Jupiter shoots for the moon

The market research firm has always said the Net would be big. Now it's big enough to launch Jupiter on a bid to go public.

Published September 2, 1999 4:00PM (EDT)

Walking through the heart of Jupiter Communications, the "online intelligence" company, vice president Adam Schoenfeld points out the place where Jupiter recently broke through a wall to expand into the corresponding floor of the building next door. The white plaster has been carefully peeled away to expose a foot or two of raw brick -- a nod to the rapid growth of Jupiter and, as Schoenfeld admits, a "design clichi."

The building is in the trendy NoHo area of New York, smack-dab in the center of what is known as "Silicon Alley." Schoenfeld says proudly, "We just busted through this wall, and already we're going to be expanding up to the third floor as well." Sure enough, the office is packed elbow to elbow with black-clad hipsters in their 20s and 30s, just like a Net startup, with analysts juggling phones and keypads amid stacks of brightly colored research reports -- just like journalists.

Jupiter Communications is a 13-year-old research firm that has rocketed to the top of the consumer Internet analysis business with its research, conferences and consulting. Two years ago, it was a relatively modest newsletter company, best known for its press quotes expressing optimistic statistics about the future of the Net. Today, it touts itself as a full-blown market research and consulting firm with more than 500 clients and a successful conference series, competing with much larger and more established firms like IDG and the Gartner Group. And within the next few months, Jupiter plans to be a publicly traded company.

Certainly, Jupiter has made a name for itself. Its Internet industry analysts and forecasts are frequently cited in the Wall Street Journal, New York Times and a sea of technology trade magazines. Its projections on everything from online holiday shopping to online advertising revenues can be found in many a startup's business plan. And data from its reports show up more often than not in documents filed with the Securities and Exchange Commission by Internet companies going public -- like the S-1 filings of iVillage, Women.com, Salon.com and Jupiter itself.

But what does Jupiter know about the future of the Internet that technology executives, journalists and others following the same space don't?

"I think Jupiter does a good job of coalescing the industry on new issues, on defining terms and metrics, which I think are important," says Scott Kurnit, CEO of About.com and a former Jupiter client. The company gathers information through interviews with companies, which will often divulge much more information to a research firm than they do to the press, knowing that Jupiter will not reveal any secrets. After meeting with several companies in the same sector and gleaning future plans, an analyst can make a pretty good guess about where that sector is headed.

But Jupiter doesn't always get its predictions right, and critics routinely lambaste the company for being inexperienced, inaccurate or victim to industry hype. "They've been so wrong in the past in terms of their forecasts that their credibility in the music space is nearly zero," says one executive in the online music business. Journalists complain that they often know more than the Jupiter analysts they call for quotes, and some Net executives say that rather than learning from the analysts, they often hear their own ideas parroted back to them. "Using a research analyst is like lending your watch to someone so that they can tell you the time," says the music executive.

While there are some astute minds at Jupiter, some of its analysts certainly have less business experience and time in the trenches than a good many people in the industry they cover. Jupiter vice president and top analyst Nicole Vanderbilt is 25 and has already clocked three years at Jupiter. CEO Gene DeRose describes his career before Jupiter as "struggling novelist" and Cosmopolitan columnist, and Adam Schoenfeld staffed an undistinguished desk at the Associated Press before he came to Jupiter in the early 1990s. Until two years ago, when it landed some funding, Jupiter could only afford neophyte analysts and primarily hired young journalists and writers. But recently, Jupiter has had money to hire more seasoned analysts, and observers say that the quality of research has risen as a result. Laughs Schoenfeld, "Gene and I often joke that we're not sure that either of us could get hired here today."

But Schoenfeld and DeRose, both slickly opinionated New York scenesters in their mid-30s, are proof positive of Jupiter's positioning as the "cool" market research firm. Jupiter was founded in 1986 by the feisty and idiosyncratic Josh Harris -- now the CEO of Pseudo and a man prone to keeping reptiles in his office -- after a stint working at a technology newsletter company. Named after Jupiter Jones, a character in Alfred Hitchcock's children's book series The Three Investigators, Jupiter Communications started its life as a two-person newsletter company fueled by credit cards and a lot of moxie, with a focus on interactive consumer technologies (which, in those days, were few).

But Jupiter came into its own with the rise of the Internet, and found a niche by focusing exclusively on the consumer angle to Net use. When the Web hit big, journalists everywhere were looking for "experts" to tell them about this baffling new online world, and Jupiter was quick to step to the plate and offer statistics, quotes and made-to-order industry predictions. Forrester Research, an established firm with roots in corporate computer markets, moved in a few years later; the two companies have vied for prominent placement in mainstream news services ever since, with Forrester coming out slightly ahead. (Forrester encourages its analysts to talk to the
press by including media calls in its standard performance goals for new analysts.)

