Juno Online Services, Inc.

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Juno Online Services, Inc.

1540 Broadway, 27th Floor
New York, New York 10036
U.S.A.
Telephone: (212) 597-9000
Fax: (212) 597-9100
Web site: http://www.juno.com

Public Company
Incorporated: 1999
Employees: 263
Sales: $114.0 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: JWEB
NAIC: 514191 Online Information Services

Juno Online Services, Inc., the company known for providing free, advertising-supported e-mail service, has yet to turn a profit since launching its service in April 1996. After building up its computer systems and related infrastructure, it began offering billable Internet access and enhanced e-mail in 1998. As of late 2000 Juno offered three levels of service. The company’s basic service provides free Internet access and free e-mail. The next level is Juno Web, which provides priority access to the World Wide Web, free live technical support, more local access telephone numbers, and other features. The third and highest level, Juno Express, is a broadband service available in certain markets that employs DSL technology for high-speed Internet access. From a peak of more than seven million subscribers in 1999, Juno’s subscriber base had dropped in late 2000 to approximately 3.4 million subscribers. Nevertheless, it was still the third largest dial-up Internet service provider (ISP) behind America Online, Inc. and EarthLink, Inc.

Building Subscriber Base with Free e-mail: 1995-98

Juno Online Services L.P. was established in June 1995 as a subsidiary of investment firm D.E. Shaw & Co. with a $20 million investment. Charles Ardai, then 25 years old, was president, and David E. Shaw was the company’s chairman. Shaw was also CEO of D.E. Shaw & Co., where Ardai was employed as senior vice-president. It was reportedly Ardai who convinced Shaw that free e-mail would be a “killer app” around which to build an entire business. Within a month Juno announced it would provide free e-mail service that would be supported by advertising revenue. Another company, FreeMark Communications of Cambridge, Massachusetts, announced that it would offer a similar service by the end of 1995.

On April 22, 1996, Juno launched its free e-mail service. Customers would receive free e-mail in exchange for permitting advertising on their computer screens and providing demographic information about themselves. This information would be provided to advertisers, who could then target their advertising messages appropriately. Initial reaction was skeptical since the software was not downloadable over the Internet; Juno would send it on a disk via regular mail. Through an arrangement with AT&T Corp., Juno’s service began with 200 points of presence, or local access telephone numbers, as well as a toll-free telephone number.

Juno began with 15 sponsoring advertisers, including Snapple and Land’s End. Advertisers would pay Juno only for ads that were delivered to Juno subscribers. The company was seeking to have its software bundled with computers and had signed deals with two of the top ten PC makers by the April launch. FreeMark’s competing e-mail service launched on May 6, 1996.

By June 1996 it was announced that WorldCom Inc., the fourth largest long-distance provider in the United States, would provide the fiber-optic network for Juno’s e-mail service. In its first months Juno’s service proved very popular and was expected to have a six-figure membership by the end of June. Juno spread the word about its service through traditional advertising methods, including ads in magazines, newspapers, and billboards.

Juno was attracting numerous advertisers as well. Advertisers could target their messages and be assured that they were at least seen, if not read. Since Juno’s service was free, it was felt that customers would not abandon the service, as they were doing with paid services such as America Online (AOL) and CompuServe (which would ultimately be acquired by AOL).

In September modem manufacturer U.S. Robotics agreed to include Juno software on CD-ROMs that were shipped with the company’s modems. Juno also signed software distribution agreements with Blockbuster Video, the Sam Goody chain of music stores, mail-order music service BMG Direct, and the Billboard Music Guide.

Other companies also were offering free e-mail service. In September PC Magazine reviewed three services: Juno, Freemark Mail, and HotMail. Juno and Freemark were dial-up services, whereas HotMail was accessible from any computer with a Web browser. In a sense, HotMail was not actually free, because it required Internet access. The magazine found that Juno offered more features, allowing users to save messages as text files, save addresses to an address book, and import entire message folders. Its interface resembled Windows, and users could change fonts, text, and background colors. Mercury Mail was another company offering free e-mail.

By December 1996 Juno had 800,000 subscribers and about 30 advertisers. They included some large firms such as Ford Motor Co. and Miramax Films. For the year Juno reported revenue of about $100,000 and a net loss of $23 million, mainly due to operating expenses.

