Hi all. Let me just say this is a great board. I have talked with Chaz and offered to write a report on Infospace.
You can find the report at my site (for easier access):
technologyreports.com
Infospace (INSP) Gorilla Game Analysis
Infospace.com, Inc.
8424 154th Ave. N.E.
Redmond, WA 98052
Phone: (425) 882-1602
infospace.com
COMPANY DESCRIPTION
Infospace has three main business objectives:
1) Consumer services
The content provided by Infospace is non-branded, that is the portals can present this content as their own (INSP calls this approach "private-label"). Infospace is the acknowledged leader in the area of private-label content. Over 2,500 sites use Infospace, including 4 of the top 5 portals on the net. Infospace has unduplicated reach of more than 88% of all Internet users and each users visits approximatly four sites in the Infospace network. The company is best known for its national Yellow Pages and White Pages directories. Its offerings also include maps, classified ads, news, stock quotes, and TV listings. With rights to content from more than 65 third-party sources. Some of the affiliates include AOL, Microsoft, Disney/InfoSeek's GO Network, NBCi, Lycos, go2net Inc., DoubleClick, Dow Jones (The Wall Street Journal Interactive Edition) and ABC LocalNet, among others. During the quarter, MSFT and InfoSpace integrated MSN's Instant Messenger with InfoSpace's Instant Messaging Services to extend MSN Instant Messenger's capabilities beyond the PC to wireless devices such as cellular phones, pagers, personal digital assistants and fax machines. This is significant because now more than 52 million Hotmail and nearly one million WebTV users have access to InfoSpace's consumer services.
2) Merchant services
The local commerce opportunity is huge. According to the Kelsey Group, $3.6 trillion is transacted through the 10 million local merchants. These merchants spend at least $200 billion annually on promotions and Web-related activities. With the recent Bell Atlantic/NYNEX agreement, all five regional bell operating companies are now licensing, distributing and promoting InfoSpace's merchant services to millions of their local merchants. In addition to Bell Atlantic/NYNEX, these companies include SBC, BellSouth,
GTE and USWest.
InfoSpace.com's merchant services enable local merchants to establish a Web presence and conduct commerce. InfoSpace.comalso offers several unique services, such as the delivery of electronic promotions that can be used online or offline, single-click instant buying and a universal shopping cart. All of these enable merchants to offer more advanced and streamlined shopping services across Web sites and wireless devices. For example, if a user is looking for any special offers from Italian restaurants in New York, it doesn't matter if they are looking on AOL, The Wall Street Journal or on a wireless device, the local restaurant's promotion can be delivered, providing unparalleled reach for the merchant. Other features include finding national and local shippers, trade shows, attorneys and other services near you, book a flight/hotel/car/cruise, office supply /online printing, classifieds/employment, & classifieds/real estate. Merchants pay Infospace for inclusion of their ads, and the end-customers also leave a percentage of of each successful business transaction.
3) Wireless Services
Wireless continues to be the biggest opportunity and fastest growing area for InfoSpace.com. Nokia and Ericsson have both projected that there will be one billion cellular phones worldwide by 2003. Of those, over half will be Internet enabled. Jupiter predicts that by the same year, more people will access the Internet on wireless devices than on PCs.
InfoSpace.com offers worldwide carriers a comprehensive and integrated platform of wireless services that include:
- Commerce services such as single-click instant buying and the electronic delivery of promotions that can be used online or offline.
- Communication services such as device-independent e-mail and instant messaging.
- Productivity applications such as address book, calendar and 'to do' lists.
- Transaction services such as accessing account information and transferring money.
- Localized information such as real-time traffic reports and finding the nearest ATM.
- Real-time alerts such as auction bids and stock alerts.
- Security services such as personal authentication for secure transactions.
To strengthen their global reach InfoSpace purchased Saraide, the leading provider of wireless services in Europe, Japan and Canada., during the last quarter. The acquisition gives InfoSpace immediate access to more worldwide carriers and a local presence in every major market in the world.
More than 24 carriers worldwide are using InfoSpace.com's entire suite of services as the default option for their mobile users. InfoSpace.com expects several carriers to launch these services in the next several months. AT&T, who will be launching these services to all AT&T wireless subscribers in the second quarter. Vodafone will launch in the third quarter to mobile customers in more than 24 countries reaching 48 million users. GTW Wireless has already launched it's service to GTE mobil users. Intel and Infospace also annouced that they have teamed up to help drive the emerging Web appliance market. InfoSpace.com will provide Intel with the platform of commerce and information services for Intel's new Web appliances expected to launch in mid-2000. The integration of Intel's new Internet-enabled Web appliances with InfoSpace.com's leading Internet services will bring the power of the Internet to home devices by providing a fast and simple way to access new Internet services.
