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THE FOLLOWING ARTICLE IS A 5000 WORD WALL STREET JOURNAL FEATURED COVER STORY.

Site Seers: For Thriving Dot-Com, One Hot Market Isn't What It Brags About --- Keen Has Experts to Counsel On Any Topic, but Clients Click Heavily on Psychics --- Some Calls Are Inside Jobs

By Suein L. Hwang
Staff Reporter of The Wall Street Journal

Article: 06/12/2001
The Wall Street Journal A1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

SAN FRANCISCO -- Among the few dot-com survivors, Keen Inc. is a standout. It runs a Web site listing thousands of people who give paid advice, over the phone, to people who click on their names. Portraying itself as a marketplace of advisers on a wide range of mainstream topics, Keen boasts heady sales growth, blue-chip backers and plenty of cash.

But Keen doesn't boast about one secret to its success: customers such as Dawn Simpson, a San Antonio legal administrator who went to the site not for advice on taxes or gardening or law, but to divine her future.

When her life hit bottom after her live-in boyfriend left and she miscarried their child, Ms. Simpson spent hours on the telephone talking to psychics listed on Keen's Web site. They kept predicting her guy would come back. But the only thing that came to Ms. Simpson was $3,000 in credit-card bills for the calls.

The psychics "knew what I wanted to hear," Ms. Simpson says. "I even told them I don't have this money, and they'd say, `Don't you want happiness in your life?' "

Keen -- with pedigreed investors such as Benchmark Capital and Microsoft, glowing press clippings and vocal fans on Wall Street -- is among the last remaining hot Internet start-ups. "This is one of the few that will emerge from the rubble as a legitimate and successful business," says Andrea Rice of Deutsche Banc Alex. Brown, which invested in the firm. At least until recently, Keen was calling itself the fastest-growing e-commerce business in U.S. history.

Keen says its membership ranks have swelled to more than 3.5 million from two million in mid-February. While Keen doesn't disclose revenue, executives have said they expect the company to be profitable by early next year, and they have plenty of cash to get them there. Keen has its sights set on an initial public offering.

"To find sound advice and reliable information, consumers want to speak to someone they trust," explains the corporate-background page on Keen's Web site. It describes Keen as a "resource for connecting people who want to give or receive live, immediate advice on everything from computer help to dieting, tax questions to personal issues, romance to nutrition."

But Keen's recipe for success may be much simpler, offering a revealing clue to what it really takes to succeed on the Internet. ComScore Networks Inc., which tracks online consumer behavior, says 89% of calls made to Keen's advisers in December and January were to psychics, and 6% were to categories that include sexual come-ons. NetRatings Inc., another research outfit, says Keen's household demographics and advertising patterns veer toward lower-income consumers. "Based on what they're saying to people, I would have assumed their customers are clicking on areas like how to repair a wallet or grill a salmon," says Sean Kaldor, a NetRatings executive. "That isn't where things are going."

Last year Keen acquired 800predict, a Web site for psychics, and began listing them on its own site. It didn't announce the acquisition. Keen says it was too insignificant to publicize.

Also last year, Keen hired a provider of adult Web sites called Teleteria Inc. Keen was "very clear they didn't want any press about the phone-sex portion of their business," says Teleteria's president, Jay Servidio.

Keen's chief executive, Karl Jacob, denies that the company focuses on psychics or sex, or that it has tried to mask its sources of revenue. He says ComScore's numbers aren't accurate. Keen, he says, is focused on industries such as information services, consulting and financial planning.

Keen's roots go back to March of 1999, when a young Yale graduate named Scott Faber watched his New York taxi driver chat on his cellphone and had a bright idea: He could create an eBay for human capital, he thought, where the buyers and sellers could use the phone to trade information.

By August, Mr. Faber was in California talking to Benchmark, the firm that made its name by backing eBay. Benchmark took the idea from there, in classic Silicon Valley start-up style: putting in some money, tapping its network of technology investors, lining up board members and getting the story out to the news media.

The first step was to link Mr. Faber with Mr. Jacob, a Benchmark "entrepreneur-in-residence" looking for his next project. A former executive of Microsoft Corp. who had sold it his software start-up, Mr. Jacob was a quintessential Silicon Valley fast-tracker, driving a Dodge Viper and racing sailboats. By November 1999, its Web site was up. Just a few weeks later, Keen announced that it had raised $60 million.

The site listed self-registered experts known as "KeenSpeakers," usually under pseudonyms, and showed a per-minute charge for talking to each. A customer who wanted some advice would register with Keen, then click on a speaker. Keen's technology would connect them by telephone -- leaving both sides anonymous -- and start charging the caller's account, with Keen taking 30% of the fee.

