How to make a Fortune on the quiet
It is more successful than eBay, is ranked 11th in the world, and has
600 million page views a month. So why has no one ever heard of
FortuneCity? Victor Keegan finds out Victor Keegan
Thursday December 21, 2000
It was 8.40am and my
breakfast guest, Robin Caller, delayed by trains, finally arrived. Our
meeting had been postponed so many times that I had to ask him to remind
me what the reason for it was. He told me the company he worked for was a
British web start-up that felt it had not really got the credit that it
perhaps deserved.
Oh dear, I thought to myself, not another one of those. How many page
impressions does your site get each month, I asked, to keep the
conversation going. I thought he said 600 and I replied: "Six hundred?"
"Yes," he said."Six hundred... six hundred million."
"Six hundred million?" I gasped. "Hang on, that would would put you up
in the global league." (Lastminute.com, forcomparison, had
38 million page impressions in October.)
"Yes," replied Caller, European commercial director, for the company in
question, FortuneCity. He added that it was the 11th most popular web site
in the world, according to the authoritative Media Metrix ratings for
August.
I later checked this out and confirmed that FortuneCity was indeed ranked
number 11 in the world, putting it at the top end of the web's Premier
Division - behind the likes of Microsoft, AOL and Yahoo, but only one
place behind Amazon and three places ahead of eBay, the very successful
net auction house. According to Media Metrix, FortuneCity had 15.3 million
unique users in August.
Not bad for a company started less than four years ago by five people
in a back room off Kensington High Street in London, close to an alleyway
occupied by tramps. FortuneCity's core product is free web building space,
which comes with 100MB of free storage for each user. It earns its revenue
mainly from banner adverts.
In contrast to the millions of pounds spent on promotion by the likes
of Lastminute.com and Boo, it has got where it has with little advertising
- and no one seems to know when an article was last written about it. They
think it was about two years ago.
Caller, who got his job in response to a tiny advertisement in Media
Guardian, admits: "To some extent we have been successful in spite of
ourselves". You can say that again.
Peter Macnee, president and CEO, says: "I guess we are the least known
big internet company in the world. I'm proud of it. There are a lot of
small, unsuccessful, internet companies that everyone knows about... In
the last couple of years there have been a lot of internet companies that
spent a majority of their time on public relations campaigns. They were
the poster boys of the good times and now they are the poster boys of the
bad times. We are better off putting our resources towards building a good
business. I'm happy that we are not the poster boys of the bad times and
that we are not used as an example of the death of the dot.com age."
FortuneCity was started by Dan Metcalfe who, inspired by the success of
the US web-building company Geocities, started a UK variant. The company
enabled users to build their own web sites, including the facility to
build virtual homes and cities and be part of a community with its own
elected mayor. Its slogan was: FortuneCity for the people by the people.
Dan and his brother Jeremy, who between them have 40% of the shares, are
still active on the board even though they brought in professionals such
as Macnee, to run the company.
FortuneCity has an eerily quiet London base with pine floors and
whitewashed walls at the end of a cul-de-sac in part of the BBC's former
Woodstock studios in Shepherds Bush. The official headquarters have been
moved to New York to be part of the pioneering US scene.
Following an equity issue on the German (Duer) market, nearly 30% of
the shares are now owned by German citizens. The biggest remaining
shareholder with 12.5% is Time Warner whose own website was four places
behind FortuneCity in August at number 15.
Metcalfe fondly remembers the early days when it was a case of just
trying to keep up with the growth. Every time he pressed the "reload"
button on his computer he found that two or three more new members had
registered - a growth that was soon to be measured in thousands, then
millions. In the early days the company shared computer facilities with
various small internet service providers and he had to drive the company's
computer round to different locations in a Beetle.
The amazing thing about FortuneCity is how has it managed to be so
successful with low-key promotion. It has had no advertising at all for
the past eight months since the company retrenched and cut staff in the
face of the impending downturn in the capital-raising markets - yet it
claims that new users have continued to register at around 4,000 a day.
The secret is a combination of "viral" (as in virus) and "guerilla"
marketing. Viral marketing is mainly passive - when the message is passed
by word of mouth or by email from user to potential user. FortuneCity
assists this by feeding one of its properties from another. If someone
registers on the FortuneCity site they are offered a V3 domain name and
they may then opt for the newsletter, thereby fuelling the organic nature
of the business.
