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The Life of the Party

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DQI Bureau
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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.

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"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.

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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.

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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.
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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."

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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.

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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.

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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

be Revolutionary...

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

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