The unique single-click instant buying technology allows mobile users to press a single key to make purchases from virtually any Web site, turning wireless devices into secure e-commerce enabled devices. This patent-pending server-based technology automatically fills in Web site payment forms, eliminating the need to enter in payment or shipping information, register at sites or enter any site-specific passwords from the device.
InfoSpace.com will also be the first to allow mobile users to find and receive promotions on wireless devices from retailers and service-based merchants, such as dry cleaners and restaurants, that can be used online and offline. To take advantage of the promotion, the user can purchase the goods online, through a catalog, go to the retail store or simply utilize the service. Using this technology, promotions are seamlessly matched and automatically credited to the user's credit card statement through secure back-end transaction processing.
In addition, InfoSpace.com is collaborating with VeriSign to deliver a broad range of services aimed at facilitating trusted and secure commerce applications across the wired and wireless Internet. By combining VeriSign's strengths in Internet authentication, validation and payment services with InfoSpace.com's state-of-the art capabilities in delivering commerce, content and promotions technologies, InfoSpace.com can now offer a broader range of secure services tailored to the wireless market.
The INSP services for wireless which include e-commerce services as outlined above (communication services such as device-independent e-mail and instant messaging, productivity applications such as address book, calendar and "to do" lists, transaction services such as accessing account information and transferring money, localized information such as real-time traffic reports,and real-time alerts such as auction bids and stock alerts) are expected to be available from the major wireless carriers within the next few months. The revenue generated by these serivces has been reported to be $1-$3 per subscriber per month.
CUSTOMERS
Relationships worldwide including Vodafone, AT&T, British Telecom Cellnet, Dutchtone, Panafon, J-Phone, KPN, Omnitel, diAx, Telfort, Libertel, Ben, Microcell Telecommunications, BellSouth, AirTouch, GTE, and Bell Atlantic Mobile. InfoSpace.com also provides its platform of services to manufacturers such as Nokia, Ericsson and Neopoint.
COMPETITORS
It seems to me that the fact that GTE, ATT, & Vodafone have all launched their wireless web services using Infospace that Infospace is the leader. You can customize what you see on your cell phone through a personalized page on the net and this is all powered by Infospace. Instead of typing in each stock quote on your cell phone (which can be a pain), you type in all your favorite stocks on the wireless carriers web site, and then they'll appear in a portfolio which you can view on your phone. Yahoo, Aol, and the other portals are considered competitors.
There are a few companies that are providing services similar to the part of infospace's offerings (Aol MapQuest with maps, Onebox with messaging services (which will merger with phone.com), Inktomi with Power Shopper, Intelligent Information Inc., with news, stock quotes) but none of them are offering complete suite of solutions. So Infospace has a tremendous head start (at least few years) to any possible competitor.
FINANCIAL AND STOCK INFORMATION
Market Cap: $16.9B (as of 3/25/00)
(ranked 9th behind #1 AOL, YHOO, FJTSY, TRRA, EDS, EXDS, AUD, AKAM)
Sales (TTM): 36.63M (not big, but huge potential)
1-year sales growth: 286.22%
EPS (TTM): -0.08
Gross Margins: 83.43
Relative Strength rank 99 (as of 3/16/00 stocktables.com)
Price-to-sales: 465
PEG: 182.32 (not sure if did this right. I divided the P/S by the growth rate)
1.) Jain expects that 40 percent of Infospace's revenues in 2000 will come from his information services being accessed through wireless devices.
2.) 30 percent to 35 percent is expected to come from merchant services -- that is, helping merchants promote their products and sell their services to consumers through Infospace's wireless infrastructure. Approximately 350,000 merchants already use Infospace for promotions.
3.) The rest will come from consumer services, which means the provision of consumer applications such as instant messaging across different technical platforms.
I've read estimates that Infospace will do 70-90 million in revenue in 2000, which i believe could be too small, but we'll see.
GORILLA CHARACTERISTICS
Is there a discontinuous innovation or a proprietary open architecture?
I think providing internet to your cell phone is a discontinuous innovation. Providing content for cell phones will be a big market. We all know how many cell phones will be sold in a few years, ect..
Not sure how to answer whether it's a proprietary open architecture? Infospace's platform it provides for wireless companies is probably proprietary and i'd image they could add features on top of that. Not sure how to answer this question.
