The web surveillance industry was born at the height of the bull market when chat room whispers were having a landslide effect on corporate reputation and stock price. In the late 1990s, there were many well-publicized incidents of sneaky netizens posting errant messages in chat rooms or sending out phony press releases in an effort to manipulate a company’s stock.
Remember Emulex? A fake press release about Emulex’s CEO resigning and overstated earnings which was sent out over Internet Wire is probably the best-known example of internet fraud. Another well-known example is that of the New Jersey teenager who hyped small-cap stocks on message boards in the morning then after school sold into the momentum he had created.
It was this environment – with the internet used to manipulate the market – that bred web surveillance technologies. These tools trawl the internet to capture chat room messages and online news stories mentioning a particular company’s name or key word. The technology was developed partly as a defensive tool against internet rogues who discovered the incredible power investor message boards and internet news releases had in a bull market.
A lot has changed since the days when a malicious internet posting could cause wild fluctuations in stock price. When the dot-com bubble burst the gossip quickly subsided. ‘Participation on financial message boards and chat rooms definitely decreased,’ says Nancy Sells, vice president of eWatch services at PR Newswire.
‘The complete erosion of day traders and the downturn in market conditions led to the fall-off in online discussions of stocks,’ adds Scott Kerr, vice president of MindfulEye.
Since the level of activity in virtual discussion rooms has dropped off, companies are a lot less paranoid about stock manipulation by internet demons. In fact the risk remains, but ‘chat rooms and message boards are not nearly as influential as they once were,’ believes Bill Comcowich, president of CyberAlert.
Reputation Management
Today, web surveillance is used by IROs more as a reputation management tool than as a defensive strategy. They monitor brand image and investor sentiment for themselves and competitors. The focus is less on spying on investor chat rooms and message boards, and more on watching what the media is reporting about a company, its CEO and its peers through online media monitoring.
Up-to-the-minute news sites like CNNmoney, CBSMarketWatch and Forbes.com are important for IROs to monitor because they are popular information sources for investors and analysts. Stories in online versions of reputable dailies like the Wall Street Journal, the New York Times and the Financial Times are also key because they influence corporate reputation. ‘Right now, for example, you have Omnicom being falsely lumped in with all these corporate governance scandals as a result of a Wall Street Journal article,’ suggests MindfulEye’s Kerr.
Despite a trend towards online media monitoring, there is still a common misconception in corporate culture that what is posted online has less influence than what is printed. This idea comes from the fact that a lot of financial publications used to print different stories in their online and print versions. But since the dot-com bust in 2000, the number of unique stories posted in online versions of print publications has decreased dramatically, notes Bruce Merchant, executive vice president of Burrelle’s Information Services. ‘A lot of smaller publications have had to cut back and the first thing to go is their unique content online,’ he says.
Some web surveillance firms offer media and chat room monitoring as separate services. The media monitoring tool scans a wide range of online newspapers, magazines, journals, press releases, trade publications and broadcast media using search criteria specified by the company. NewsWare, a web surveillance service used by many traders and institutions, also searches First Call Research Direct.
Typically links to articles including headlines and part of the text are sent to the customer’s in-box or stored on a remote server. For IROs needing live updates, some web surveillance companies offer real-time alerts whenever news pops up online. Once the information is gathered, it’s possible to search and sort through the list for items of interest like articles that mention competitors or your CEO’s name.
One scan over a 24-hour period often produces an enormous volume of information, much of which is irrelevant. Some service providers solve this problem by using a software component to analyze the information and filter out unnecessary articles. This October eWatch will unveil new analytical software that will slice and dice information into easily digestible formats. ‘We will show companies which reporters follow them and which ones follow their competition, for example,’ says Sells. ‘This will make it easier to send a report up to senior management.’
Vancouver-based MindfulEye separates relevant news using an artificial intelligence tool that reads and understands text. Others, like CyberAlert and Burrelle’s Information Services, have readers look through data and pick out information. ‘We discard 80 percent of what we find on the internet through human intervention,’ reports Merchant at Burrelle’s.
Bacon’s media monitoring takes the opposite approach by having readers pre-research thousands of web sites to evaluate whether each site has valuable news information before they do a scan. The idea is that the search will not include irrelevant news because the scan has been narrowed to around 4,000 reputable sites.
Some web surveillance specialists are looking into how to deal with subscription-based sites that require passwords. ‘There are more subscription-based sites, and people want to know about their content,’ reports Sells. Dow Jones, for example, doesn’t let web crawlers scan its online subscription-based sites like Wall Street Journal and Barron’s without paying a fee. Some service providers like Burrelle’s have signed contracts with key subscription-based sites allowing them to ‘spider’ their content. Others, like eWatch, are waiting to see whether customer demand for this content increases.
