Tanding in a massive ballroom at the glitzy Westin Hotel in Boston last year,
Jeff Taylor, the brash CEO of Monster.com, exhorted more than 300employees at
his company’s annual sales meeting to join him in an off-color chant.
"The roof. The roof. The roof is on fire," he bellowed, singing a song
frequently used by nightclub deejays to pump up their crowds.
"We don’t need no water. Let the #$*%^! burn. Burn, #$*%^!,
burn." Now, he brushes off the smattering of complaints he heard from
employees. His motivational ploy, he says, "was just frickin’
great." It pounded home the message that Monster.com, the world’s biggest
job-search Web site, is at the top of its game, and it revved up the salespeople
to defend their turf.
The episode was quintessential Taylor: unconventional, fun-loving, borderline
offensive, yet effective. This 40-year-old college dropout turned marketing whiz
has built the world’s leading online recruitment site. With 10 million
résumés, Monster.com holds sway over 34% of the market for online recruiting–more
than double the share of its nearest competitor, HotJobs.com, according to
Jupiter Media Metrix. What’s more, while other online outfits rack up losses,
Monster has been profitable for 12 consecutive quarters. In the most recent
quarter, ended Mar. 30, it generated $32.5 million in operating profit on $129.2
million in revenue. That accounted for 35% of the revenue of its parent company,
TMP Worldwide, a New York employment advertising and executive search agency.
Jeffrey Clark Taylor |
Born: Oct. 4, 1960, Aurora, Illinois
Education: Dropped out of the University of Massachusetts at Amherst in 1984 after six years of on-and-off studies. He plans to get an undergraduate degree this spring. Career: During the 1980s, worked as a deejay at Boston nightclubs. He then created ads for Massachusetts recruitment firm, JWG Associates. In 1989, Taylor started ad and recruitment agency Adion. Looking for ways to find more job applicants, the idea of an online recruiting service came to him in a dream–literally. In 1994, he launched Monster Board, one of the first online recruiting sites. He sold it a year later to TMP Worldwide for $900,000 and remained as CEO. Management philosophy: He believes leaders must make work fun. That’s why he has a giant statue of his company’s monster mascot in the lobby, and he sponsors lots of employee parties. |
But there’s a downside to a CEO being the life of the party. While Taylor’s
fraternity-like antics leave many people laughing, some former employees find
his behavior upsetting. William Warren, who resigned as Monster’s president in
1999 and is now CEO of a rival company, WOWemployers, says 18 Monster employees
joined his firm this year in part because of the "hedonistic" working
conditions at Monster. One of the defectors, Gina Esposito, former human
resources manager at Monster’s Indianapolis office, calls Monster’s
atmosphere "sordid." She says she was offended by the way Taylor
looked at her and kissed her on the cheek. Also, she says, he danced closely
with employees at parties, which is "totally inappropriate for a CEO."
Taylor says he’s astounded by the complaints. He prides himself on creating
a friendly workplace. And he dismisses his critics because they work for WOW,
which TMP Worldwide sued in March, charging theft of trade secrets. The suit was
settled last month with Monster agreeing to pay WOW’s legal expenses, and
former Monster employees agreeing not to contact their Monster clients for a
year. As for the dancing, Taylor says he simply matches employees’ dance
styles: "If somebody wants to dance funky and close, I’ll dance funky and
close." And he kisses women on the cheek almost out of respect. It’s not
out of disrespect. "It’s my way of saying: ‘I care about you’."
Taylor is more concerned about the challenges facing Monster. With the
economy cooling off, rivals getting savvier, and some corporate customers
annoyed by Monster’s fees, its domination of the market may be hard to
maintain. Monster makes its money by charging corporations up to $300 for each
help-wanted ad but lets individuals post their résumés for free. The company
not only faces competition from other big online job boards but also must defend
itself from 35,000 or so specialty sites that can provide a more targeted pool
of job candidates for less money.
The business is changing rapidly, too. As the online-recruiting industry
matures, companies are looking for a single solution to all of their hiring
needs, including software that helps sort résumés, test applicants, and
conduct background checks of job candidates. The race to create such a
comprehensive package has just begun, but it could make large online job boards
like Monster seem like dinosaurs. Already, companies are hiring online recruiter
BrassRing to search lots of specialized job sites simultaneously and
automatically select the best-qualified applicants.
