Startup Review

HotJobs Case Study: Vertical market entry strategy the key

written by Rob Finn, posted on March 4th, 2007

Why profiled on Startup Review

HotJobs is a consumer facing online job search engine and back-end system that provides tools for employers to post, track, and manage job openings. Founded in 1996, the site grew to become the #2 job board when it was acquired by Yahoo! for $460M in 2001. By that time it was generating $120M in revenue per year.

Interviews conducted: Dimitri Boylan, founder and CEO; Rob Jevon, Partner at Boston Millennia Partners and investor in HotJobs.

Key success factors

Leveraged network of their prior business

HotJobs was founded by Dimitri Boylan and Richard Johnson in 1996. The two realized the Internet could provide a direct line of communication between job seeker and employer and this vision morphed into a product while they were working at RBL Agency, an employment agency for technologists. They were in the business of spotting talent and cherry-picked the best programmers they knew for HotJobs product development.

HotJobs initially targeted the high-tech industry since the team had first-hand experience staffing various high-tech companies. HotJobs knew what the customer needed, and they combined this with a customer-first attitude that enabled them to continually innovate on their product. They took a deliberate, tiered approach to building trust with early customers (both job seekers and employers) before they spread themselves too thin by trying to solve everyone’s recruiting needs.

Created superior product and pricing model for job posters

The initial HotJobs team lacked significant experience building enterprise or mass market product, but this turned out to be an advantage because they approached product development with a customer (job poster) centric mindset obtained from years of working in the recruiting industry.

HotJobs did not simply recreate processes or copy features of its predecessors; it pioneered a new way of doing recruiting online that was differentiated from the competition. Online job boards provided employers benefits over newspaper job listings that had bureaucratic approval processes/intermediaries and tedious formatting that varied per job listing. Before HotJobs even the top online job boards only accepted information by fax, resulting in at least a 48 hour cycle time for posting resumes and jobs to their database. There was no automated or bulk process for employers to list jobs, and it was equally painful for employees to apply to multiple jobs.

Unlike some of its competitors, HotJobs did not re-create traditional and manual processes within the online environment. While competitors suffered from many manual errors due to back office faxing and data re-entry, HotJobs offered instantaneous posting of data through the Internet. They also continuously innovated with other products such as an applicant tracking system, an in-house recruitment tool, and a B2B exchange (with which employers could manage recruiting agency selection).

At its introduction, HotJobs pricing was a first mover advantage. The site priced per corporate seat, per month, providing companies a certain capacity of listings. This was in contrast to the traditional pricing of per listing, and meant jobs filled before 60 days (the industry norm) could be swapped for other listings at no extra charge. This improved economics to the employer and increased visibility for employer’s listings by reducing the clutter created by old job listings. It also offered less stale listings to job seekers.

Launched with a vertical focus on high-tech jobs to solve chicken and egg problem

Before the site could expect to get the attention of job seekers, HotJobs needed to build a large database of jobs. The listings were technology-only until 1997, when HotJobs introduced finance and sales/marketing jobs. They focused on the high-tech industry and investment banks, which tend to have more first adopters and technology evangelists than other industries. Additionally, resumes for programming jobs are more suited for online sourcing as they require less screening for soft skills.

Most of HotJobs’s customers were new to the concept of job sourcing online, but were open to new channels as the boom in Internet startups was fueling intense competition for talent. The high demand for programmers played right into HotJobs’s corner, as the site specialized in this type of hire.

Their first customer was SGI, who was equally excited about a new recruiting solution, and the fact that HotJobs was using SGI machines to run the HotJobs site.

Built consumer awareness by optimizing high advertising spend across multiple channels

HotJobs had great success using banner advertising in 1997, but significantly decreased their spending in this channel for a few years when advertising prices began to skyrocket in 1998. A year later, they had great success advertising in the Super Bowl. Their ad cost $400K to produce and $1.6M to air – in a year where the company generated $2.5M in revenue. The ad drew a huge number of visitors to the site even during the game, which came as a surprise to the executive team. HotJobs also achieved great press after the Super Bowl as they were the only advertiser to make their creative available to the press, who used it in news stories reviewing Super Bowl advertising.