Schoenfeld -- who is combatively opinionated and known for making off-the-cuff comments like "Prodigy's IPO has the faint stench of rotting vegetables about it," -- serves as a kind of company mascot for television interviews, with no particular topical expertise but an offer of punditry all across the dial. Wired magazine once called him "a one-man quote-spewing jihad," a descriptor that, Schoenfeld proudly claims, hangs in a frame at home.

Schoenfeld and DeRose downplay the importance of being quoted, but the free press has undoubtedly brought them credibility and clients. It may have even helped them catch the eye of the Gartner Group -- an established information technology research firm that also owns the Dataquest computer research company. In 1997 Gartner snatched up a third of Jupiter Communications and provided enough capital to launch the company into its next phase: strategic planning services.

"SPS," as Jupiter employees and clients call it, is now Jupiter's bread and butter. SPS customers are charged an average of $29,500 (although the cost can rise to the hundreds of thousands) for a series of special 25-page reports focusing on different topics within categories like "Site Operation Strategies," "Online Advertising Strategies" or "Consumer Content Strategies." With the reports come special one-on-one consulting sessions with Jupiter analysts, discounted tickets to the 10 conferences (such as "Plug.In: The Jupiter Music Forum" and "Digital Kids: Marketing to the Post-Modern Kid") that Jupiter holds every year and invitations to special "executive breakfasts" across the globe, plus assorted other perks.

In early1997, Jupiter had 17 SPS clients; today, it boasts over 500 -- a drop in the bucket compared to Garner Group's 35,000, but a number that includes many heavy-hitting Internet companies like CNET, Time Warner and America Online. According to Jupiter's S-1 filings, 57 percent of the company's income now comes from SPS services, another 28 percent from its popular conferences and the rest from subscription newsletters, longer studies and customized research.

But just how accurate and useful those consulting sessions and research reports are is up for debate. Silicon Alley Reporter editor Jason McCabe Calacanis says, "They definitely know what they are talking about -- any time you talk to the most intelligent people in the industry as your job, you will become intelligent. Their observations are well worth the price that people pay for them."

Jupiter CEO DeRose guesses that his company's forecasts and figures are right on the money about 60 to 75 percent of the time. He happily hands out a promotional leaflet to prospective clients, titled "Making the Tough Calls," that touts predictions the company got right. Among these are the no-brainer 1992 forecast that "access to the Internet will become essential for online providers" and a 1994 prediction that "the Web will become the ideal platform for commerce" -- along with more credible statistics such as a 1994 prediction that 5.9 million teens would be online in 1998 (actual number: 7.2 million) and a 1995 prediction that online advertising revenue would be $2.2 billion by 1998 (actual number: $1.9 billion).

Jupiter says it uses a secret set of metrics and projection models for its forecasting, but analyst predictions aren't exactly a hard science. Jupiter founder Josh Harris describes the process of forecasting numbers as "really puzzling the market, plus voodoo -- a little black magic doesn't hurt." How do you know that the numbers you are coming up with are right? "You just know," he emphasizes. "The number pops in your head and you know. It's coded in your brain." And the company's S-1 admits that "Internet commerce is relatively new and is undergoing frequent and dramatic changes ... it is very difficult to provide predictions and projections as to the future marketplace, revenue models, and competitive factors."

A former Jupiter analyst points out another flaw in the system: Since Jupiter bases much of its research on conversations with Internet companies, its data is subject to each company's own hype. "When you meet with people from companies, who demo their products and talk about the future, the companies are often accompanied by a publicist," says the analyst, who requested anonymity. "What they are telling you may be a lot of spin. To a certain degree you have to be willing to go out and find out how much of it is whitewash, and how much is true ... Good reporting and a little bit of skepticism would have done people a lot of good."

This, perhaps, explains why different market research firms can come up with different numbers and predictions in their reports: While Jupiter last year offered the statistic that online commerce would hit $41 billion in 2002, for example, Forrester gave the more robust numbers of $108 billion in online sales revenues in the United States and $3.2 trillion globally by 2003.

As one former Jupiter client says, "You use SPS if you like the figures they offer. Otherwise, you use other analysts' numbers."

For many, Jupiter is less a predictor of trends and more a validator of business plans. One industry observer puts it this way: "People pay money for [the reports] because it's better than nothing -- they need numbers, estimates of market size and market growth because business plans are based on this. It's in everyone's interest to show big markets and fast growth, so this stuff is skewed that way. People are buying market research because they need to show venture capitalists or board of directors that this is a hot market and that there's a lot of opportunity."

Jupiter's own S-1 filing includes a chart that demonstrates the growth of Internet commerce markets as proof of the size of its customer base, and quotes its own predictions about the growth of online travel.