Does it have the potential to grow into a mass-market phenomenon, become a standard?
Mass-market you betcha. Wireless web will be huge! Will they become a standard? I think the fact that all the wireless companies are using Infospace makes them is a standard. We all know ATT or Sprint isn't going to produce content. I guess the question is, who will they use? Yahoo, Aol, or Infospace? Maybe both could be offered?
Let's assume for a minute that they go with Yahoo. First, they (wireless carriers) can promote they have Yahoo on their cell phones. This might give them an selling advantage over the next guy, right? Third, people want to check their Aol and Yahoo email accounts. People will want to check their Aol/ICQ buddy list. Infospace can't provide this.
Now, let me talk about Infospace. As i've said before, the main idea of infospace business model is private labelling. Which means that they provide content, tools, services to any site or network operator. And this content then may be formatted by the client and shown as its own content. The user can then get all kinds of information on their phone, which i'd assume Infospace will take a cut of. The client himself sells the ad space on his pages with infospace content or does e-commerce or whatever. The client then pays infospace a fixed licensing fee in some cases and shares small part of revenue from the advertising he sells or commerce he does himself.
That's the brilliance of Infospace's business model. They do not need a big sales force to go out and sell ad space. They do not need any inventories to sell to consumers. They are only developing tools and technology for content delivery, collecting content, formatting and giving it for others to use. Their business scales very well. Everytime they add another licensee; it goes straight to the bottom line. Infospace's technology is also platform independent. That means that it is able to provide the services on any device without the need of significant changes to it. And it is rather successful in that. It was proved by the rapid adoption of wireless standards for its information services.
So will carriers go with Yahoo or Infospace? Yahoo! can say to Sprint, look, the Yahoo! label creates much value ad in selling your phones, we don't want to give you any greater share of our cell phone advertising and ecommerce pie. In fact, we want to give you less. This is a clear example of leverage that most of the network operators are probably afraid of. They fear that if there comes the time when content will become more important for the user when the wireless service itself, Yahoo (or AOL, or others) will not only say we want to give you less, but they might say well -we will not give you anything. In fact, pay us or we will go to another network operator and take all your users with us. And this is where the advantage of Infospace occurs. When clients are able to private label the content they have, they are not afraid of the leverage that the content provider might have on its users. In fact they have an option to switch to other content provider like Yahoo, AOL, or Lycos, etc; whenever they like. But I think that for the reasons mentioned above they are not likely to do that. What they usually do is - they either use complete Infospace solution (like Sprint and BellSouth) or they use only one part of their offering and get other parts from other companies (like NeoPoint).
So make your own decision. With AT&T, Vodafone, Sprint, and others basing their wireless services around Infospace platform, this shows to me anyhow, that they are becoming the standard. I think it'll be at lest a year before the others see that Infospace's main selling point is their private labelling model, just like Compaq and others can't compete with Dell and it's built-to-order strategy.
Look at the bottom of these links..
infospace.com
infospace.com
Are there high barriers to entry and high switching costs?
On January 18, 2000, the United States Patent and Trademark Office recognized the innovations made by InfoSpace.com by granting the Company U.S. Patent No. 6,016,504 entitled "Method and System for Tracking the Purchase of a Product and Services over the Internet."
The patent also includes various aspects of co-branding transactions involving commerce and information services. For example, the patent provides solutions to such problems as returning a customer to a co-branded Web site following the customer's completion of a merchant transaction. In addition, it ensures that the co-branded Web site receives adequate compensation for driving traffic to associated merchants. Fifteen other patents have been granted, and over 30 additional patents are currently pending for other commerce, communication and information infrastructure services.
Also I'd say Infospace's private label concept is an advantage, not a disadvantage. I wouldn't think a start-up could compete with Infospace. It'll have to be an established players like Yahoo, Aol, MSN, ect..
On the other side, Infospace sells "generic" services, which can be copied. Infospace also doesn't have a brand to hide behind like a Yahoo and Aol can. It's Aol's brand and the network effect that allows them to raise their monthly service to $21.95 from $19.95. Secondly, i'd image that a Aol users will want to check their Aol email accounts or buddy lists on their cell phones. Aol could leverage their dominance and 22+ million users on the PC to other devices. I believe that the portal sites will be one of the big winners in this convergence. I see an increasing trend in that people want to be connected ALL the time. How many hours of the day do you spend on the PC? Or watching TV? How about on your cell phone? Now image Aol or Yahoo being on each of those devices providing you your email, stock quotes, news, ect...Yahoo won't be talking about how many page views they have, but instead how many hours during the day Americans spend near or around Yahoo services.
