-------- Original Message --------
Subject: Forecasters Face Skepticism
Date: Mon, 16 Apr 2001 23:44:24 -0400
From: "R. A. Hettinga" <rah@shipwright.com>
To: Digital Bearer Settlement List <dbs@philodox.com>, dcsb@ai.mit.edu
http://interactive.wsj.com/articles/HeardOnTheNet.htm
April 17, 2001
Heard on the Net
As the Dot-Com Era Fades,
Forecasters Face Skepticism
By AARON ELSTEIN
WSJ.COM
In the summer of 1999, investment bankers needed a boost for an
online-lending start-up they were about to take public.
They found it at Forrester Research Inc., which had estimated that by
2003,
online mortgages would total about $91 billion, or 10% of the total
market,
up from less than 1% in 1998. Forrester's January 1999 report was a ray
of
hope for Mortgage.com Inc.
Only time will tell if Forrester's forecast about online mortgages was
accurate. But Mortgage.com is out of business, and Forrester faces
tougher
questions about the accuracy of its New Economy forecasts and a harder
sell
for its services.
George Forrester Colony, founder, chairman and CEO of the Cambridge,
Mass.,
research firm, stands by his firm's forecasts, saying in time they will
"prove to be conservative."
But others have started second-guessing such firms as Forrester, Jupiter
Media Metrix Inc., and International Data Corp., saying they provided
some
of the hot air for the Internet bubble. "There's no question that
Forrester, Jupiter and, I suppose, to some extent ourselves made
forecasts
that were inflated and led people down a garden path that wasn't real,
in
retrospect," says Dale Kutnick, chairman and CEO of Meta Group Inc., a
Stamford, Conn., technology research firm.
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John Mahoney, an analyst who follows Forrester's stock at Raymond James
&
Associates, a St. Petersburg, Fla., investment bank, agrees. "Forrester
did
a lot to fuel the hype over Internet stocks," he says. "Now, I see
cracks
in their armor."
Times are clearly tougher for New Economy prognosticators. Earlier this
month Meta Group said the president and CEO of its Metagroup.com unit
would
resign and the company would lay off 15% of its work force, or 100
employees.
Last month Jupiter Media Metrix said its CEO would step aside. In
January,
the company said it would cut 8% of its work force amid a slowdown in
spending by dot-coms and other technology companies. Jupiter Chairman
Tod
Johnson says the company is entering a "more mature" phase. A spokesman
for
IDC declines to comment.
"Ours is a new industry, and we've all enjoyed a period where our
clients'
budgets were ever-increasing," says Julio Gomez, CEO of Internet
market-researcher Gomez Inc. and a former Forrester analyst. "We are all
now being tested."
Mr. Colony, the Forrester CEO, acknowledges that the climate has grown
"much more challenging" than it was a year ago. "A year ago, probably
30%
to 40% of our clients were looking for justifications about why they
should
buy our research," he says. "Now it's probably 70% to 75%."
Nonetheless, Mr. Colony says, Forrester can benefit from its rivals'
difficulties. "We feel we can gain market share this year," he says,
adding
that the company hasn't revised the guidance it offered Wall Street in
January: Revenue will grow 50% in 2001.
Forrester's revenue has grown more than six-fold since it went public in
1996, to $157 million last year. Mr. Colony says demand for his
company's
services is still strong, and dot-coms never accounted for more than 4%
of
revenue. "Some of the world's largest companies are our clients," he
says,
though he declines to identify any. The company's fees average $51,200 a
client, according to regulatory filings.
But Forrester's client roster grew just 4% in the fourth quarter,
compared
with 15% a year earlier, according to regulatory filings. And even the
largest technology companies are cutting expenses now, analysts say,
making
it tougher for Forrester to attract and retain clients for its research,
consulting and conferences.
Analysts expect Forrester to earn 20 cents a share for the quarter ended
March 31, according to a survey by Thomson Financial/First Call. But
some
are questioning Forrester's ability to increase revenue 50%.
Founded in 1983, Forrester started out tracking the personal-computer
industry. It branched into consumer-behavior research in 1994, and that
same year started forecasting how a new thing called the Internet would
"change the rules of the game."
Forrester was among a handful of firms to start quantifying how the Net
would change business and consumer-spending habits. For example, in
November 1998, Forrester reported that by 2003, U.S. consumers would buy
more than $108 billion of goods over the Web, up from $7.8 billion that
year.
Forrester forecasts became a mainstay for scores of dot-com companies
that
were trying to sell their business plans. In 1998 and 1999, according to
10Kwizard.com, more than 200 Internet-related companies cited Forrester
studies in IPO documents. "Forrester's research enabled small companies
with little or no track records to forecast huge growth but attribute
what
they were saying to someone else," says Bob Grandhi, chief investment
officer at Monument Advisors, a Bethesda, Md., family of mutual funds
that
invest primarily in tech stocks.
Wall Street analysts relied on Forrester, too. When Morgan Stanley Dean
Witter's Mary Meeker and Merrill Lynch's Henry Blodgett were writing
reports recommending Internet stocks, they frequently relied on
estimates
provided by Forrester and other firms. Ms. Meeker and Mr. Blodgett
declined
to comment.
Some Forrester forecasts have been on target. In a report released April
11, 2000, just four weeks after the Nasdaq Stock Market reached its
peak,
Forrester predicted the "imminent demise of most dot-com retailers."
But other estimates were overly optimistic. For example, last September
Forrester estimated $44.8 billion of e-commerce sales in 2000. But
according to the Commerce Department, e-commerce sales last year were
$25.8
billion. Forrester analyst Evie Black Dykema says the firm includes
tickets
bought online for flights, concerts and sporting events in its
e-commerce
data, and the Commerce Department doesn't. "If you take out those items,
the numbers would be a lot closer," she says.
Investment pros say accuracy isn't really the issue when considering
Forrester forecasts. "They provide guideposts about the industry that
aren't easy to come up with anywhere else," says Mr. Grandhi of Monument
Advisors. "My impression is they tend to be a little on the optimistic
side. But I don't think that matters so much as that they get the
broader
trends right."
Jaime Punishill, who prepared Forrester's online-mortgage-industry
report
in January 1999, says his forecast was based on discussions with the
Federal Reserve Bank, industry trade groups, and 50 leading mortgage
lenders. He then plugged their numbers into proprietary models
anticipating
growth in Internet usage.
He adds that his estimate will prove accurate "within reason," and so
far,
it appears to be on track. He forecast that online mortgages would be
2.7%
of the market in 2000. According to the Mortgage Bankers Association of
America, online mortgages accounted for 3% of the market last year.
"I don't think clients expect us to be accurate to the last dollar," Mr.
Punishill says. "A lot of things that affect the mortgage market, such
as
interest rates, are beyond my control."
<Snip>
-- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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