BC Business
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Touring the Burnaby operations of Interactive Netcasting Services Inc. (Insinc) is like sifting through a dot-com archeological dig. At the core of the former warehouse is a massive server barn built during the heyday of the Internet boom in the late 1990s.
Racks of hardware bask in the green glow of blinking LED lights, cooled by an intricate grid of ventilation pipes fixed to the ceiling two floors above. On the second floor is a gallery of offices overlooking the brain centre below. In one corner sit the remains of a short-lived venture: live Internet radio. A swivel chair gathers dust in the darkened cubicle before a disused turntable and long-silent microphone.
Around the corner, the building comes to life in the command centre that has recently brought all those servers back to life. A technician watches over a bank of video monitors displaying signals from around the world, pulled in by dozens of rooftop satellite dishes. This morning, images of horse races flicker across the screens as the bits and bytes are routed to the servers below, then webcast to Internet subscribers through Insinc’s mediaontap.com website. Like a lot of Vancouver Internet companies, Insinc survived the dot-com implosion of 2000-2001 and is gearing up for round two. Also like a lot of others, it has taken away some hard-earned lessons in the hope that this time around the dot-com boom will have some staying power. Observers could be excused for thinking it all looks a lot like the party of 1999. Kids in their basements are creating websites that sell for billions. Local start-ups are pitching unlikely plans to dominate global markets. A few stunning success stories – such as Google Inc.’s November 2006 purchase of YouTube for US$1.65 billion and News Corp.’s 2005 purchase of MySpace for US$580 million – have rekindled dreams of insane wealth built upon a “new economy.”
There’s a slight change of script this time around: it’s not e-commerce and portals that will change the world, but social networking. Web 2.0, user-generated content, crowd sourcing: all the buzzwords suggest a new magic bullet with the promise of changing the world. There’s an obvious difference this time around, though; investors aren’t lining up with bucketfuls of money to toss at dot-com start-ups. The dreamers are on their own, eking out a meager existence on seed funding until they either strike it big or go down in flames. Meanwhile, more wary entrepreneurs – many of whom, like Insinc president and CEO Hugh Dobbie, were burned the last time – are building from the ground up, struggling to forge new business models in the uncharted world of Internet broadcasting. During the infamous free-for-all of 1999, it was all about attracting eyeballs; slap “dot com” at the end of your name and suddenly you weren’t just a company selling stuff, but a “portal” to a universe of millions. Just attract the eyeballs, the thinking went, and the dollars would follow. Of course, there were some infamous flame-outs: Vancouver’s clipclop.com, for instance, was going to be the worldwide meeting place for horse enthusiasts. But there were also some unlikely successes. Vancouver’s Communicate.com Inc. snapped up a portfolio of domain names in the late ’90s and built a business around each one: perfume.com, boxing.com and cricket.com are just a few of the approximately 900 websites it owns and operates today. Communicate sold a few of the more valuable names to see it through the rebuilding years of the early 2000s – including makeup.com and automobile.com – but incredibly enough, the company that still bills itself as a “targeted network of B2C and B2B websites” survives as a profitable OTC company, with earnings of US$374,000 on revenue of US$5.8 million in 2005 (the most recent year reported). Then there was Onvia Inc., the small-business portal that set the bar for lofty evaluations at the height of the boom. The online seller of office supplies began in Vancouver as Megadepot.com in 1996, before moving to Seattle to become Onvia.com. Convinced that “bricks and mortar” retailers were history, investors ponied up US$240 million for Onvia’s IPO in March 2000 then promptly sent the stock price soaring to just shy of the US$80 mark. The