Dotcom’s return from the dead
SEPTEMBER 20, 2005
NIKLAS ZENNSTROM and Janus Friis picked up $US4.1 billion ($5.3 billion) from eBay for Skype, Intel pumped $37 million into Unwired and it seemed the elevator pitch was firmly back on the agenda as investors once again courted smart technologies.
Some would tell you it was very much dotcom Mark II, with the rider that most of the new breed of dotcoms have real revenue, and even profits.
Destra chief executive Domenic Carosa – who started software developer Sprint with his sister, Anna, back in 1993 before moving into digital music – said there were signs of another internet boom. He pointed to recent deals as an example.
In July Fairfax acquired RSVP.com.au for $38.9 million, while News Limited is bidding $121.3 million to acquire the remainder of realestate.com.au. News Limited is publisher of The Australian.
News Corporation made a strong push online with its $US650 million acquisition of games developer IGN Entertainment, announced earlier this month.
Announced earlier was the $US580 million acquisition of blog host Intermix Media and the $US60 million acquisition of sports site publisher Scout Media.
“These are the hallmarks of dotcom Mark II,” Mr Carosa said. “If you look at the dotcom period in 1999 a lot was hype, and it was not based on profits.
“Now a lot of the big companies are starting to take the internet seriously, and that tells me we’re on the right track.”
Mr Carosa said changes to the business environment since 1999-2000 – including an explosion in the number of broadband connections, and a maturation of technology – coupled with a focus on revenue and profits, would be the hallmarks of a renewed interest in internet businesses.
“We’ll see more of the money going into serious businesses, but there will also be money going into ideas that are more speculative,” he said.
Analysts who watched the dotcom bubble inflate and later pop agreed.
Ramin Marzbani – who sold his analyst firm www.consult to US giant AC Nielsen back in 2000 – said consumer technologies were back in vogue.
“Technology is hot again,” he said. “There’s a lot of money around at the angel investor level, venture capitalists and private equity as well.”
Mr Marzbani said the impact of the 2000 dotcom crash – which caught many investors unawares, leaving them sitting on paper losses – was exaggerated. “It’s like going to a casino,” he said. “Either you win, or you lose. I don’t know that anyone got stuck. It’s painful for institutional investors, but individual traders can buy and sell.
“Analysts believed we would not see the stockmarket hype of 1999, and exits for founding investors would be much harder to come by.”
Consultant and Yahoo e-commerce group founding head Tony Surtees said a recovery in e-commerce investments would look different from the market of the 1990s. “You won’t see initial public offers, especially in the US because of the cost of compliance,” he said. “People will be looking for industry exits.”
Certainly voice is a hot technology, which perhaps explains why it has attracted the attention of some of the world’s biggest internet players.
EBay’s proposed acquisition of Skype is the latest move, but Yahoo took a similar step in June when it acquired Dialpad. AOL is planning to integrate voice into its Instant Messenger.
Technology investor and WebCentral Group chair Lucy Turnbull told a conference in Sydney last week she understood the big boys’ attraction to voice over internet protocol.
“Going forward, the killer application is voice,” she said. “The transaction between Skype and eBay is an interesting indicator of the future. One million Australians live abroad and many in the future will communicate with friends and family on the internet, which has massive implications for telcos.”
A second boom would build on firmer technology foundations, including better access to broadband.
Lloyd Ernst, founder and chief executive of one of Australia’s largest internet hosting firms, WebCentral, agreed that at least some of the spirit of dotcom had returned. “There are some elements of a dotcom resurgence,” he said.
“We have in place an infrastructure that we didn’t have in 2000.”
Mr Ernst said the elevator pitch was back, and venture capitalists were again paying attention. “There are a lot more ideas, and people are starting to put their energy behind them,” he said.
Venture funds were working hard to get out of old investments and were confident that once they proved to institutions that they could deliver returns, the cash would return to the sector.
Allen and Buckeridge co-founder Roger Buckeridge said there was plenty of investor interest in consumer-based technologies.
“There’s great interest from people like us in all things interactive to do with consumers,” he said. “It’s a very hot area.”
Allen and Buckeridge’s portfolio included names such as eChoice, Hitwise, MicroForte and Redfern Broadband Networks, he said.
Very little institutional money had been raised over the past four years, but it would start flowing again once VCs made successful exists from portfolio companies, Mr Buckeridge said.
“The managers have to demonstrate the ability to get money back to the funds,” he said. “I’m confident they will recommit.
“Exits is what we spend most of our time on now.”
The level of experience in the industry was much greater now, because many entrepreneurs had already had a shot at success, he said.
“The country has been helped by people who haven’t been crushed by failure,” he said. “This knowhow is very valuable in getting a higher hit-rate from startups to successful companies.
“This is a good time to put together a startup and go for the next 10-year cycle.”
Others were a little more subdued, but also agreed the money was starting to flow back into emerging and early-stage technology companies.
Starfish Ventures investment principal John Dyson said business-to-business technologies remained king in Australia despite renewed US interest in consumer products.
He conceded investors were more confident. Starfish’s portfolio included Cap-XX, Distra and g2 Microsystems.
“Skype has got everyone’s attention, but in Australia I still believe the great opportunities are business-to-business,” he said. “The majority of companies we look at tend to offer products for banks and telcos.”
That there were a lot of second and third-time entrepreneurs around made venture capital and institutions more confident about investing. “Our business is all about people.
“Companies with good management teams are the ones that raise capital,” Mr Dyson said.