Early alerts
‘Initially web monitoring was about putting out the fire, and now that the fire is out people are more interested in doing stuff aside from monitoring the crackpots,’ summarizes Rafi Reguer, VP of corporate communications at NewsWare. ‘The biggest advantage media monitoring provides is knowing first,’ says Reguer. Merchant agrees: ‘It’s an early alert system.’
Having up-to-the-minute information on your desktop often prevents a crisis from happening. Internet media monitoring ‘also provides clues as to what the concerns of the investing community are about a company,’ summarizes CyberAlert’s Comcowich. Adds Sells: ‘And it makes you look good in the board room, if you are aware of something before it gets out to the rest of the board.’
Even though the volume of activity in popular investment chat rooms like Yahoo Finance, the Motley Fool and Silicon Investor has gone down, it’s still useful to monitor their activities. ‘If anybody is going to try and do their job the right way, they are going to try and get information from all sources,’ notes Sells.
While participation by analysts and portfolio managers in chat rooms is down, they still go to these virtual discussion boards to get the buzz on particular stocks. ‘In the bubble years, we noticed a lot of professional investors participating in investor boards to share information and we don’t see any of them participating now,’ remarks Comcowich. ‘However, we do know that before making a major investment in a company, institutional investors will check message boards to see if there is anything there that will change their decision.’
Chat room and message board monitoring is still helping IROs put out fires as well. Todd Bransford, vice president of product marketing at Cyveillance, brings up the example of a power company that was rumored to be behind schedule in building new plants. ‘Missing a day in the power business translates to millions of dollars, so the company needed to find out where the rumor came from,’ he recalls. By monitoring chat rooms and message boards, ‘we uncovered some important insights about the gossip as well as comments related to their accounting practices that they didn’t know about.’
‘Companies still have problem posters as well,’ reports Kerr. ‘Sometimes it’s individuals and sometimes it’s short-sellers.’ Some short-sellers seek profit by posting negative information on message boards – often in a whole slew of online locations and about several stocks at once. ‘They use a kind of spam in an effort to influence the price of several stocks,’ says Kerr. Web surveillance providers can track the user identifications of these problem posters and help companies eliminate this type of stock manipulation.
By following chat room discussions, IROs sometimes uncover things they weren’t aware of. Sells brings up the example of a Colorado-based IRO who realized that an investor who was calling regularly was anonymously posting whatever he said in a chat room immediately following their conversations. ‘The IR person decided to use these conversations strategically to plant good information and it worked,’ she says. The investor started posting all the positive news planted by the IRO on the message board.
In the case of nasty rumors on message boards, IROs really need to ask themselves if the information is having a material effect on the stock before they respond, say Comcowich. If so, sending out a press release to correct the misinformation is appropriate but if not, it’s best not to respond. As Comcowich says, ‘You can’t conduct a debate with everyone who criticizes your company.’
Outsourcing surveillance
Currently around half the companies in the S&P 500 conduct some form of web surveillance, either hiring an outside service provider or scanning the net internally. With more then 3,800 web sites and 600,000 pages of HTML files added to the web daily, according to CyberAlert, it can be a daunting task to try and monitor it all without help. Public search engines only scan about 10 percent of what is on the web and rarely pick up stories from the daily news media.
A basic web surveillance package including media and chat room monitoring costs $4-5,000 annually. Some service providers offer media monitoring packages separately for about $2-300 a month. Before investing in a web surveillance service, IROs should consider the level of chat room activity devoted to their company and the proliferation of media stories mentioning their name.
A good way to test what is happening in chat rooms is to visit www.thelion.com, a pay-per-view site where you can look at the message activity for a particular company by entering its ticker symbol. You can also visit popular sites and check for yourself. The Motley Fool, which hosts one of the most popular message boards, is now charging users to view messages and participate, however.
Gauging the amount of online media coverage for a company is not quite as simple. There is currently no site that aggregates news content on individual companies. However, a quick scan of popular financial news sites like CBSMarketWatch.com and CNNmoney is a good way to see if a company is in the headlines. For small-cap companies there are a number of worthwhile online news sources, such as smallcapcenter.com and Small Cap Review, that specialize in providing up-to-the-minute news on small caps.
The main advantage of web surveillance is that it aggregates online sources mentioning your company. ‘It’s the most technically efficient way to do this,’ says NewsWare’s Reguer. The bottom line for IROs is to determine whether it makes sense for their company to engage outside help to gather and manage this information.
