Are you ready for dotcom déjà vu?


29 Sep 2005

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It’s back! That’s the sentiment these days if you follow what is happening with the fortunes of search giant Google and others. Google last year was valued at US$27.2bn when it floated on Nasdaq and in recent weeks issued another stock sale to raise an additional US$4bn for the company as well as revealing plans to go into voice communications. Its closest adversary Yahoo! also ignited the latest dotcom fire after splashing out US$1bn to acquire a 40pc stake in Chinese e-commerce giant Alibaba.com.

The re-igniting of dotcom sentiment is also being driven by gaming websites. Gibraltar-based Partygaming.com revealed plans for a £5.8bn sterling flotation on the London Stock Exchange (LSE) and this month is hotly tipped for admission to the coveted FTSE 100. In recent weeks, 888 Holdings, another Gibraltar-based gambling website owner revealed plans to float on the LSE later this month in a move that could value the company at £700m sterling.

According to seasoned marketing expert and CEO of Irish and UK consumer website Pigsback.com Michael Dwyer, there are several distinct areas of the internet market that are yielding major success stories right now — these include gambling, dating, travel, communications (email, instant messaging and voice over internet protocol) and search. And of course, don’t forget adult content.

Dwyer recalls the dotcom frenzy: “The problem around 2000 was there was so much going on and a huge rush to market that it was very hard to discern a good business from a bad one.”

If anything, it could be argued there are more internet-based businesses operating today that have set up in Ireland since the 2001 downturn. Players such as Myhome.ie (which this month launched a second business called Newaddress.ie), travel site Gohop.ie, parenting site Rollercoaster.ie, pub supplier Barkeeper.ie and accommodation player Hostelworld.com.

What separates these companies from their circa-2000 predecessors says Irene Gahan, chief executive of the Irish Internet Association,
is a strong focus on niche opportunities, less exposure to venture capitalists and a strong emphasis on revenues and profitability.

“Time, resources and cash flow are the mantra,” Gahan explains. “Time is everything because a lot of these businesses are set up with no venture capital [VC] and many of these are labours of love for the people who come from a particular sector background. It takes time to build up a user base and develop loyalty. Resources, particularly in terms of design and content, and cash flow [are needed] almost from day one to keep the business afloat.”

We decided to take a look at some of the Irish internet businesses that were established both before, during and after the dotcom crash to see for ourselves the dynamics driving their business.

One of Ireland’s most unexpected internet success stories began life in 1997 when two brothers noticed the hassle their sister had to go through trying to find a flat in Dublin. Brian and Eamonn Fallon came up with the idea for Daft.ie, at the time aimed solely at the rental market. It was 2001 before the brothers decided they had a real business on their hands and since then the site has evolved into a major property portal handling not just the rental market but private and commercial property sales as well as a mortgage supermarket.
“In 2001 we would have had on average 500,000 page impressions a month,” explains Eamonn. “Today we do on average 20 million page impressions a month. Our busiest day so far had one million page impressions.”

He says the company was built up slowly, with much of the real work taking place in the past two years. “Our business model is that we are a low-cost advertising medium. In terms of a rental ad it’s just €4.25. We estimate that 500,000 people have used our site to find property. In September 2003 we expanded into the property sales market and at this point we are No 2 in this market segment. In 2004 we launched our Mortgage Centre in association with six mortgage providers and today we are generating €100m worth of mortgage applications every month.”

Daft.ie, Eamonn says, has decided for now not to go down the VC route. “We are completely self-funded. We are wary of the VC mindset; it doesn’t make any sense to our model. A cash injection wasn’t what we needed. It took time.”

To view dotcom endeavours as a labour of love look no further than Irish dating site Anotherfriend.com, which boasts numerous matches and at least 10 confirmed weddings of people who met through the site. Since the company was established in 2001 by Kevin Greene more than 85,000 Irish people have registered their profiles on Anotherfriend.com and on any given day the site has between 200 and 500 people online.

According to Greene, the online dating business is becoming an increasingly competitive marketplace, with three main players dominating the Irish scene — the other two main players are Rsvp.ie, which is owned by BT Ireland, and Maybefriends.com, which is owned by Scottish Radio Holdings.

“We were lucky to get started in 2001 and we were one of the first online dating sites in Ireland. As a result we have an established user base. It’s a good market but an increasingly competitive one. There is at least one new dating entrant to the Irish market every month, but most of these disappear because they can’t get the numbers.”

If there’s one sector that has been utterly changed by the advent of the internet it’s the travel industry. Greg Turley’s Arguscarhire.com was one of the first business-to-consumer websites to launch in Ireland in 1996 and the company rapidly began to receive business from US tourists who were looking to hire cars over the internet and not only for Ireland but for the rest of Europe too.

“Competitor websites tended to be brochure sites and people had to calculate the costs of hiring a car themselves. My attitude was why should the customer have to do all the work. We developed a technology that did this for them by enabling them to put in the dates times and location and give them an all-inclusive price,” he says.

Arguscarhire.com then evolved into an intermediary or broker of sorts for other independent car hire firms. To avoid competitive and branding issues with other independent car hire firms, Turley and his brother, Niall, decided two years ago to spin off the technology division as eTrawler.

In January eTrawler embarked on a white-label strategy that enables other car hire firms to put their own brand on the technology on their websites. “It is currently available in 20 countries in various currencies. There is up to 200 partners at this stage using our technology on the site.”

According to Turley, eTrawler is entirely self-funded from profits. “I believe in the old way — you can’t spend what you don’t have. We did it step by step.”

One of the best-known Irish online consumer brands is Pigsback.com, established by Dwyer in 2000. Last year, more than 90,000 members printed in excess of 3.5 million coupons from the site to make savings in their shopping bills. As part of its loyalty scheme the company issued more than 100 million PiggyPoints in 2004, equivalent to €1m worth of discounts.

Since launching into the UK market in June on the back of a €9m investment, Pigsback.com has already signed up 72,000 unique members and is on track to have 225,000 members by Christmas. “Essentially, it will take us six months to do in the UK what it has taken five years to do in Ireland,” says Dwyer.

Dwyer believes broadband penetration in the UK — estimated at 60pc of internet users — is creating perfect conditions for online commerce. “Usage patterns in the UK show that people with broadband spend two and a half times longer on the web than dial-up users. People with broadband are likely to spend more and involve themselves in heavier applications and trends such as online poker, for example.”

Dwyer says the company is expecting to record a turnover of €5m this year, up from the €3.2m turnover reported last year. He says the company is planning to make a turnover of €8.5m next year, fuelled significantly by the expansion in the UK market.

He is not convinced internet players can go it alone without VC. “If you’re targeting the consumer space, it will take significant expense to grow your brand. In the aftermath of the dotcom crash, a few people lost sight of the fact that businesses do have to invest for an initial period if they are trying to build a substantial asset. It also takes time. We are already profitable in Ireland, but it will take three years to be profitable in the UK.

“We are a long time at it and had some tough years at the early stage. We took on substantial risk at the time and dealt with a lot of uncertainty but so far the evidence suggests the market is very strong for us.”

By John Kennedy