By mid-1997 Juno claimed to have 2.2 million users. Juno’s 1997 advertising revenue was estimated at $4 million by research firm Jupiter Communications, and the company was spending more than that on membership growth, software, and market research. Freemark Mail had failed, and two other available services—HotMail and NetAddress—required Internet access. Juno’s subscriber base climbed to 3.5 million by early 1998, then a reported 4.5 million by the end of March. The number of advertisers rose to more than 100. Juno signed a five-year, multimillion-dollar marketing deal with long-distance carrier LCI International Inc. for exclusive rights to advertise its phone services. One survey indicated that Juno’s service was used by 14.7 percent of all Web and online users, compared with 6.1 percent for HotMail, which recently had been acquired by The Microsoft Network. For 1997 Juno reported revenue of $9.1 million and a net loss of $33.7 million.

Juno continued to actively defend its users from unwanted e-mail and vigorously prosecuted spammers (junk mail marketers). The company had adopted a “zero-tolerance” approach to unsolicited commercial e-mail in late 1997. In February 1998 it filed a lawsuit against five companies for allegedly forging Juno’s domain name and making it appear that their unsolicited e-mail messages were coming from Juno. A similar suit was filed in May 1998 against a New York-based pornography spammer.

In April 1998 Juno introduced the Juno Advocacy Network, which was aimed at political lobbying and advocacy groups. Through the Juno Advocacy Network, such groups could reach Juno’s subscribers with their messages based on congressional district, age, gender, hobbies, income, and other demographic data.

Offering More Services and Forming New Alliances: 1998-2000

Juno introduced premium service levels, for which customers paid subscription fees, in 1998. The first billable services were introduced on July 22, 1998. At the time Juno had 5.4 million users. In addition to basic free e-mail service, Juno began offering Juno Gold, an enhanced e-mail service that would allow users to attach files to e-mails, for $2.95 per month. Juno Web, the highest level of service, offered Internet access and full e-mail capabilities for $19.95 a month, a price comparable with other Internet service providers. Since the beginning of 1998 Juno had more than doubled its points of presence from 500 to 1,200 by purchasing dial-up access from a variety of providers, including Concentric Network, AT&T, Sprint, and WorldCom.

In December 1998 the Hartford Financial Services Group began advertising insurance services to Juno’s 6.1 million members under a five-year agreement. Online queries could be answered with a quote within ten minutes. For 1998 Juno’s revenue more than doubled to $21.7 million, but the company reported a net loss of $31.6 million.

In 1999 Juno formed marketing alliances with America Online and with WingspanBank.com, the Internet banking subsidiary of Bank One Corp. The agreement with WingspanBank .com gave it the exclusive right to market credit cards and certain banking services to Juno’s e-mail subscribers, which had reached seven million by mid-1999. In a deal with America Online announced in August 1999, Juno would start offering a co-branded version of AOL’s proprietary instant messaging service. Juno hoped that instant messaging would help attract people to its recently introduced online community, JunoLand.

Juno went public in May 1999 with an initial public offering (IPO) on NASDAQ at $13 a share. For the rest of the year the stock traded in a range between less than $10 and more than $27 before spiking to $87 a share in December 1999. After the first quarter of 2000, though, it was trading back in the $7 to $16 range and heading progressively lower to barely more than $2 a share in late 2000.

In mid-1999 Juno selected Rapp Collins Worldwide of New York to handle its $10 million direct response campaign. The campaign utilized direct response TV and direct mail. Juno’s brand advertising was handled by DDB Worldwide. Both agencies were owned by Omnicom Group. By September Juno had about 7.2 million subscribers.

Company Perspectives:

Juno is a leading provider of Internet-related services to millions of computer users throughout the United States. We offer several levels of service, ranging from basic dial-up Internet access—which is provided to the end user for free—to competitively priced broadband Internet access. Our strategy of offering several different service levels and our easy-to-use, intuitive software are designed to attract a broad spectrum of users, including the millions of people who are only now beginning to explore the Internet.

News Corp., which owned about 9 percent of Juno, announced in October 1999 that its News Digital Media subsidiary would supply Juno users with entertainment, news, sports, and business content through Juno’s portal site, www.juno.com.

In December 1999 Juno launched version 4.0 of its software and expanded the functionality of all three service levels. Internet access was added to those levels that previously offered only e-mail. As with its free e-mail service, free Internet service was supported by advertisers. Juno Express was introduced as the company’s highest service level. With Juno Express, customers in select markets could get high-speed broadband access to the Internet through a deal Juno made earlier in the year with Covad Communications, which operated one of the largest DSL networks. In May 2000 Juno announced that Juno Express was available in 22 U.S. markets. The company planned to roll out Juno Express over Covad’s DSL network in new markets throughout the year. Juno Express was priced at $49.95 a month.

