RE: UKNM: Putting a value on users

[azeem azhar, lists]

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!)

a


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

>Leslie Bunder

>Project Manager,  TDL InfoSpace

>

e-mail: Leslie [dot] Bunderinfospaceuk [dot] com (work) or lesliebunder [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:taylornmcadplan [dot] com]

>> Sent: 	15 July 1999 09:52

>

> To: uk-netmarketingchinwag [dot] com

>> Subject: 	Re: UKNM: Putting a value on users

>>

>

> Nick Gilbert <nicknewsnow [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


********************

UKNM is sponsored by Excite UK, visit us at http://www.excite.co.uk.

Email Khalil Ibrahimi

khalilexcitecorp [dot] com (mailto:khalilexcitecorp [dot] com)

 to advertise on Excite.

********************

Change your UKNM subscription use http://www.chinwag.com/uknm.html