FT: Europe’s online voice

Europe’s online voice

By Maija Palmer

Published: May 5 2008 20:35 | Last updated: May 5 2008 20:35

Mark Zaleski, the chairman and chief executive of Dailymotion, the French video site, laments the failure of European internet companies to challenge the dominance of US peers such as Google, Facebook and Ebay.

He says: “We just assume that the next big thing on the internet must come out of America. People are starting to wonder why there aren’t those successful internet businesses in Europe.”

But while the $174bn valuation of Google may be hard to match, there is an emerging crop of European online companies, including Dailymotion, that are holding their own in local markets against the American invaders.

Their varying strategies for moving beyond their home borders – ranging from a focus on advanced technology to innovative ways of saving costs – show how Europe can give life to internet companies that are capable of competing on the world stage.

● Lars Hinrichs (pictured left), a German serial entrepreneur, has global ambitions for Xing, the social networking site for professionals that he founded in 2004. With just 5m members, the site is smaller than its US rival LinkedIn, which has 20m users, but it is the leading professional network in German-speaking countries and is growing fast. This strong local base – and the financial confidence that it brings – has allowed Mr Hinrichs to expand abroad through acquisition.

Although small, Xing made a profit of €4m on revenues of €20m last year, expected to grow to €8m profit on revenues of €34m in 2008. Xing’s revenues come from premium membership fees and some advertising – for example, from recruiters using the site to search for potential job candidates. LinkedIn is only projected to have revenues slightly higher – €48.5m to €65m – this year, although it will not reveal its profits.

The company, which listed on the Frankfurt Stock Exchange in 2006, has a valuation of €200m. Mr Hinrichs is keen to keep Xing independent and not sell out to a large corporation. “We decided to go public in 2006 in order to stay independent. I have a strong belief in networking and think there is a big opportunity there,” he says. “Networking is so much more important today, when people are moving companies more often.”

Floating the company has enabled him to buy two social networking sites in Spain and one in Turkey. “With €40m in the bank, a liquid stock and market tools, we can do some big acquisitions we could never do as a private company,” he says.

● France’s Skyrock Network is the leading French-language social networking site, with 20.7m unique users in February, half of whom are outside France. The user base roughly traces the old French colonial empire, including Canada, Morocco and Vietnam.

Although dwarfed by Facebook’s more than 69m users worldwide, it is continuing to grow. Revenues, mostly from advertising, have more than tripled from €4.5m in 2005 to €15m last year.

Like Xing, Skyrock is expanding beyond its linguistic boundaries. It has, for example, 500,000 users in the US and is building sites in 11 languages, including in English, Spanish, Dutch and German.

Pierre Bellanger, chief executive of Skyrock, said that the company’s Spanish site was reaching an “inflection point” of 50,000 to 100,000 users and was beginning to take off.

“We are now one of the major European players, and we are starting to go for our goal of becoming a global teen network, but it will take several years.”

● Dailymotion is also a French internet success story. Although its 32m monthly visitors put it as a distant second to YouTube’s 258m in the global video-sharing market, it has pulled ahead in France, with 10.2m unique users in January, compared with 8.8m for YouTube, according to Nielsen NetRatings.

The site has recently expanded to the US and UK, hiring Kate Burns, the former managing director of Google’s UK operations, to head the business. It has also recruited Mark Zaleski, the founder of auction site QXL Ricardo, as chief executive.

Mr Zaleski has experience of beating US internet rivals, having managed to keep QXL ahead of its big rival Ebay for many years in a number of European markets.

He says that part of the secret is keeping European challengers more technologically advanced than US rivals. “It’s hard to compete against a large American brand name, but we have taken the approach of focusing on quality and better tools. “Once people start looking for video sites other than YouTube they are very happy with us,” he says.

● The British Adconion Media Group has become one of the largest independent online advertising networks, an alternative to companies such as AOL’s Advertising.com, Yahoo’s BlueLithium, Tradedoubler, DrivePM and ValueClick.

The group was founded in 2004 by Tyler Moebius, a US internet advertising entrepreneur who moved to the UK to take advantage of opportunities in a market lagging behind the US.

Now it is going back to challenge the US market, having recently raised $80m in venture capital funding to help it expand there.

● Finland’s Habbo Hotel, the virtual world for kids and teenagers, also has a global presence with sites in 32 countries on six continents. The site’s revenues have grown from €38.8m in 2006 to €43m in 2007, and it reached profit for the first time in the first quarter of 2008.

Sulake, the Finnish company that owns Habbo, recently bought one of Finland’s longest-established and most successful social networking sites, IRC-Galleria, and is planning to take on Facebook by rolling this out worldwide, starting in Australia.

Sulake will use the offices and payments system infrastructure it has created for Habbo around the world to support IRC-Galleria, giving it an advantage over many other social networking start-ups.

For all these companies, global ambition is clear, but the question of independence is tricky. Although some, including Xing’s Mr Hinrichs, are clear they will not sell, others are less sure.

Mr Bellanger says Skyrock is looking at possibilities for an alliance with a large media company, and would not rule out a full sale. “It is going to be difficult to not be part of a bigger player,” he admits.

When companies start looking for a buyer, Mr Zaleski says, it is usually US acquirers who are more willing to pay up. “It’s a big frustration. Why are US companies the only ones willing to pay those valuations? European companies are still too conservative,” he says.

Mr Bellanger agrees: “It would be better if Europe had its own champions.”

Copyright The Financial Times Limited 2008

Comments

[joe]

Good article. But where do you get the Sulake numbers? I thought their revenues were declining and they were losing money...