While most analysts view Monster as unstoppable, not everyone agrees.
Analysts at William Blair & Co in Chicago recently downgraded the stock to
"hold" because of the economic slowdown. Since February, Monster’s
job listings have dropped more than 10%, from a high of 505,000 to 443,775 in
mid-May. The company’s deferred revenues grew only 3% last quarter, compared
with 20% in the previous quarter. That’s because corporate customers are
signing shorter-term contracts, so less of the payments spill over into another
accounting period.
A Monster Bash |
Even though Monster has been profitable for 12 consecutive quarters, CEO Jeff Taylor must tackle several big challenges to maintain his lead in the online recruiting market. |
Fierce Competition Monster.com is the gorilla of online recruitment, but there are 35,000 other such sites, some specializing in specific industries and locations. HotJobs, its closest competitor, issued a Pepsi/Coca-Cola challenge to Monster to see which job board is more effective, but Monster declined. |
The Slowing Economy Companies are expected to become more selective in their hiring and more price-sensitive. Since a job posting costs $300 on Monster, vs. $100 on many niche boards, corporations may take their business elsewhere. |
Disgruntled Customers Customers complain that too many other companies have access to Monster’s 10 million résumés. And TMP, Monster’s parent company, has been buying staffing companies, prompting clients to worry that TMP firms may get early access to new résumés. |
Changing Demands Companies realize they need much more than job and résumé listings. They want their online recruiters to sort through résumés and track applicants through the hiring process. |
Taylor says he isn’t worried. He believes Monster can weather the storm
better than most online job boards because it gets 40% of its revenue from its
rapidly growing overseas businesses. And the company has started buying firms
that will allow it to provide more recruitment services, such as résumé
sifting. On June 1, Monster launched MonsterTRAK, a service aimed at matching
college students with jobs.
While Taylor tinkers with operations, he has no plans to change his style.
Even though he’s the father of three, he sometimes parties late with
employees, deejaying their private parties, and dancing the night away. After
such events, he says, he can literally see morale jump. "Everybody has a
little bounce in their step," he says. He recently bought a 1954 tugboat
that he plans to use for company outings. Taylor wants a culture with a
"high fun quotient," says sales vice-president Peter Blacklow.
Taylor fancies himself a younger version of Richard Branson, chairman of
Virgin Group, whom he praises as an "adventurist." Both companies own
blimps, and when Branson challenged Taylor to go waterskiing behind the Monster
blimp, Taylor accepted. He handily beat Branson’s previous record, skiing for
3.3 miles, vs Branson’s 1.5 miles, last year in Florida. Says Branson:
"He’s a great people person, and he enjoys working hard and playing
hard."
Doing unusual things has been a trademark of Taylor’s life and career. The
son of a guidance counselor and a preacher active in the 1960s peace movement,
Taylor spent his grade-school years in a community in Illinois, that was so poor
there were no team sports at his school. Later, when the family moved to a
suburb of Boston, it was too late for Taylor to participate in team sports,
which his mother, believes wound up making him more of an individualist.
"He has never been in the mainstream," she says. For instance, he
learned to tie elaborate flies for fishing when he was in 7th grade, insisting
that his parents stop when they passed roadkill so he could fetch feathers and
hair for use in his lures.
He was also outgoing. He became a popular paper boy because he befriended
many people on his route. He was raised in a tightknit family–meeting weekly
to discuss pressing issues and always starting the sessions by singing a family
song they had made up. Those were the days Taylor learned to play the guitar and
became passionate about music.
He took time to find his way in life. He drifted in and out of the University
of Massachusetts for six years, driving a truck after his freshman year, then
returning to school and starting his own business selling freshman
"survival kits"–complete with toothbrush, candy bar, map of the
campus, and bottle opener. He spent some summers working as a dishwasher in
Maine, where he developed an interest in advertising. He spent his spare time
creating flyers that promoted local entertainment. He also learned how to
deejay. After he quit school in 1984, he spun records for several years in
Boston clubs. That brought out the party animal in him, says his mom.
