Re: UKNM: Freeserve: "a colossal gamble" (FT/Lex)

[azeem azhar, lists]

>Basically FreeServe are being sold as a portal with revenues in the short

>term from telephone charges but in the long term it will be revenue purely

>from portal charges.


Indeed. Essentially attempting to transform from a datacomms company to a

consumer marketing business. Sounds easy, doesn't it?


>The one thing they have to carry on with is keeping their overheads low ie

>no support staff, and no racks of modems. The outgoings for Freeserve apart

>from advertising are practically zero. They have offices and precious few

>staff, it's the third party people like the call centre and bandwidth

>providers that should be immediately worried by any burst bubbles, content

>providers etc should still be happy as long as they look for other places

>to place their content.


Absolutely, so unlike an Internet Technology Group or a Demon, which have

millions of pounds of investment in bandwidth, data centres, routers, as

well as defineable skills in customer service, sales, IP routing, data

comms, Freeserve has, er, er, a contract with Energis (soon to be a minor

shareholder of Freeserve).


Freeserve's value as an ISP has to be deep discounted against the valuation

model used for a real ISP.


As a portal or commerce hub, how do we fancy its chances against a range of

competitors:


1. Yahoo! (even though Yahoo! Europe appears slightly inert compared to the

shotgun-toting HQ in the US)


2. Amazon.


3. Any of the really, really strong brands who are getting into the

commerce space


Essentially, Freeserve's value needs to be calculated on a "getting a

slice" of its customers commerce revenues plus advertising or screen estate

charges.


Freeserve has 1.5m customers.


Let's say (aggressively) that this translates to 1m active households (66%

of customers are active, FSRV gets 1 household per account).


Do we think this number is going to rise or fall over the next two or three

years? The answer, probably, is not rise. Why? Competition primarily.

Despite a great brand name, FSRV is going to be but one player in the

Internet-brand-wars of 99/00. FSRV has done nothing by way of creating

network effects <http://azeem.azhar.co.uk/presentations/981125lbs/>, so

there is little reason for me to join FSRV over another player; and little

reason for me to stick with FSRV if a firm offers a better deal. (e.g.

SkyNow: 40% discounts of phone calls.)


So, 1m households flat over the next few years.


AOL in 1999 looks like it will make GBP600m in advertising/commerce revnues

on about 15m users. This is GBP4 per user per year from the best, most

experience firm in this space.


So, if Freeserve does the advertising/commerce thing as well as AOL (even

though they've only just started recruiting lots of content staff, and AOL

has 10+ years experience in the business), they'll get to GBP4 per user per

year in 1999.


By 2001/2, this might rise, say 20-fold to GBP80. (20 fold in 2

years....pretty good, no.)


That leaves FSRV on pretty generous assumptions booking GBP80m of

ecommerce/advertising revenue per annum


Carrying a value of GBP2bn means FSRV is valued at 25 times bookable

revenue, using my quick-n-dirty highly optimistic model.


This is the same valuation as AOL, but remember:


1. AOL has real substantial revenues coming from access

2. AOL has one of the best management teams in the business. No disrespect

to Pluthero et al, but their really is something top-flight about Case and

his chums.

3. AOL has well understood custmer churn, customer loyalty (more

importantly: long relationships going back years). In a competitive market,

AOL was able to respond competitively and continue its phenomenal growth

4. AOL has real assets and *lots of real skills* (and 8,500 staff).



I'm sorry to harp on about FSRV interinably. But I'm struggling to

understand it.

a


>marcus

>

>

>At 12:19 29/06/99 , you wrote:

>>Anyone going to admit to setting aside some funds for a flutter?

>>

>>Will the flotation be followed by a UK version of the US Internet South

>>Sea bubble?

>>

>>And how long does anyone give it before it bursts?

>>

>>Dixons will no doubt make a killing regardless, but is the City doing us

>>any favours by its wild guessing of Freeserve's market value. One

>>wonders whether the gents in stripy trousers have got a clue what it all

>>means anyway.

>>

>>Loyal customers of a "portal" may well be worth �1500 a head (purse)

>>but can Freeserve subscribers be regarded as loyal customers?

>>

>>If anyone cares to stump up a mere 1% of Freeserve plc's projected value

>>(for the first few weeks of its existence) I would be delighted to be

>>able to help them launch a UK portal that will piss all over Freeserve

>>by Christmas.

>>

>>Ray Taylor

>>NMC/Adplan

>

>Marcus Austin - Editor

>Internet Works

>Future Network PLC,

>30 Monmouth St,

>Bath,

>BA1 2BW

>www.iwks.com

>tel +44 (0)1225-442244

>Fax +44 (0)1225-732295


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/


* updated


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