Have Value Chains developed, and have they crossed the chasm?
Yes the chains have developed. Around 25 wireless carriers use Infospace. Wireless web is coming and could provide huge revenues for Infospace. I don't have any figures, but i'll use what i know. If Infospace is able to pull 1-3 dollars per user per month on each user, then i'd say Infospace could be a 100B dollar company.
One billion cell phones by 2004. Half will have wireless web (500M). Now, how many of these wireless web users will Infospace get? Let's just say 35%. 175 million wireless web users, bring in 1.5 dollars a month. That's 262.5 million a month, times 3 months in a quarter and you got 787.5 million per quarter. I hope i'm right because that would mean that Infospace could be worth as much as 472.5 billion if they had the same price-to-sale ratio as Yahoo has which is 170 i believe. I thought it'd be interesting to see how big Infospace could get.
SUMMARY & ANALYSIS
Additionally, in December 99, InfoSpace announced it would contribute $30 million to form its private Venture Capital Fund in order to pursue further strategic investments. So infospace is becoming a mini-CMGI. ;)
Here is my personal opinion. Infospace might not have huge barriers to entry, but neither does Aol/Yahoo and they've done fine. I might say Infospace's barriers are larger than Aol's, because once a wireless carrier goes with Infospace they'll probably be less likely to go with Yahoo. It's easy to switch from portal to portal on your PC. With your cell phone, you can't type URLs and use different sites. You get what your wireless carrier gives you - which will be Infospace services.
Naveen Jain, President and CEO, of infospace seems to be a very smart and bright man. He knows that they need patents, more applications and less reliance on that 'generic' content that they license. Anyone can produce stock quotes, maps, ect..He knows that he has to make Infospace different. I have faith in the man.
Naveen worked at Microsoft for 7 years and was a group manager of Microsoft Network. He realized he could take the OEM model that Microsoft had for the computers and extend it to the internet. Red Herring in June 17, 1997 he was named one of the "Top 20 Entrepreneurs in Digital Technology" According to the July issue of The Red Herring, the 20 men and women featured are "today's most significant industry innovators and tomorrow's most revolutionary business leaders." "Naveen Jain is the very model of what we were looking for in the top entrepreneur," said Jason Pontin, editor of The Red Herring. "His business model is very innovative and we believe that InfoSpace has a great chance of being very successful. We also believe that InfoSpace's logo will proliferate hundreds of thousands of places including web sites, cellular phones, pagers and televisions."
My last topic is if companies will be able to profit from web enabled cell phones. I've already read articles saying that the cell phone screen is too small for advertisements. Some have even said that companies like eBay, Yahoo, and others are considering providing content for cell phones as a loss leader. Meaning, they'll take a loss to provide content on a cell phone to strengthen their offerings on the PC. Imagine driving by a sports outlet with your GPS enabled cell phone. By for i go any further, let me say that the US government mandated that every cell phone sold in the US must have GPS by Oct of 2001. Ok, now back to you were driving by a sports outlet. Infospace (already knowing you like fishing) could alert you that the sports store your driving by will give you free bait for the next month if you come in a buy some thing over $50. This would be just one way Infospace could make money. I'm sure there are many other ways. I remember back when the internet started, people asked the CEO of Yahoo how they would make money and if the banner ad was enough to run a profitable business. His reply was, "Yahoo has over 20 million users, we'll figure a way to make money off them." If there are 500 million wireless web users in 4 years, you can bet Infospace will find a way to profit. The industry will find a way to profit off of wireless web enable cell phones.
It'll also be interesting to see what happens with the portals that are using infospace content when they begin to compete with Infospace in the wireless area?
REFERENCES AND ADDITIONAL INFORMATION
Also read this intreview of CEO Naveen Jain on Marketwatch.com
cbs.marketwatch.com
Is InfoSpace 'more than justs a '.com'?
cbs.marketwatch.com
US West, GTE and AirTouch Launch Using InfoSpace's Platform of Wireless Internet Services, Increasing Industry Momentum
quicken.com
U S WEST Wireless Selects InfoSpace's Platform for its Wireless Internet Services
quicken.com
Streetadvisor on Vodafone / Infospace.com Offer Wireless Internet Services
streetadvisor.com
P.S. If you guys have any questions please ask. I'll try my best to answer. I do own this stock. So i guess i'm somewhat bias. If anyone wants, i'll try to provide a negative side to invest in Infospace, although i don't think there are many. ;) |
