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Subject: RE: UKNM: Putting a value on users
From: azeem azhar, lists
Date: Fri, 23 Jul 1999 15:32:36 +0100

A recent broker report from WestLBPanmure had a huge "AVOID" on the stock.

It points out that the ration of defectors to joiners is in th 60 to 70%
mark, suggesting a pretty large churn. WestLB's estimates of our user
numbers are much more reasonable hovering at the 1.6m range into 2002 (CSFB
reckoned they could get to 5 or 6m!)

At 1:25 pm +0100 16/7/99, Bunder, Leslie wrote:
>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 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

azeem azhar | www http://azeem.azhar.co.uk/ (*)
tel 07958 544 593 | icq 315460
fax 0207 691 0464 | pgp http://azeem.azhar.co.uk/pgp/

* downdated

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  RE: UKNM: Putting a value on users, Bunder, Leslie

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