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Morningstar Gets Aggressive in August


From all the announcements regarding new partnerships and product offerings coming out of Morningstar last month, you'd think folks at the Chicago fund researcher had installed cots in their cubicles.

During August alone, usually one of the slowest months of the year for all businesses, the company announced two partnerships and three new or updated product offerings.

Last week, the firm said it will augment its MorngstarAdvisor.com Web site to include new analytical tools for financial planners. It also said it will partner with T. Rowe Price to provide financial planning services to 401(k) investors. On Aug. 24 the company partnered with a spinoff of the American Institute of Certified Public Accountants to provide yet more online services to accountants who use a Web site called CPA2Biz.com. And earlier in the month, Morningstar, which has historically rated only mutual funds, said it would adapt its well-known star rating to rank 500 individual stocks. Finally, there was the controversial announcement that Morningstar is jumping into the portfolio management business with a new wrap-like product for financial planners.

The firm also started new Web services in South Korea, Spain and Germany earlier in the summer and launched a paid-subscription service across Asia.

All of this begs the question, in a protracted market slump, with the corpses of Web services still strewn across the economy, what is Morningstar up to?

The aggressive moves this month have led some to say that Morningstar has reassessed its business model and is now bringing the results of that effort to the marketplace. Others say the company is moving away from its core business in an effort to expand its audience and bolster its bottom line.

Many of the new offerings are targeted at individual investors as well as financial planners and others who provide advice. Indeed, both Morningstar and Lipper, its Reuters-owned competitor, are coming to blows over that audience. Late this month, Lipper announced that it will charge into Morningstar's turf and begin rating mutual funds for retail investors.

"Yeah, it has been a busy month," said Don Phillips, the company's managing director. "We wanted to fight on several fronts at once."

Fruition of Long-Term Plans

Phillips said this summer's flurry of activity is in most cases the result of efforts that have been in the works for more than a year. They represent the culmination of the company's restructuring late last year into seven domestic business units, and continued spending of the $91 million the firm raised from Tokyo-based Softbank in 1999. And, indeed, the firm is scrambling to increase its base of users by targeting new channels, such as accountants who use CPA2Biz.com.

But Phillips said the most important reason for the new launches is a simple matter of damage control. Investors are angry, he said. "They're mad at funds and they don't think they've been treated fairly." And "if the industry loses credibility," he said, "that affects Morningstar."

Phillips says the privately-owned company is thriving, but that won't always be the case if it doesn't keep investors interested in funds. So, the new services have been designed to "improve investor experiences with mutual funds," he said, by offering a range of tools that will cater to a broad swath of investors and help them get good returns.

Morningstar On Right Track

The company is on track to meet its 2001 revenue benchmark of $90 million, up nearly $20 million from last year, Phillips said. Domestic subscribers for its paid service grew from 25,000 in January to an astounding 80,000 in eight months. Budgets are in check. Costs are flat.

"We're having a wonderful year," he said. "I almost feel guilty about it." The company is positioned to be an even greater force with the crash of Internet start-ups that threatened to erode its market share, he said. Naturally, venture capitalists aren't exactly throwing money at such enterprises while Morningstar, conversely, has been able to flow new products into the marketplace during an economic slump.

Bumps in the Road

But the firm has been gripped by its own problems as well. Its ClearFutures product, an online tool designed to help investors plan for retirement that was started in early 2000, has not sold as well as the company would like, Phillips said. Web advertising spending, which Morningstar relies upon only partly for its revenue stream, is abysmal.

Geoffrey Bobroff, an industry consultant, suggested this month's barrage of new offerings may have been spawned during a time of reflection and redirection that he says the firm underwent earlier this year. "Maybe they're not finished reflecting and are now moving forward," he said.