Finally, he decided to try advertising as a career. It appealed to him, he
says, because it allowed him to create something. He quickly became a star. At
his first ad job, at JWG Associates in Massachusetts, where he sold ads and
organized ad campaigns, Taylor created energy and excitement and "turned
the company into what it is today," says Linda Rappaport, now JWG’s COO.
He often played music at work and joked around, making late nights feel
"almost like summer camp."
Within three years, he founded a recruitment agency for high-tech clients,
Adion He soon started hearing people complain about how hard it was to find
qualified candidates from classified ads in the newspaper. He thought a lot
about the problem, he says, and one night, the solution came to him in a dream:
an online job board for his clients. When he awoke he immediately scribbled some
notes on a piece of paper, which now hangs in a frame on his office wall.
That led to Monster Board, which he launched in 1994. One year later, he made
a move that others considered crazy: He sold his business to TMP for a mere
$900,000, staying on as CEO. That now seems brilliant, because it provided him
with the money to spend heavily on advertising, including ads during the 1999
Super Bowl. He paid $4 million for three 30-second ads. Until then, Monster had
averaged 600 job searches a minute. On the evening after the ads aired, it was
logging 2,900 a minute. Ultimately, the ploy attracted millions of job seekers.
Now he has to protect his successes. Some customers are getting fed up with
Monster’s high prices and business practices. Tech consultant Advancia in
Oklahoma City recently switched from Monster to HotJobs because many of Monster’s
résumés are either anonymous or posted by staffing agencies that require
employers to pay hefty commissions of up to 30% of a hire’s annual salary.
With former employees, fickle customers, and rivals nipping at its heels, Taylor
will likely find that maintaining his monster lead will be tougher than building
it.
By Rochelle Sharpe in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc
True grit
But the very strengths of the Net are also its limitations. Just because
communication is ubiquitous doesn’t mean it’s everything. The last five
years have taught us that in industries such as retailing, manufacturing, and
transportation, physical factors overpower the virtual. E-tailing turns out to
be more about which company is best at moving boxes around rather than who has
glitziest web site or the biggest virtual store on earth. Linking supply chains
over the Net cuts costs and improves response times, but ultimately
manufacturers succeed or fail if they develop good products and figure out how
to produce them at low cost and high quality. Online airline reservation systems
can improve customer convenience and boost the revenue yield per passenger, but
they can’t do anything about long delays caused by runaway congestion, too few
loading gates, antiquated air traffic control systems, and mechanical
difficulties on airplanes.
Where the Internet May |
These information-intensive industries are good candidates to be transformed by the Web: |
FINANCIAL SERVICES Most financial services can potentially be handled electronically. But so far, banks can’t even figure out a good way of letting people pay bills online. |
ENTERTAINMENT Much of entertainment can easily be digitized. But no one knows how to make money yet, and the technology is lagging. |
HEALTH CARE The benefits of shifting health-care transactions to the Web could be enormous. But so are the institutional barriers. |
EDUCATION E-learning could cut the costs of education, but only at the price of making education more impersonal. |
GOVERNMENT Delivering information to citizens electronically has enormous appeal, but requires massive investments. |
Even in areas where the Internet can play a central role, the big changes are
not going to come overnight, as investors have found to their chagrin. Some of
the information-intensive industries where the Internet could have its biggest
effect are also the ones where institutional and regulatory barriers are the
highest and vested interests are the strongest. In health care and education,
for example, the possible benefits from widespread use of the web are enormous,
but it’s going to happen in baby steps, over time. What’s more, it’s a
difficult, painful, and slow process to restructure companies and markets.
In the end, it turns out that the speed of Internet time has more to do with
the capital markets than with the pace of technology adoption. The enormous
amounts of venture capital available to startups drove companies to grow far
faster in a few short years than the underlying infrastructure or consumer
demand could support. In fact, the eventual benefits of the web should be
measured over a decade. "People had higher expectations for the next couple
of years than are likely to be realized," says Jeffrey Bezos, CEO of
Amazon.com. "And people have much lower expectations for the next couple of
years than are likely to be realized over the next 10 years." That may help
explain the current confusion about the future of the Internet.
