Hi everyone, sorry if this has already been posted but it's good enough to be posted again. Hopefully the stock AND my ulcer will recover soon. :0)
King of the Wireless Web
Why InfoSpace Deserves a Space in Your Portfolio
By Guy Gottfried
“There are two kinds of people in this world, right? Nonbelievers and believers. In other words, those who don’t believe in God, and those who believe in God and InfoSpace
(INSP).” No, these are not the words of some message board pump-and-dumper—they came straight from the mouth of Naveen Jain, the chairman of the company. “That’s OK,” he continues, “the nonbelievers will be converted when we become a trillion-dollar company.” It is rare to see the top executive of a company come out with such a direct and provocative statement. However, given InfoSpace’s prospects, Mr. Jain certainly can’t be blamed for being so excited.
Right now, InfoSpace is known primarily for providing content such as maps, weather, yellow pages, white pages and classifieds to major web sites like AOL (AOL), MSN
(MSFT), Lycos (LCOS), NBC Internet (NBCI), Disney’s GO network (GO), and about 3,000 others—as Jain puts it, “We are probably the only partner to both Disney (DIS) and
Playboy (PLA) at the same time.” But the big payoff for InfoSpace is expected to come from its dominant position in the wireless Internet.
Wireless Wonder
Just how big will the wireless web be? Nokia (NOK) estimates that the number of cellular subscribers will exceed 1.2 billion by 2003 and that 600 million wireless handsets will be Internet-enabled. Merrill Lynch (MER) has looked further in its projections to 2005, in which it predicts there will be 2 billion wireless subscriptions with an astounding 1.5 billion of those connected to the Internet. In but a few years there will be more mobile
devices people connected to the Internet than PCs. And the company that’s best positioned to dominate this revolution is—you guessed it—InfoSpace. You probably already know that wireless operators all over the world are allowing their
customers to send and receive email, manage address books and calendars, get real-time traffic reports and stock quotes, and conduct commerce. What may surprise you, though,
is that with almost no exception, those services are powered by InfoSpace. InfoSpace’s customer list reads like a who’s who of wireless operators. All in all, InfoSpace has 26 carrier relationships worldwide, including Vodafone (VOD), AT&T Wireless (AWE), GTE (GTE), SBC (SBC), US West (USW), BellSouth (BLS), VoiceStream (VSTR),
Verizon Wireless (the soon-to-be combined operations of Bell Atlantic (BEL), AirTouch and PrimeCo), British Telecom (BTY), and KPN (KPN). Its current partners alone give it
close to 90% market share in the US cellular market and over 50% in Europe. Why have so many carriers chosen InfoSpace? When asked during last quarter’s conference call about the competitive landscape, Jain joked that it’s so lonely out there that he has to take his wife with him on sales calls. Quite simply, its platform of services
is years ahead of the market. This goes far beyond simple content to include highlysophisticated capabilities that no onebut InfoSpace can offer. Here are some cool
examples: · Advanced commerce services. You can purchase items with a single click, access account information and transfer money all from your wireless device.
And whenever you buy something, it is automatically charged to your credit card statement. A comparison shopping service that lets you enter anything you know about
an item, like a model number, barcode, ISBN, product name or even scan a UPC code, and locate online and offline retailers that sell the item and how much they charge for it. If you find something cheaper, you can then buy that
product (with a single click, of course) or, if you’re already in a store that sells the same thing, use the information to negotiate a lower price.
· Merchant services. This is a particularly important category for local service merchants like dry cleaners and plumbers. According to Kelsey Group, two-thirds
of the US GDP is transacted through local merchants, and yet these are the very people who right now cannot take advantage of the Internet. InfoSpace addresses this with some very innovative solutions. For instance, suppose you’re driving home from work when it suddenly dawns on you that
it’s your wife’s birthday. If you show up empty-handed, you’re in big trouble. You pick up your cell phone and search for the nearest florist. It points you to
the closest store and you go there and buy the flowers. While there, you receive a promotion telling you that if you buy something at the store next door, you’ll get a 20% discount. So you end up saving some money (not to
mention your marriage), which makes you happy, and that makes the carrier happy too. Over 400,000 merchants currently use InfoSpace’s services. Differentiation and the Yahoo! Question You might be asking yourself, why would a carrier want to pay InfoSpace to create a portal for it when it can just have Yahoo! (YHOO) as its default homepage for free? The answer, in a word, is differentiation. If users went on the wireless web simply so they could log onto Yahoo! or AOL (AOL) or Lycos (LCOS) then the service itself would become a commodity. There would be no difference between any of the services, making them nothing more than dumb pipes and ruining this tremendous revenue opportunity for the carriers. Needless to say, the carriers don’t want that. Not only does InfoSpace offer services that no other company can offer, but it also lets carriers customize the specific services they want to appear on their portal and then designs it for them on a private label basis. That is, each carrier can feature its own distinct product, and when you log on to, say, GTE’s wireless portal, GTE’s name will
appear on the screen, not InfoSpace’s. These are very important factors because they let the carriers differentiate their product and create brand loyalty among their customers. Show Me the Money! In exchange for allowing wireless operators to generate extra revenue by providing its services to their customers, InfoSpace gets compensated in numerous ways. Contractstypically provide for $1-5 million over 2-3 years plus subscriber fees. In North America carriers charge $10-15 a month and pay InfoSpace $1-3 per month. In Europe and Asia, where customers pay per query rather than per month, InfoSpace gets roughly 10 cents
per query (a query represents usage of a service—for example, sending an instant message would constitute one query). In addition, InfoSpace gets paid by the merchants
in its network when consumers locate them through a search and when it sends promotions on their behalf, and receives a commission on every sale that occurs as a result of these services (InfoSpace shares its merchant revenues with the carriers, which creates another major incentive for them to use its platform). To illustrate the magnitude of InfoSpace’s potential, let’s crunch some numbers. You
read the estimates above for wireless Internet users. Such estimates usually prove conservative when dealing with revolutionary technologies like the wireless web. But for
the sake of this scenario we will assume otherwise. Let’s take Nokia’s estimate of 600 million Internet-enabled mobile subscribers by 2003 (which is significantly less
aggressive than Merrill Lynch’s target of 1.5 billion by 2005) and say it’s actually 100 million too high. That gives us 500 million in 2003. And let’s say 25% of those, or 125
million, will be powered by the InfoSpace platform, and assume its per-subscriber fee will be $1 per month, at the low end of the range (we’ll assume the same for Europe even
though that payment structure should actually prove more lucrative than the North American one). Here’s what we end up with: 125,000,000x$1x12(months)=$1,500,000,000
That gives us $1.5 billion in revenues for 2003, compared to revenues of $36.8 million in 1999. Pretty impressive, isn’t it? Keep in mind that the 25% market share used in the
calculation is a fraction of InfoSpace’s current position around the world. And remember, these figures don’t include any of its other revenue streams like its merchant and web site services, both of which are extremely promising and growing rapidly. They also don’t factor new markets the company is pursuing and has already done deals in such as
handheld computers, Internet appliances and interactive television. So even if InfoSpace signs no new customers, loses a major portion of its existing customers and gets nothing out of any other aspect of its business, its revenues will still grow at an incredible pace. |