Some disgruntled industry executives complain about just who gets included in the reports that Jupiter produces -- reports that often profile specific company strategies or projects. Several posit that the only way that you can ensure that you will be included in a report, or invited to speak on a panel at Jupiter's conferences, is if you are either one of the biggest industry pundits or an SPS client -- a supposition the former Jupiter analyst confirms.

"There are circumstances when SPS clients joined just so that they got mentioned in the reports," the former analyst says. "It's prestige around your peers, but it can lead to venture capital interest -- it can lead to financing. And when a company is in a quiet period, popping up in a Jupiter report that comes out before an IPO [is] gold. A lot of companies become SPS clients in order to see their name appear in reports, and become panelists during Jupiter conferences. It's never said that one is dependent on the other, but there are definitely cases in which they are."

The music industry executive agrees. "To get Jupiter's attention you must spend thousands of dollars buying their research reports," he says, complaining that the recent Plug.In conference favored the major record labels over smaller labels or Internet businesses. For example, he says, the industry-backed SDMI "secure format" system was touted at the conference at the expense of MP3. "Their ideas come from the result of schmoozing for lunch with major record companies," he says.

Kurnit, of About.com, had a different experience. Though About.com (then called the Mining Co.), was an SPS client, Jupiter repeatedly dismissed it and its business model. "When we started our business three years ago, they were really into 'cool,' and we weren't cool," says Kurnit -- the only person contacted for this story who would criticize Jupiter on the record. Today, he says, Jupiter does "get" his market: "I educated them to the point where they changed their tune."

Although Jupiter does sometimes heavily criticize certain Internet markets and strategies, others wonder whether the company has a vested interest in producing bogglingly large predictions -- since bigger numbers get more attention, encourage industry growth and therefore could bring in more customers looking for help figuring out these predicted new markets. DeRose and Schoenfeld admit that the company has overestimated markets, and scaled back later. For instance, Jupiter this year revised an earlier forecast that the online grocery business would be worth more than $7 billion by the new millennium, downgrading the prediction to a mere $3.5 billion.

"I reject the assertion that we have a vested interest in Internet activity booming," says Schoenfeld, who says that Jupiter's most popular reports are those that predict markets that will fail. "It's booming; that's done. I couldn't make a dollar telling people that these markets are going to be big, that you've got to act now. You can get that from any dime-store pundit. Our clients want to know, what's going to fail? What's going to cost us? What's the competition like? Should I do branding or direct selling?"

Still, some people wonder if Jupiter's predictions are actually shaping markets. As Calacanis puts it, "There's an irony about this -- the self-fulfilling prophecy of Jupiter. Jupiter says something is going to happen, a bunch of CEOs put it in their business plans and S-1s, get a lot of money and make it come true. Is it that Jupiter is getting these things right or are they influencing others to do it?"

It's also indicative of Jupiter's influence in the industry that no one is eager to say anything negative about Jupiter on the record. Although more than half a dozen industry executives happily gabbed to me about their experiences with Jupiter, both positive and negative, none, with the exception of Kurnit, were willing to go on the record with criticism. As one executive puts it, "If you speak on the record critically about Jupiter, they can kill you, because they have the power of the pen."

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In many ways, the criticisms that are leveled at Jupiter can be leveled at just about any market research company -- and often are. "Do I think the Internet analyst market is a scam? Yes," says one Internet executive. "The studies are on a continual basis deemed inaccurate; all they are doing is validating subjective beliefs. In the Internet industry we all have pretty firm beliefs, and we look up numbers to justify them, but rarely the opposite."

But if it's a scam, it's a fairly lucrative one, and one that a lot of people find valuable enough to pay for. Jupiter brought in revenues of $14.8 million last year, although the company came up $2 million short of profitability. If the specifics of its initial public offering (underwritten by
Donaldson Lufkin & Jenrette) remain unchanged, Jupiter will go
public with a valuation of more than $200 million, and will raise $57
million in capital.

With the growth of the Net, Jupiter's market has clearly become enticing to other firms: Besides competition from Forrester Research, IDG, the Yankee Group and others, Jupiter will soon have to face off against its biggest investor. Gartner Group is introducing a new research group that will focus exclusively on the consumer space -- the market that Jupiter once called its own. It's an odd situation, as Jupiter admits in its S-1, considering that Gartner executives sit on Jupiter's board of directors and know the company secrets.

Still, the best measure of Jupiter's success may be in its own IPO; if the company goes out with a bang, it will give credibility to Jupiter's long-standing predictions about just how huge the Net is going to be. After all, the rise of the Internet IPO is due at least in a very small way to Jupiter's own optimistic and widely read predictions about the meteoric usage of this new medium. The Net is making millionaires out of the executives that Jupiter has been plugging for years, even before anyone else did. Why shouldn't Jupiter's executives be millionaires too?

By Janelle Brown

Janelle Brown is a contributing writer for Salon.

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