The Internet has already passed it by once. Now, slated to go public this week,
Juno Online Services
, best known for its free email service, is hoping it doesn't happen a second time.
Net stocks have been in a slide since April. The unconditional love that investors showered on Internet IPOs earlier this year has evaporated. It's in this environment that Juno is trying to persuade Wall Street that even though the Internet's growth didn't quite match the company's original vision, its online strategy will lead to long-term happiness.
It all began with email. Back in 1995, the year that Juno was hatched in the offices of investment firm
, offering free email seemed like a pretty good idea. When companies like
were charging people for hourly online connections, Juno's free email stood out.
All a user had to do was supply some personal information and view the advertising that appeared on the computer screen, which was replenished every time the user's modem dialed in to send or receive email. The idea was that, armed with all this demographic information about its subscribers, Juno would find a bunch of advertisers interested in reaching an audience that could be neatly targeted by age, sex, income, geographic location and other criteria.
"They did a very excellent job creating a simple-to-use email client," said
CEO Garry Betty earlier this year.
And Juno did land advertisers. "Any time that you can link the delivery of advertising to a demographic profile, you're one step ahead of the game," says J.G. Sandom, director of interactive for ad firm
But Juno and others guessed wrong about how people would use the email and the Internet. People were more than willing to pay for access to the Web and other services, instead of just dial-in email. If they were interested in free email, it was the kind offered by Web sites such as
. So while more than 11 million different users visited the Hotmail site in April, according to
, somewhere between 2.2 million and 2.4 million Juno free email users connected to the service in March, about flat from 2.3 million users who logged on a year earlier.
Charles Ardai, Juno's 29-year-old president, says the company's free-email program has been a success. "We've been happy with people's receptivity to our basic service. A lot of people seem comfortable using it as their first experience of the Internet." He attributes the flat level of free email usage to the fact that the company has done little marketing over the past year.
But Abhi Chaki, a director at
, says the company misjudged people's receptivity to online connection charges. "They were actually surprised how many people were willing to pay 20 bucks a month," to AOL and other online providers, Chaki says. "They should have tried to monetize all those millions of subscribers that they had gained a lot earlier."
That's what Juno is trying to do now. Last summer, the company launched two pay services.
, which costs $2.95 a month, is an enhanced email offering that lets users send and receive photos, documents and other attached files.
is a traditional Internet access offering that costs $19.95 a month. Juno now contemplates that a bulk of its revenue will come from these two services.
At March 31, the company had 86,000 subscribers to the upgraded email service and 121,000 to the full Internet access. Most of these paying subscribers are from its current user base, but Juno has launched a new marketing campaign to get subscribers from elsewhere.
The situation is similar to that faced by
, which went public earlier this year. Like Juno and its dial-in email service, Prodigy is best known for a technology frozen in time -- the online service, now called
, launched in 1988.
But though their technologies seem like artifacts of an earlier time, at least Juno and Prodigy have some value in their names.
Juno has lost a lot of money to get to this point: It has an accumulated deficit of $99 million as of the end of March. Juno lost $6.8 million in the first quarter on revenue of $9.7 million, compared with a loss of $10.6 million on revenue of $4.3 million one year earlier.
CEO Ardai has lofty goals, namely building a company like AOL so it can sell other services, products and advertising. "Juno is an ISP only in the sense that AOL is an ISP," Ardai says. "But like AOL, we're something more as well."
Says Jupiter's Chaki, "This is not a situation unique to Juno. Everybody wants to be like AOL." The company needs 1 million subscribers, he says, to get serious attention from advertisers -- a goal he says is "very doable." (Juno and several other ISPs are clients of Jupiter.)
The key for Juno, says Youssef Squali, an Internet analyst with
, is how good a job it does of converting free email users and paying email users to full-paying Internet subscribers. "That's a really major challenge. So far we don't have a clear history." (Ladenburg has no involvement with the IPO.)
By Squali's calculation, Juno is valued highly compared with similar Internet service providers. EarthLink,
have market capitalizations averaging out to $2,000 per subscriber, Squali says, down from $2,800 earlier this month. But at the $12-per-share offering price envisioned in Juno's
Securities and Exchange Commission
filings, Juno's $415 million market cap translates into $3,400 per current full-Net access subscriber.
Analysts will be closely monitoring Juno's ability to migrate its customers to higher-paying levels, he says. "The market will give them the benefit of the doubt and let them prove the concept for a couple of quarters," he says.
The success of the Juno deal, however, could be dragged down by further weakness in the Internet market, Squali points out. But he says he thinks Wall Street will probably be receptive to the Juno offering, helped in part by the pedigree of its underwriting team led by
Salomon Smith Barney
Meanwhile, Juno is banking that there are second acts on the Internet.