Keen's executives and Benchmark decided to let advice-givers list themselves freely. "We wanted to position ourselves to be open to anything and anyone," like eBay Inc., says Dustin Sellers, Keen's head of customer acquisition. Big names invested, including eBay, Paul Allen's Vulcan Ventures, Inktomi Corp., Integral Capital Partners and Cnet Networks Inc.

At first, Keen targeted Web-savvy young people, advertising on "Friends" and "The X-Files." Mr. Jacob tapped his media contacts, talking in interviews about the doctors and software engineers who offered advice via Keen. National publications and shows including Fortune, BusinessWeek, CNBC and The Wall Street Journal picked up the theme, calling Keen a "cool company," an "up-and-comer" or "one to watch."

"Keen has been pretty consistent in presenting the image of kind of a homogeneous platform for this exchange of information, and I guess the media has listened to that message," says Jeff Skoll, a Keen board member and eBay co-founder.

But employees found it wasn't easy to get people to pay for travel, business or career advice from anonymous strangers. "The early adopters were usually people who already had experience talking to people on the phone and looking for advice, like astrology and psychics," says a former Keen marketing employee. "The problem is getting [other] people to really see the value."

When funding for consumer Web sites started growing scarce about a year ago, former Keen employees say, Keen went after "the low-hanging fruit." It acquired 800predict in June 2000, adding its psychics to the Keen stable.

Neither Keen's Web site nor 800predict's site mentions the acquisition. Some former Keen employees say top executives told them that if they were asked about 800predict, they should describe the relationship as a partnership, not an acquisition. Mr. Jacob denies that and says Keen didn't hide the purchase.

In the summer of 2000, Keen sent potential investors projections of revenue growth. "We set numbers out there and beat them, every time," Mr. Jacob says. In October, as some dot-coms were folding, Keen raised $42 million from investors to push its total above $100 million.

Some former employees say Keen turned its own workers into a captive market, frequently asking them to call certain parts of its own site. For instance, one KeenSpeaker offered callers taped instructions on how to make squirrel pie, a piece of advice that ended up in a Fortune magazine article about Keen. The Web site shows that 15 callers have offered an evaluation of that advice-giver under the site's feedback system. But former workers say that at least eight of the 15 were actually Keen employees, their screen names show. One was Mr. Sellers. Another, they say, was Mr. Jacob.

Keen's eighth-highest-ranked expert in the travel and recreation category is "Dusty Road." But Dusty Road is a screen name of Keen's Mr. Sellers. Of the nine pieces of feedback Dusty Road has received, former employees say two are from Mr. Jacob, one is from a brother of the CEO and one is from "kellynice," the name of Keen's advertising agency. Citing its privacy policy, Keen declined to verify the identities of the postings.

Mr. Jacob says staff calls to the squirrel-pie KeenSpeaker merely reflect curiosity. He doesn't think evaluations by anonymous Keen employees are misleading, asking, "Is their feedback any less valid than yours?" And they couldn't skew the site's overall numbers, he says, because the staff numbers only about 150. Some ex-employees say that while they were asked to make calls in part to check on speaker quality, they suspect it was also to prevent rarely called speakers from dropping out.

Speaker listings show that the top five psychics on the Web site have drawn 15 times as many calls as the top five computer experts. Mr. Skoll, the director, says that "certainly more than half" of Keen's business is "in romance and astrology."

Keen is talking about expanding its ties to Linda Georgian, a KeenSpeaker who was co-host with Dionne Warwick of a Psychic Friends Network infomercial once common on cable TV. "They'd be my [public-relations] representative and book me on shows" such as Howard Stern, Ricki Lake and Jerry Springer, Ms. Georgian says. Keen says it offers such support to any KeenSpeaker.

Mr. Jacob was asked about psychics in February, and said that Keen was just as strong in the health, computers and business categories as in psychics. Asked again last month, he said the company didn't wish to reveal its business breakdown.

He did identify categories in which revenue is growing fastest. They are money and career, business, and health and therapy, he said. He noted that "calls aren't the same thing as revenue."

Ms. Simpson's calls represented revenue. Recalling the events of late last year -- her boyfriend's departure and her miscarriage -- the San Antonio woman says she was "losing my mind, losing my hair. I started drinking all the time." She began calling Keen's psychics repeatedly, at prices sometimes above $4 a minute.

"They kept telling me that `he loves you, loves you so much, he'll come back to you,' " she recalls. "It was like an addiction, filling my head with all this stuff." One psychic, she says, insisted she stay on the line for an hour while the psychic burned a candle. It cost her $350.

