NetRatings Inc. intraday stock performance

The growing battle between Web-rating firms is giving Internet investors new tools they can use to find out where the stocks of leading online firms may be heading.

"The overall impact of increasing competition between Web-rating companies is good for the industry and for investors," says Tom Huskerson, research associate at Zona Research, based in Redwood City, Calif. "It’s forcing the rating companies to come up with more-creative methods and more-accurate results."

NetRatings Inc., which is partly owned by New York-based Nielsen Media Research, shares the Web-rating stage with New York-based Media Metrix Inc. {MMXI}, which went public earlier this year.

The heightened competition between the two firms is giving investors access to growing databanks of information about the performance of other publicly traded online companies. The freely available information includes data on which online companies are winning the battle for eyeballs, which Web sites are holding the attention of Web surfers, and which sites are most highly rated by consumers.

The public section of the Media Metrix Web site, for example, provides monthly rankings of the most-popular Internet sites in 10 categories, including shopping, travel, search engines, directories, digital media, and news/information/entertainment.

"We’re providing a good, accurate picture of the top Web sites," says Stacie Leone, director of marketing at Media Metrix. "We have a huge group of financial services clients who stay awake the night before our reports come out to make sure they see them first."

Media Metrix’s Top Rankings

Although the information on Media Metrix’s publicly accessible site lags behind the data made available to paying clients who ante up to $50,000 or more in annual subscription fees, it’s often far more current than similar information released in the quarterly reports of publicly traded online companies.

"All of these sites give you valuable information from different perspectives," says Steve Telleen, manager of e-metrics at the Giga Information Group, based in San Jose, Calif.

The Nielsen/NetRatings Web site provides even more current free audience metrics data, updated on a weekly basis. Web surfers can also get free access to the firm’s weekly Nielsen/NetRatings Reporter newsletter which looks at the performance of different categories of online businesses and also notes the average time users spend visiting particular online properties.

"We’re second to market, so our strategy is to use the Web to get the word out about what we offer," says Tim Meadows, Nielsen/Netratings’ senior vice president of marketing.

Nielsen/NetRatings

Telleen, of Giga Information Group, says investors who want an early heads-up on how their Net holdings are performing in the marketplace would also be wise to check out the Bizrate.com Web site. The site offers free data drawn from user surveys of shoppers who have done business with individual Web sites.

"We’re finding that as people become more experienced with the Internet it’s following more of what you might call the open-source model," Telleen says. "The customers are finding and talking to each other. Finding out what they are saying is often more valuable than any kind of marketing information."

BizRate.com

Jim Nail, senior analyst at Forrester Research, based in Framingham, Mass., agrees that sites such as Media Metrix and Nielsen/NetRatings can be helpful for investors who want to track the performance of online companies. But he also says investors should not put too much faith in the numbers generated by those firms. "They all stink," he says.

Nail acknowledges that some online advertisers base ad buying decisions on Web-site ratings, which makes understanding the ratings valuable. But he says the numbers themselves mostly miss their mark. "It’s sort of like a shared hallucination," he says. "They matter because people believe them. But they’re not accurate."

Nail says a recent industry survey conducted by major advertisers compared Media Metrix and Nielsen/NetRatings numbers with actual log files at the same sites and determined that both ratings services overstated the number of unique visitors by about 34 percent.

"If those numbers are off, it also means the demographic numbers about who those visitors are are also off," Nail says.

Nail adds that online advertising is already moving to more of a pay-for-performance model. That arrangement rewards Web sites for bringing paying customers to their advertisers rather than paying them based upon the number of eyeballs they attract. "It will come down to how well they can target customers and how responsive they are. Size alone won’t determine success," he says.

Representatives of both Media Metrix and Nielsen/NetRatings, however, say they are also tracking such data. As a result, visitors to both sites, and others, can expect to see more online advertising performance-related figures become freely available as the science of calculating those numbers improves.

"It’s something all of the ratings companies are approaching in different ways," Telleen says. "The more sites you visit the more-complete picture you get of how companies are doing."

Huskerson warns investors not to make stock-buying decisions based solely upon Web ratings that might show a particular online company enjoying a dramatic increase in user visits. Spikes in online visitors to a Web site are often temporary, he says, and tell you nothing about the underlying fundamentals of the business.

"Mercata.com and Mothernature.com are both offering attractive discounts for first-time purchases," Huskerson says. "That drives user visits up. But those numbers could drop off, too. You need to look past the numbers and find out what is actually going on on those sites."

Huskerson, like other analysts, agrees that the ratings found on Web sites such as Media Metrix and Nielsen/NetRatings can at least give investors some ideas about where they should be looking. "It’s not an exact science," he says. "But the numbers do help determine what sites can charge for advertising."

Media Metrix went public in May, selling 3 million shares priced at $17 each. Late last month, the company, and other shareholders, sold an additional 3 million shares in a secondary offering priced at $50.50 cents a share. The stock has been trading close to that price in more recent days.

On Oct. 14, Media Metrix announced third-quarter revenue increased 268 percent, to $5.5 million, compared with revenue of $1.5 million for the same quarter last year. The company’s third-quarter loss was $1.3 million, compared with $1 million during the same period in 1998.

The favorable response to Media Metrix’s IPO no doubt encouraged rival NetRatings.

NetRatings reported losses of $10.6 million for the nine months ended Sept. 30, on revenue of $1.48 million.