In offering free, ad-supported Internet access, Juno faced competition from several other free Internet service providers. The leader in the field was NetZero Inc., which was backed by a $144 million investment from Qualcomm Inc. Juno hoped to distinguish itself from other free providers by offering a range of billable services to which users could migrate after becoming more sophisticated. When one free Internet service provider, WorldSpy.com, ceased operations, Juno offered to pay it a fee for every WorldSpy subscriber that transferred to a Juno account. WorldSpy had about 260,000 subscribers when it went out of business in mid-2000. For 1999 Juno’s revenue again more than doubled to $52 million, with a net loss of $55.8 million.

Until 2000, Juno’s advertising had been handled by DDB Worldwide. Following a review in early 2000, Juno awarded its $20 million advertising account to Hampel/Stefanides in New York. The agency produced four 15-second spots to air on CNBC and Fox Network in the fourth quarter of 2000.

In February 2000 Juno teamed with Mail.com Inc. to launch Juno WebMail, a Web-based e-mail service that would utilize Mail.com’s Web-based e-mail technology. Juno WebMail would enable Juno subscribers to send and receive e-mail from any computer connected to the Web, using their juno.com e-mail address.

Later in the year Juno announced that it would host a co-branded version of Mall.com, with the eponymous Austin, Texas-based company, on its shopping channel. Mall.com would be featured on Juno’s home page, shopping pages, and product category pages, and Juno also would launch a marketing campaign to promote Mall.com to its members through popup and banner ads. More than 120 vendors were affiliated with Mall.com.

In June 2000 Juno filed a lawsuit against free Internet service provider NetZero and wireless telecommunications giant Qualcomm for allegedly violating its advertising technology patents. The lawsuit raised important issues regarding Internet-related patents, their enforceability, and whether they would stifle competition among companies seeking to offer free Internet access. Other major Internet-patent suits filed in 2000 included Amazon.com’s suit against BarnesandNoble.com regarding its online ordering system and Priceline.com’s suit against Microsoft regarding online purchasing.

With Juno’s technology, subscribers logged on and downloaded their e-mail messages and receive ads. The connection was then terminated while users read their e-mail and viewed the ads offline. Juno’s suit charged that Qualcomm’s latest Eudora e-mail software violated Juno’s patents in this area.

In October 2000 Juno formed an alliance with Activeworlds .com to provide real-time 3-D chat capabilities to Juno’s 3.4 million subscribers. Meanwhile, Juno’s stock was floundering, though the company had managed to secure a $125 million financing commitment from an unnamed private source. It also formed alliances with IBM, Time Warner, and Barnes & Noble in the second half of 2000.

The alliance with Time Warner was expected to give Juno access to Time Warner’s broadband pipeline. Juno was the second company behind Road Runner to gain access to Time Warner’s broadband cable network. The two companies, along with America Online, were to participate in a trial being conducted in Columbus, Ohio, to see if Time Warner’s cable system could handle multiple ISPs. In order for Juno to gain full deployment over Time Warner’s cable system—and thus offer cable Internet access to its members—Time Warner would have to restructure its exclusive arrangement with Road Runner. At the time Time Warner was under pressure from the Federal Communications Commission to provide open access to ISPs to gain approval for its pending merger with America Online.

Juno’s partnership with IBM was announced in August 2000. Under the agreement free Internet access from Juno would be offered on IBM personal computers. The deal was part of Juno’s strategy to reduce its subscriber acquisition costs, which were $45 million in the most recent quarter, to under $20 million in the current quarter. At the time Juno had about 3.4 million subscribers. About 730,000 Juno members were paying for billable services. For the second quarter of 2000, 62 percent of Juno’s revenue came from billable services, and 38 percent came from ads and electronic commerce. The company continued to post losses, however.

Key Dates:

1995:: Juno Online Services is founded as a limited partnership.
1996:: Juno rolls out free e-mail service in April.
1998:: Juno begins offering billable services, including enhanced e-mail and Internet access.
1999:: Juno becomes a publicly traded company; at the end of the year it adds Internet access to all levels of service and introduces broadband Internet access.

Although unable to turn a profit since its inception, Juno and President Charles Ardai remained optimistic about the company successfully achieving maturity; and indeed, Juno again more than doubled its revenues in 2000, to $114 million. As 29-year-old Ardai told the Standard in September 2000, “We’re on the verge of an Internet mutation. The way people use the Net is going to explode—we’re talking about Internet connectivity across devices we haven’t even thought of. Who better than Juno to bridge those?”