Finally, one psychic e-mailed her, suggesting she stop wasting her money and get on with her life. She says she complained to Keen about all the bad advice from psychics and the money it cost her, and Keen knocked a couple of hundred dollars off her bill. "They told me I knew what I was getting into, that this is just for amusement," she says.

Some KeenSpeakers fret about vulnerable customers. "I see so many people call with the last penny in their hand, people who spend their grocery money, their mortgage money, calling a psychic," says "bimmyj," a former food-service manager who offers counseling on Keen. Most KeenSpeakers don't want the public to know their real names.

"DeepWater," a psychic, says some callers are struggling with loneliness, abuse, poverty or depression. "I see people come in with serious problems and lose thousands -- I mean thousands -- of dollars," he says, asking not to be identified because of his day job in financial services.

Gail Summer, president of the American Association of Professional Psychics, says she rejected a request by Keen to encourage its members to become KeenSpeakers. She says the problems starting to bedevil the Web site are "just a mirror of what happened in the 900 [phone] industry. First it was a core group of psychics who were very responsible and truly believed they were serving. Then the big marketing companies got involved in the game, and they didn't care who answered the phone as long the caller was on the line long enough."

Mr. Jacob denies that Keen has such problems. He says he isn't familiar with Ms. Simpson's case. He says Keen's system of letting callers rate speakers should flush out any problems.

Keen recently advertised in supermarket tabloids, highlighting a new toll-free telephone number. It gives Keen access to people who don't have Internet access. "Love him or leave him?" reads a large color ad in Star magazine. "Is he the one? Talk to someone who knows! Keen has the largest selection of the world's best psychics, tarot readers and spiritual advisers."

Most of Keen's online advertising promotes psychic readings and runs on sites targeting women, according to a partnership between NetRatings, Nielsen Media Research and ACNielsen.

Nielsen//NetRatings says Keen users are more likely to have incomes below $25,000, to have just a grammar-school education, and to be African-American than are visitors to the average Web site. KeenSpeakers say the site attracts a significant number of black women, a traditionally big segment of the psychic-call market. "They're definitely focused on relationships and psychics," says NetRatings' Mr. Kaldor.

Mr. Jacob says Keen doesn't target African-Americans, lower-income people or the less-educated. In fact, its customers are more likely to have graduated from high school or college than the general population, he says. Advertising in the tabloids is just a "small part" of Keen's promotion, he adds.

As for sex calls, ComScore, which confidentially monitors the Internet behavior of more than 1.5 million volunteers, found such traffic not just in Keen's restricted "adults only" area but also in its "romance and social" category. That category's top-rated speaker until recent days was "Liz69," who calls herself an "Experienced, Gorgeous, Sexy Female!" A woman named Amanda Lewis, who was listed until recently in the romance and social category as "ahotsexychick," said she offered phone sex and had received thousands of calls.

Some Keen employees say they were surprised to be presented with a contract that read in part: "I understand and agree that my job responsibilities at Keen.com may require me to access, review, and/or monitor material that is sexually explicit or of a sexual nature (`Adult Only Material')."

In a February interview, Mr. Jacob said Keen had never been much interested in the sex category. "We have a community, and that isn't the way we want to make our money," he said.

Jay Servidio of Teleteria, the adult-Web-site provider, says Keen executives approached him last year and "said they wanted to be connected with someone who knows the [900-number] business, who knows everybody, and who wouldn't get them in any lawsuits." He says that he "brought the biggest players from the phone-sex industry in the world to Keen."

He cites Videosecrets, a big provider of live adult entertainment to the Web. Online customers already could watch and chat with its models. Now they can also talk to them on the phone using Keen's technology. The Keen site shows Videosecrets has received 7,400 calls over the past year.

Mr. Jacob says adult content provides less than 5% of Keen's revenue. He says the point of Keen's relationship with Jay Servidio was simply "to understand the adult industry and policies to determine how to deal with adult on Keen" -- just as Keen tries to "understand the pitfalls of other industries." Keen and Jay Servidio are at odds over the continuation of his services.

Mainstream sides of the business are growing quickly, says Mr. Skoll, the board member. "I think Keen stepped into a situation where the markets that were most opportune for using this kind of system were things like 900 numbers," the eBay veteran says. But Keen management "really sees this as a platform for helping people exchange information for all sorts of things. And over time, they're not limiting themselves to romance and astrology."

Keen says its latest offering, providing technical support on Microsoft Office XP software, has been one of many recent hits. "With the right momentum, the right growth," Mr. Jacob said in February, "a company will break the IPO blockade. It would be great to be the company to do that."

Jay Servidio is President of Teleteria, Inc., a company that has been building and hosting commercial and adult custom Web sites since 1994. Teleteria's clients are located all over the world.

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