it won't be paying America Online and MSN on other types of online and traditional advertising, and it hopes those efforts will sustain its traffic, says Sileck.
CareerBuilder and another rival, Yahoo!'s (YHOO ) HotJobs.com, will do their best to make sure that doesn't happen. Both concerns plan major marketing campaigns for later this year, and they do so just when Monster will be most vulnerable. In fact, Monster is barely profitable at the moment, and its cash has dwindled -- from $530 million in 2000, to $183 million a year ago, to $100 million at the end of the second quarter, ended in June, according to its financial statements. And Monster will likely spend more than half of the remaining amount on restructuring its business, estimates Matthew Litfin, an analyst with William Blair & Co.
The big beneficiary of all this could be CareerBuilder, which now has just 14.8% of the market in revenues but hopes to double its Web traffic with its new ties to America Online and MSN. Unlike Monster, CareerBuilder will be promoted on all AOL Time Warner properties, including CNN.com, says Matt Ferguson, CareerBuilder's CEO. The privately held outfit will pay handsomely for that, but its owners -- newspaper chains Gannett (GCI ), Tribune Co. (TRB ), and Knight-Ridder (KRI ) -- have deep pockets, plus a desire to grab the online job market no matter what. For those newspaper outfits, securing a lock on this market, which Morgan Stanley expects to grow to $1.16 billion annually in 2005, is crucial to offsetting a decline in print help-wanted advertising. Traditionally, such ads have contributed about 30% of newspapers' classified revenue -- which, in turn, accounted for about 40% of their total advertising sales, says Edward Atorino, an analyst with Blaylock & Partners. But the print job-ad market dropped from $8.7 billion in 2000 to $4.2 billion this year, according to Morgan Stanley. The papers see online job ads as one way to rebound.
A YAHOO EDGE.
Meanwhile, HotJobs is planning to launch its own advertising attack on Monster at the end of the third quarter. It will highlight its technological integration with the Yahoo portal, which has offerings such as Yahoo Finance and Yahoo search. It figures that pitch could appeal to people who want to keep their online lives -- everything from a stock portfolio to e-mail -- in one place. And because it doesn't have to write Yahoo a check every month, HotJobs enjoys low costs in relative terms, says Daniel Finnigan, general manager of HotJobs. It's even possible that Yahoo could start a price war. The site is in a strong position because 70% of the people who looked for jobs online last month visited the Yahoo portal. Says Finnigan: "We're in an investment mode."
Competition in the help-wanted space is only likely to increase. Search engine Google might emerge as a competitor in a few years, says Jonathan Gaw, an analyst with tech consultancy IDC -- though a Google spokesperson says it has no plans to do so at the moment. And Monster intends "to continue to get our fair share of the market," Sileck declares. Meanwhile, Monster Worldwide's other businesses are still ailing. Its recruitment advertising and direct-marketing businesses were flat sequentially in the second quarter and down year over year.
Still, many analysts believe that Monster.com's revenues will hold steady even if its traffic dips. It takes several months for corporations to reevaluate their career-site options, says Gaw. And Monster still has double the number of resumes of CareerBuilder, its nearest competitor, says Juliana Deeks, an analyst with market consultancy Jupiter Research.
Moreover, the economic recovery should give it a boost, along with everyone else. New jobs nationwide are likely to grow by about 250,000 this year -- and by 1.2 million in 2004, estimates Sophia Koropeckyj, a labor economist at think tank Economy.com.
Some even call Monster's decision financially prudent. Kelly Flynn, an analyst with UBS Warburg, thinks investors would have penalized Monster for renewing the America Online and MSN deals. Another consideration is that Monster has "probably acquired all of the customers they were going to acquire [through the portals]," says Christie Nordhiel, a marketing expert at Northwestern University.
So, Monster may remain the meanest player on the block for quite awhile longer. But its rivals are biting at its knees. And Monster's separation from the portals will leave it more vulnerable than it has been in years.
Kharif cover technology and the markets for BusinessWeek Online.