Launch strategy and marketing

In order to ensure a sufficiently large supply of listings, HotJobs gave the product away for free to the first 100 corporate customers. Many corporate recruiters would then refer consumers to HotJobs.

Until 1999, HotJobs had a “no headhunter” policy in order to promote the direct communication between employer and job seeker. This was a large part of their marketing message. This helped steal market share from the other job boards where job seekers had become tired of dealing with headhunters. By the time of the acquisition by Yahoo! 85% of spending was in the area of consumer marketing.

Exit analysis

In May 1999, HotJobs raised $16M from Generation Partners and Boston Millennia Partners. At the time of the investment, the company had $8M in annual revenue run rate. These investors were instrumental in further building the senior management team. Three months later the company completed an IPO of $24M, and raised $121.5M more in November. The initial acquisition interest came from Monster, but Yahoo! outbid them by $80M. It is probable that a Monster acquisition would have been a more considerable threat to the newspaper industries. The company sold for a multiple of ~4x revenue. What is more, the sale was completed during a tough time for the US economy.

The market has continued to grow rapidly and according to Borrell Associates, 2006 was the first year online recruitment advertising ($5.9B) surpassed newspaper job ads ($5.4B). HotJobs has approximately 9% of today’s market. Monster is valued at $6.7B, having grown 2001 sales from $536M to a TTM of $1.1B in revenue. Monster had 60% of the market share in 2001, but fell to approximately 30% in 2007 largely due to the fantastic growth of Careerbuilder.

Food for thought

HotJobs launched with a vertical market entry strategy, both in terms of industry (high-tech customers) and for type of job (programmers), but after a couple of years expanded horizontally. We are now seeing a number of new sites (and some existing sites) following a similar path of vertical focus. Large job sites offer some efficiencies for recruiters, but the search experience, relevancy of results and data quality can be lacking for both employer and job seeker. These sites can promote an impersonal and less thoughtful process for finding your next job.

According to CareerXroads, 28.4% of Internet hires in 2005 were attributed to three online job listing sites (Monster.com, Careerbuilder and Yahoo) and other web sites accounted for 22.4%. The remaining 50% of hires are attributed to a company website, but this number is questionable as the company web site is usually the destination and not the source. This growth in small web sites is especially impressive given that the large sites can win any type of SEM bidding wars. I believe the decentralization of attention will continue to erode market share for the larger sites as well as for sites that only offer job related content. Yahoo! has obtained additional job seeker audience by converting traffic from its other web properties, and Careerbuilder has gained audience through partnerships with newspapers. I believe the long tail should continue to outpace larger sites due to the increase in blog readership, syndication services (e.g. job networks which are equivalent to the co-op model of blog networks) and community-building tools. These sites are in a better position to screen for chemistry, culture, and validity of information. Additionally, 27% of all external hires are from employee referrals that partly reflect the networking and community aspects of sites such as LinkedIn. Finally, jobs listed as secondary content on sites (e.g. a blog) or solutions catering to getting a job later versus now will attract passive hires. Targeting passive hires versus those out of work leads to a greater audience for the technology vendor and also leads to more desirable candidates for the employer.

HotJobs was/is a leading company evangelizing job sourcing through technology. While online jobs was one of the Internet’s first successful industries, technology is still a small portion of the $90B that will be spent on recruiting services in 2007. Continued innovation should lead to further dramatic shifts and improvements in recruiting processes.

References and further reading

“Change Jobs Like Clothes? Click Here”, NY Times, June 2000
Great early customer testimonials as well as detail on the other early players in the online job board space.

Wikipedia
This Wikipedia entry has further detail on HotJobs’s founding story and initial team.

Generation Partners case study on HotJobs
This short overview highlights why the firm invested in HotJobs and gives further information about the growth of the company.

Dimitri Boylan Interview, University of Pennsylvania Leadership Series, February 2002
Interview covers Dimitri’s background and management philosophy.

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