company’s revenues have dropped, but it survived where many others did not. In July 2001, Onvia sold its Canadian division to Bell Canada, and today shares of the Washington-based company trade around the US$6 range. Onvia has never turned a profit, and lost US$6.9 million on revenue of US$14.7 million in 2005. Today there is no shortage of dreamers claiming to have found the key to a new world order. Proponents of “citizen journalism” in particular – news gathered by average folk with cell phones and broadband links – spin a tale eerily reminiscent of the once-vaunted “Napster revolution.” Traditional journalism is so 20th century, proponents claim; the Internet has wrested control from the corporate monolith and placed power in the hands of the multitudes. And just as e-commerce once promised to free retailers from boring old bricks-and-mortar storefronts, citizen journalism will free news and commentary from boring old newspapers and broadcast networks. At least a couple of Vancouver enterprises have moved into the citizen journalism space. NowPublic Technologies Inc. was one of the first, and co-founder Leonard Brody is what passes for a seasoned veteran of dot-com enterprise. He worked for Onvia as VP of corporate development for Onvia Canada during the company’s astronomical IPO, and then went on to found Ipreo, a simulated stock market aimed at gleaning marketing data from virtual traders. (Ipreo was sold to MarketEra Corp. for an undisclosed price in 2003.) The 35-year-old Brody sports a stylishly gelled coif and chunky retro glasses and talks a mile a minute. His dot-com pedigree shines through as he describes NowPublic’s “B-to-B-to-C” business model and explains that in today’s market for Web supremacy, “it’s completely about the social experience.” He professes to shun such buzzwords as “citizen journalist” (“sounds like ‘citizen dentist,’’’he quips) and “Web 2.0” then proceeds to sprinkle his spiel liberally with both phrases. “Our focus is transactional revenue for content that passes through us,” Brody explains. Translation: NowPublic intends to set itself up as an online news agency, selling content to traditional news media – content that is supplied by a loose-knit community of thousands of contributors worldwide. The recurring theme of his pitch: traditional news agencies that aren’t plugged into the digital social fabric are history. A visit to NowPublic’s Gastown headquarters is reminiscent of the dot-com boom era, albeit on a much smaller scale. Those in the industry today make do with Ikea, rather than the Herman Miller furniture more common during the height of the dot-com spending spree. Nevertheless, the open-office design and the work-hard, party-hard ethos of a recently bygone era prevails. Brody shows off the rooftop deck overlooking the Gastown train yards and Burrard Inlet – great for barbecues, he points out – before leading a visitor to the exposed-brick office space. A dozen employees share a 30-foot-long communal table, tapping away at laptops beneath Ikea lamps. By the end of 2007, Brody predicts, NowPublic will be handling contributions from 150,000 citizen journalists and 10,000 “elite journalists.” “Reuters has 2,500 and shrinking,” he boasts, choosing to ignore the distinction between 100,000 untrained amateurs with cell-phone cameras and a pool of trained journalists. And never mind that Reuters Group PLC recently teamed up with Yahoo Inc. to launch its own “citizen journalist” service. Vancouver’s orato.com is another up-and-comer in the citizen journalism space. Editor Paul Sullivan puts a fresh spin on the new medium, preferring the term “first-person journalism.” It’s a radical departure from the 20th-century model of objective, third-person reporting, he explains. “The point is to get everybody on the planet to say their piece,” he says. And once everyone is online, bingo: a community of billions. “The thing that will make the difference is whether or not we reach a critical mass,” Sullivan says. Orato Media Corp.’s business plan rests on advertising revenue; once orato.com becomes the go-to site for the online literati, the advertising dollars will start to flow. Until then, the site is financed by Vancouver restaurant and hotel owner Sam Yehia and a handful of other private investors.