V3, acquired by FortuneCity last year, claims to be the world's largest
provider of redirect services, personalised website URLs and matching
email addresses. FortuneCity also owns Hotgames, the gaming site, and
Gelon, a well-regarded Wap company, though none is branded with
FortuneCity's name. Gareth Williams, director of European operations, says
a lot of users will be using a FortuneCity site without actually knowing
it.
Guerilla marketing is highly active. It aims to get FortuneCity's name
as high as possible on the internet's search engines because they are the
main way people find their way around the web. Alan Mills, known within
the company as "king of the search engines", spends nearly all his time
engaging in cat-and-mouse tactics with the software engineers employed by
the likes of AltaVista, Google and AskJeeves to secure maximum exposure on
the web's huge network. A dozen search engines account for 90% of the
total traffic.
He demonstrated by getting "Free web pages" and "Free web page" typed
into AltaVista's search engine - and FortuneCity emerged in first or
second place out of nearly 200,000 references. A similar search on Google
put FortuneCity in 10th place out of 765,000 references to free web pages.
Part of the strategy, he said, was to get FortuneCity's name in the titles
and meta tags which appear near the top of the code behind a web page. But
search engines were getting more sophisticated and often weighted sites by
the number of other links pointing to your site. "You don't know what
criteria they are using, but you can work it out by trial and error.
That's my job."
FortuneCity has been spectacularly successful in building a global
customer base. It now has almost 20m unique users (compared with 2.2m for
lastminute.com, one of the UK's better known sites) and claims to be still
expanding by 5% to 10% a month. It has 130 employees including 55 in
Europe.
Its market share is stronger the further away it is from the biggest
western markets (partly because of its emphasis on local language sites).
Its market reach in the UK (measured by the proportion of the internet
population using its site a month) is 9.4% and in the US 9.9%. In Germany
it is 17.4%, in France 16.8%, in Japan, 15.3%, in Canada 15.7%, in
Australia, 12.4% and in Hong Kong a startling 43.2%.
FortuneCity is one of the very few internet companies that has a
leading market position in all the main world markets. It is a position
that many other web companies can only dream about.
But, as most dot.com companies know to their cost, it is one thing to
attract users to your site, especially when you are offering something for
nothing, but quite another to convert the user base into revenue and
profits. Revenues (mainly from banner advertising) in the first nine
months of 2000 increased by 90% over the previous year to $9m. But losses
over the same period rose from $14.7m to $32.7m.
The company claims to have taken corrective action. It cut staff by 40%
earlier in the year when the climate changed for the worst in the capital
markets, and drastically cut its spending on advertising and marketing. It
has still got $26m cash in the bank from the $97m it raised when it went
public and reckons that its "burn rate" (the rate at which it is losing
money raised from investors) is down to $1.2m a month - enough, it is
claimed, to see it through until 2002 when it hopes to break even. Peter
Mcnee says the company was lucky, or smart enough, to raise capital early
on and cut back its operations quicker than others who are now cutting
back almost every day. This has left FortuneCity, he says, with enough
money to "power through".
Not everyone agrees. Lehman Brothers says that the 40% recovery in
FortuneCity's share price on Monday last week (it happened on the day
Online was visiting the company!) was "not justified" and is concerned
that it has cut its operating expenses to a minimum and that there are
very few resources for growth. Lehman adds: "We are becoming increasingly
concerned with the deteriorating revenue outlook_ We retain our
Underperform rating."
Macnee claims that Lehman's analyst has done little to get to know the
business and says that they have given Vitiminic, which has a market
capitalisation three to four times larger than FortuneCity's, a better
rating despite the fact that its revenues in the third quarter were less
than 10% of FortuneCity's. "The reality," he says, "is that the
institutional investment community has soured on the vast majority of
business-to-business and business-to-consumer businesses."
Although the company is dependent on banner advertising at present,
Macnee predicts that advertising in this medium will change dramatically
in the next six months with access to broadband advertisers, including
technologies like streaming audio and video. "It's going to be much more
like a television kind of advertising with interactive capabilities_
before you are able to see the content you are looking for, you may have
to sit through a five second commercial instead of a static banner."
He admits this is a bit contrary to FortuneCity's alternative culture,
but adds: "I think there is a general rain check going on out there - that
the great things that the internet can deliver can't come for free."
That is true, but it remains to be seen to what extent the punters
agree. After all, if FortuneCity, with all its users, does not manage to
generate enough revenue to cover its outgoings, what sort of message would
that send out to everyone else? | ||
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