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Subject: RE: UKNM: Putting a value on users
From: Bunder, Leslie
Date: Wed, 21 Jul 1999 10:21:03 +0100

Talking of churn rates with Freeserve, I saw on the prospectus for the float
that there was something like just over 800,000 accounts dormant. It was
something like 2.1 million registered and just 1.3 million active.

When you look at the non-active accounts that represent the churn rate in
just under a year of operation, it makes some interesting reading especially
when you start putting those churn rates into perspective and in terms of
future growth.

But still, 1.3 million active accounts is impressive, the only question is
how the churn rate is going to go over the coming months, will they be able
to reduce the churn or not?

I wonder how the Freeserve churn rate compares with other free services (Mr
A Dale at Virgin care to comment???) or indeed paid for services.

Leslie
Leslie Bunder
Project Manager, TDL InfoSpace
e-mail: Leslie [dot] Bunderatinfospaceuk [dot] com (work) or leslieatbunder [dot] com (home)
Web: www.infospace.co.uk
tel: 01252 390516 (UK) +44 1252 390516 (outside UK)
mobile: 07010 701967 (UK) or +44 7010 701967 (outside UK)
Thomson House, 296 Farnborough Road, Hants, GU14 7NU

> ----------
> From: Ray Taylor[SMTP:tayloratnmcadplan [dot] com]
> Sent: 15 July 1999 09:52
> To: uk-netmarketingatchinwag [dot] com
> Subject: Re: UKNM: Putting a value on users
>
> Nick Gilbert <nickatnewsnow [dot] co [dot] uk> asks:
>
>
> >Does anyone know how Freeserve came up with a value of 1500UKP per
> >subscriber? I seem to remember AOL valuing its users at $8000 per
> >subscriber and can't see why their valuation would be higher than
> >Freeserve's.
>
> The US version of the South Sea Bubble has over-valued internet stock for
> several reasons, not least the fact that the existence and wide use of
> online stock trading in the US means that lots of people who use the
> internet, use it to invest, are naturally inclined to invest in internet
> stock.
>
> Stock market valuations are based on market interest. If lots of people
> want
> to buy, the price goes up. Because US investors are crazy about internet
> stock at the moment, the valuations have gone sky high in comparison with
> any objective measure of the value of the stock's assets.
>
> Because UK investors are not as crazy as US investors, it is likely that
> the
> valuation of any UK listed stock will be lower.
>
> The value per users is an interesting development and should be developed
> further. If a regional department store has a customer who comes back to
> the
> store time and again for clothing, household goods, Christmas gifts, etc,
> the lifetime value of that customer is huge. I made the point about value
> and customer loyalty a while back.
>
> But the point is, we are talking loyal customer, not passing trade. If
> someone comes into the store, buys a 20 gift, and never returns, you
> can't
> really add any value for that customer other than the profit on the single
> sale.
>
> This is important because if you are going to advertising in order to
> acquire that customer it could cost several times more than 20 to get
> them
> in the store in the first place. This is the Amazon business model where
> it
> costs something like 25-35 on web advertising (reputedly) for every new
> customer acquired. But Amazon has real staying power when it comes to
> customers so many first-time customers become loyal lifetime customers and
> hence are worth many times more than the initial cost of acquisition.
>
> On the other hand, there is a high churn rate for freeserve customers and
> they at the moment, perhaps understandably, refuse to disclose their
> traffic
> figures, presumably because they are low. Lots of people check out
> freeserve, go away, and never come back. You'll have to ask freeserve how
> many, I don't know, but I sure wouldn't commit any investment to them
> unless
> they told me the figure first.
>
> The thing about freeserve is they created their huge number of users
> without
> any substantial cost by coming up with the best surprise gimmick of the
> decade - free internet access (if you ignore the telephone bills of
> course).
> But how long will the gimmick last and have they replaced it with anything
> solid yet? Ask them, not me, I don't know the answer.
>
> Anyone else wants to create loyal online customers there are two things
> you
> have to do:
>
> 1. Provide excellent customer service in every way, and without any gaps
> whatsoever, right down the supply chain / customer service chain.
>
> 2. Advertise/promote the service very heavily and at high cost. It may
> cost
> 20/50 or even more to acquire a new customer. So if you want 100,000
> loyal
> customers, you have to spend 2-5 million, possibly more, on advertising
> and
> promotion unless you don't mind waiting several years and allowing
> competitors to get there first.
>
> So to create 1,000,000 loyal users, your ad budget could be 20-50 million
> or more, but then if each customer is worth several thousand, you ought to
> get a listing worth billions.
>
> So when someone like lastminute or any of the other successful startups
> does
> all of this at a much more modest budget than Amazon or any of the other
> highly funded operations, you really have to take their hat off to them.
> The
> proposition is so good that it virtually advertises itself (as freeserve
> did
> last year).
>
> But to reproduce the model with any kind of certainty will require serious
> upfront investment. As long as the big boys in the city are reluctant to
> supply this, it will allow a healthy flourishing startup market. So in
> fact,
> the longer UK (institutional) investors stay out of the game, the better
> it
> is for the real entrepreneurs.
>
> Long may the City remain in ignorance! (though I suspect not much longer).
>
> Ray Taylor
> NMC/Adplan
> Please note our new number: 0181 249 6313
> Thanks

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