Got Web?
That’s why Internet optimists are refusing to retreat. Analyst Mary Meeker
of Morgan Stanley Dean Witter is urging Net leaders such as Amazon, Yahoo, and
AOL Time Warner to band together in a ‘Got Milk?’-style marketing campaign
promoting the idea that the web is alive and well.
Such webfests, however, aren’t likely to change the minds of burned
investors or restore the once-buoyant expectations for the Net. For instance,
Merrill Lynch analyst Henry Blodget recently reduced his expectations for how
much retail sales will go online to only 5% to 10%, down from 10% to 15% he
envisioned just a few months ago. Even Bradford Koenig, head of the technology
banking practice at Goldman, Sachs, which underwrote many of the hottest Net
IPOs, has lost confidence in pure Internet companies: "The notion of an
Internet company is no longer viable."
...And Where the Impact May Be Incremental |
Industries where information plays a relatively small role: |
RETAILING The glitzy web sites got all the attention. But dot-com success turned more on who had the best logistics.. |
MANUFACTURING Web-enabled supply chains and intranets are important, but ultimately a manufacturer lives or dies on the quality of its goods. |
TRAVEL Online travel sites are popular, but the ultimate constraint on travel is the physical capacity of the air and road systems. |
POWER Online energy exchanges get the publicity, but power generation and transmission capabilities will have the bigger economic impact. |
But that’s too pessimistic. In fact, part of the problem was that much of
the investment flowed into areas where the Internet is incremental rather than
revolutionary. Take retailing. The hyped consumer dot-coms were supposed to blow
away their brick-and-mortar counterparts. But it turns out that the importance
of information and communication in retailing–the Internet’s forte–is much
smaller than the role of logistics. How much smaller? According to a Softbank
spokeperson, it takes between $15 million and $25 million to build a
top-of-the-line web site. Yet it costs at least $150 million to build a
warehouse and distribution system for a consumer web operation.
All across retailing, the Internet is no longer seen as the 800-pound
gorilla. For example, a year ago, the prevailing wisdom was that old-fashioned
auto dealers were going to be passe. But so far, that hasn’t turned out to be
true. "There hasn’t been the massive shift to buying cars online that we
thought there would be 18 months ago," admits Mark Hogan, president of
e-GM, the auto maker’s online consumer unit.
And there’s growing evidence that shoppers on the Net are supersensitive to
price, according to Austan Goolsbee, an economist at the University of Chicago.
The implication is that any profits e-tailers might make could be short-lived as
competition drives prices down on the web.
Perhaps the biggest surprise is the comparatively limited impact that the Net
may have on manufacturing. To be sure, there is no doubt that e-business has
become an essential part of any manufacturer’s toolkit. The use of the Net can
reduce inventories, take costs out of the supply chain, and eliminate
unnecessary transactions. Collaboration can also speed up product development,
e-marketplaces can lower the cost of components and other supplies, and detailed
info on customers can help customize products to snag bigger orders or even help
determine which customers aren’t cost-effective. At Procter & Gamble, a
web-based information-sharing network makes it easier to collect and evaluate
new product ideas from the company’s far-flung workforce of 110,000 people.
Nevertheless, at the end of the day, manufacturers are still in the business
of making things, not simply moving bits and bytes around. Wheels have to be
bolted onto the car, circuit boards have to be installed in the router–and
that has to be done physically.
To know how this limits the impact of the Net in manufacturing, look at the
example of Cisco, the communications equipment giant, universally regarded as
the poster company for using the web. Some 68% of Cisco’s orders are placed
and fulfilled over the web and 70% of its service calls are resolved online.
Cisco is in the process of linking all of its contract manufacturers and key
suppliers into an advanced web supply-chain management system, dubbed eHub
speeding up the rate at which information about demand is distributed to
suppliers.
According to Cisco’s own calculations, its payoff from its use of the
Internet amounts to $1.4 billion per year, or 7% of sales. If the rest of
manufacturing could even do half as well as Cisco in using the Net, that would
cut an impressive $150 billion from annual manufacturing costs. And yet it is
not the radical reduction in costs that would signal a revolution.
