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Q: The Internet has been taking off in Europe for a year now. Looking back has the European market developed according to expectations? A: The number of Web users has grown very quickly. Forecasts, which seemed optimistic, have absolutely exploded. However, the European Web user is not as easily convinced as his American counterpart to become a customer. The development of online advertising and e-commerce has proved to be disappointing. The reasons? Europe is far from being as homogeneous a market as the U.S. In order to reach 70% of the population, you have to translate into five languages. In addition, taxes are not harmonized and are much higher than in America. And finally there is the problem of payment. Only one German or Italian in seven actually has a credit card. Q: Are there winning economic models for the Internet today? A: For the last six months, and ever since the mini-crash of high-tech stocks, investors and Internet entrepreneurs are a bit destabilized, approving one type of model one day and rejecting it the following day. The much publicized failure of e-distributors like Boo.com put a damper on B2C. So it became a matter of redirecting to B2B, which is bigger and demands less capital. But even though the B2B market will be 10 times larger than B2C by 2005, it will also be much less profitable. An online B2B platform can expect an operating margin of only 2%-3% of sales, whereas a good consumer site will generate a 10%-15% operating margin. The tendency is also going in the direction of Internet infrastructure, which includes software publishers, Web agencies, video applications, mobile networks, and so on, and which are said to be less risky. However, in this segment, it is difficult to stay ahead, given that technology is evolving faster all the time. For me, it is the big general-interest portals that have had the most success on the Net. In the beginning, these were only meant to be a point of passage for Web users and a way to guide users to other sites. But it is now clear that portals like Yahoo!, MSN, AOL, T-Online, Freeserve, Wanadoo, and Terra have become homes for Internet users, who end up returning to them many times a day and who actually stay unless they need to surf elsewhere. Of the 10 most visited European sites last July, seven were portals, according to the consultancy firm MMXI. These sites offer a personalization that is adapted to people's Internet habits. We have conducted a survey on how Web users spend their time while online. They spend 38% of their time reading and writing e-mails, 24% looking for information and only 38% taking advantage of online content such as news, games or online shopping. Thanks to their search engines, messaging services, calendars, agendas, price comparisons, auctions, and forums, as well as news briefs arranged by theme, portals are the only ones that respect the golden rule of the Internet, the 3Cs: communication, content, and commerce. In a world where people have tens of millions of sites to choose from, added value lies not necessarily in the production of content, but in the way it is distributed, meaning how it is put together and organized into a hierarchy. A number of content or commerce sites today pay to be on an Internet portal. The top 0.1% of all Internet sites receive nearly a third of all Web traffic, according to Michael Mauboussin, author of Absolute Power: The Internet's Hidden Order. So, not only do portals capture the largest audience but they also have the lowest production costs, since they get an important part of their content through partnerships with other companies. Q: So the success of portals has favored Americans in Europe. A: Of the 10 biggest sites in Europe, seven are owned by "American invaders." They are the ones who invented the formula, and companies like Yahoo! (No. 1 in Europe), AOL, and Lycos created brands that have become models. Plus, they accumulated three to five years of experience before tackling Europe, and in their business, where there are neither technological nor financial barrierss, the advantages of being a pioneer are huge. And they understood that content had to be 100% local. But in my opinion, they haven't won yet. In every major European country, portals must compete with the subsidiaries of former telecom monopolies, which are leaders in their markets. These Internet companies figured out how to create popular sites and benefit from the support of their parent companies. And they have plenty of money to spend. Wanadoo has a war chest of close to $1.7 billion and T-Online has $3.4 billion -- triple what Yahoo! has. So they spend money on advertising without even thinking about costs, and they accumulate takeovers to grow and to expand internationally. Since this summer, acquisitions have accelerated at a quick pace, with the purchase of America's Lycos by Spain's Terra, Spain's Ya.com by T-Online, World Online by Italy's Tiscali, and Sweden's Spray by Lycos Europe. The Old World's telecom giants will also benefit from the arrival of the mobile Internet, and that will certainly cause the tables to turn. According to our calculations, the number of mobile Web users will exceed the number of PC Web users by 2003. And Europe is ahead of the U.S. in next-generation telecom, like WAP [wireless application protocol] and UMTS [universal mobile telecommunications system]. Today, 22% of Western Europeans have Internet access through their PCs, but 42% have a cell phone. A number of Europeans will, therefore, discover the Internet in this way. And mobile-phone operators, who have 20%-30% market share in their own countries, will configure phones so that their company homepage is the first thing their subscribers see. In this way, it makes sense to bet on Vizzavi, the pan-European portal created by Vivendi and Vodafone-Mannesmann. But the system will be open, meaning that other PC portals like AOL or Yahoo! will remain accessible. The stakes are high, for I am convinced that Web users will only want to use one portal, which they surf via phone, PC, or television. Q: Won't there be a slowdown in the development of Internet companies because of current market mistrust regarding these shares? A: Everything went too fast in Europe. In the U.S., Internet companies didn't go public until two years after they were created, and their share value didn't go crazy until they exceeded forecasts five to six semesters in a row. In Europe, companies that didn't even have offices...suddenly saw their market value skyrocket to heights equaling those of their American competitors. Nasdaq market tremors led to a brutal reality check, causing European Internet shares to fall from between 40% and 90%. And they won't go up right away, given the delay in the development of online advertising and e-commerce in Europe. However, 'Internetmania' is not a speculative frenzy. In 1995, there was only one Internet company, AOL, and its market value was a mere $1 billion dollars. Today, the 400 Internet shares worldwide have a market capitalization of nearly $800 billion, with $180 billion in Europe. As far as I can remember, no other sector of industry has ever known such exponential growth and created such value in such little time and with such a small initial investment. In Europe, the number of Web users is expected to triple within four years, revenues from online advertising will increase tenfold, e-commerce revenues will multiply by [a factor of] 15, and B2B revenues will multiply by 18. But I believe that three-quarters of today's European Internet companies will have disappeared by then. So there is no sense in searching for the precious gem. It's best to bet either on the current Internet leaders or on traditional companies that have learned to position themselves with regard to the Internet, or those that don't need the stock market to finance themselves. |