Slow as molasses
While supply chains linked over the Net are more responsive than their
predecessors, they have their limits, too. "The flexibility now being
demanded by customers exceeds the physics of what the supply chain can actually
deliver," says Kevin Burns, chief materials officer for contract
manufacturer Solectron, whose big customers include Cisco and IBM. Now that
companies have switched to web-based models, he notes, they expect to be able to
ramp up or halt production of a product within weeks. But it still takes at
least three months to get a specially designed chip made in a Taiwanese foundry
and around 40 weeks to order an LCD screen.
Obstacles don’t disappear, but it’s easier to see the far-reaching
potential of the Net in industries that are primarily about moving information
rather than goods. Take financial services. In many ways, financial products are
ideally suited to the Internet, since they deal only with information. A recent
Goldman Sachs survey reported that 63% of financial companies had sold their
products through an e-marketplace or a web site, the highest of any industry.
The Internet is already well on its way to transforming financial services.
Online brokers such as E*Trade Group have completely changed how the retail
brokerage business worked. And Net services are now offered by nearly every US
bank and credit union. Bank of America says it’s signing up 130,000 online
customers a month, giving it more than 3 million Net customers. Citigroup has
2.2 million, Wells Fargo, more than 2.5 million.
But as in the case of entertainment, technological and institutional barriers
are slowing down the eventual gains. Consider online bill-paying, widely
anticipated to be the "sticky app" that drives traffic. The benefits
of paying bills on the Net, for both consumers and businesses, could be
enormous. But the technology has proven exceptionally complicated, and it has
hit a wall trying to penetrate the banking industry. Among the problems: Banks
and billers have been unable to agree on how bills should actually appear
online. Still, Bank of America plans to launch a big ad campaign later this year
to promote its bill-paying service.
And then there’s health care. Despite the tangible nature of many medical
services, health care has a very large information component that makes it a
natural for Internet applications. Just shifting claims- processing to the web
could save $20 billion a year, according to the Brookings economists. At a
leading provider of prescription drug care in the US, it costs a matter of cents
to handle a prescription order on the Internet, as opposed to more than $1
through other methods.
Broadband’s promise
But there are enormous institutional barriers. For one, privacy
considerations may slow down the full shift of health-care records to the web.
Moreover, health-insurance companies, doctors, and hospitals are unwilling to
give up control of patient records and insurance payments to a third party. This
reluctance helped frustrate WebMD and Healtheon, which expected to lead a
restructuring of health care by moving many claims, payment, and related
processing services to the Net. WebMD’s efforts to provide real-time payment
capabilities were shunned by insurers and HMOs, who prefer the current
cumbersome process that lets them hold onto the money longer.
There’s also the technology factor. In the long run, realizing the promise
of the Net will depend on the widespread introduction of advanced technologies
such as broadband to the home and high-speed wireless. With broadband
connections over telephone or cable-television lines, consumers will be able to
watch TV-quality video clips of the NCAA basketball tournament or download
crystal-clear music files faster than ever before. What’s more, they’re more
likely to use the Net because they’ll always be connected and won’t have to
spend minutes dialing into the Net each time they want to visit a site.
The problem is that getting the new technologies in place may take longer
than expected. Financially stressed telecom companies are slowing down the roll
out of broadband. The failure of small telecom providers means that subscriber
growth may slow down in second- or third-tier markets. And the prices for
high-speed Internet access may rise.
In the end, the Internet seems likely to revolutionize mainly
communications-intensive industries. If that seems too
limited, remember that almost every breakthrough technology over the last 200
years affected some areas of the economy more than others. The automobile
transformed personal transportation and patterns of housing while little
affecting manufacturing. Electricity radically altered manufacturing practices
and any industry that was power-intensive, while not having an enormous effect
on health care. The Net deserves to be put in such august company.
Michael J Mandel and Robert D Hof with inputs from Linda Himelstein in
Silicon Valley, Dean Foust in Atlanta, Joann Muller in Detroit, and bureau
reports–BusinessWeek