While NowPublic and Orato continue to pursue their dream of amassing millions of viewers, a few other local proponents of online social networking have already hit pay dirt. Of course, there was flickr.com, the photo-sharing website that was snapped up by Yahoo for an undisclosed price in March 2005. Another unlikely winner in the social networking gold rush is plentyoffish.com, an online dating service founded by Markus Frind. [pagebreak] The 28-year-old BCIT grad built the site himself in about three weeks, has no employees and runs the business from his West End apartment. For whatever reason, plentyoffish.com has become a favourite among lonely hearts seeking companionship online. Frind claims that it attracts 22 million page views a day. That translates into $10,000 in advertising revenue every day, Frind says. And because he claims to have no overhead, that money goes straight to the bottom line. He gets calls from venture capitalists looking to get a piece of his action “probably once or twice a week,” Frind says, but he sees no reason to share the wealth. Frind’s instant riches were made possible by one significant development since the last boom: AdSense, a Google service that acts like an online advertising agency. Anyone with a website can sign up, and Google’s 4,000 subscribers will bid to place ads on the site. Of course, a personal website with a couple of hundred visitors a month won’t attract any significant bidding, but the dream of luring millions of visitors and the advertising dollars that follow fuels many of today’s Internet dreams. Another local Web entrepreneur was carefully building a new business from the ground up when he was caught off guard by a flood of public attention. Former Canucks owner Arthur Griffiths was just ramping up Infotec Business Systems Inc. when the company’s website was swamped with three million viewers a day in the summer of 2006. Who could have guessed that a 24-hour webcam trained on a Hornby Island eagle nest would become an international obsession? Griffiths managed to place a few advertisements on the eagle-cam site, but the revenue was eaten up by the cost of bandwidth needed to meet the surge in demand. “We went from bandwidth costs of $3,000 or $4,000 a month to one month where we had bandwidth costs of about $75,000,” Griffiths reports. Before Griffiths could ramp up a strategy to cash in on those millions of eyeballs, the eagles’ eggs proved inert, and viewers dropped away as suddenly as they had appeared. Having weathered the temporary diversion, Griffiths is back on track with his plan of building what he describes as a “broadcast portal.” His plan is to aggregate a number of “channels” that are accessible through a single website and that can be viewed on a computer screen or, with the help of a set-top decoder, on a television. Griffiths has visions of an online broadcast portal that will be to the 21st century what the cable companies were to the late 20th century – the conduit that brings entertainment into consumers’ households. He considers his website, wavelit.com, “as being Shaw cable via the Internet,” he explains. And as for revenue, it’s not a question of inventing a new business model; it’s just a question of adapting it to the Internet. “You have a subscriber base – it’s your house, you pay. Then you also have advertisers who pay within that programming. There are bundles of programming: you can get five or 10 or 20 different things at a different price model. And then last but not least, there are videos on demand or, for example, Canucks pay-per-view.” Griffiths admits that securing the rights to online Canucks broadcasts is a long way off. So far, Infotec’s wavelit.com site has a channel displaying a live webcam in an African safari park, another with webcams trained on the Grouse Mountain grizzly-bear enclosure, some vintage cartoons and some canned footage from the U.S. National Aeronautics and Space Administration. Burnaby’s Insinc is another company developing an innovative business model for Internet broadcasting. But having lived through the lofty dreams of the dot-com boom, president and CEO Hugh Dobbie has no illusions of capturing a global audience of millions. He was burned once by pursuing the “eyeballs” business model, churning through millions of dollars in seed funding in the late 1990s in the naive belief that quality content would attract a massive global audience. “Hearing talk of eyeballs makes the hair on the back of my neck stand up,” Dobbie says today. He heard a lot of that kind of talk from venture capitalists back in 1999, when Insinc was burning through its seed money while preparing for a $10-million public financing. Initially scheduled for October 1999, the IPO was repeatedly postponed before finally fizzling in March 2000. “All that time, the VCs were telling us to put the pedal to the metal,” Dobbie recalls. Dobbie spent the next few years stemming the losses to keep Insinc afloat, all the while pondering the big question: “For those of us who can’t attract a billion eyeballs, what is the model?” Only in the past year or so has an answer emerged. Dobbie has carved out a profitable business webcasting to niche audiences. While Griffiths pursues a long-range goal of serving up professional sports to millions over the Internet, Dobbie is already webcasting sports, albeit on a much smaller scale. Insinc has brokered webcast agreements with a number of small-market sports organizations, including the Canadian Football League, the Western Hockey League and Little League baseball. No BC Lions fan is going to watch a CFL game in a two-inch window on their laptop when they can watch it on their 52-inch high-definition TV, Dobbie reasons. How- ever, there might just be a couple hundred devoted fans who will shell out $5.99 to watch a game on their laptops when they’re travelling. Similarly, there might be a few dozen friends and proud parents in Quesnel, Vanderhoof or Fort St. John who want to see their hometown boy playing hockey for the Vancouver Giants. All it takes is 200 or 300 paying viewers, Dobbie says, and a live webcast turns a profit. Multiply that by 700 WHL games a season, year-round action at 75 racetracks around the world and hundreds of Little League games every summer, and you’ve got a solid business plan. Dobbie is also currently negotiating with David Hancock, the wildlife photographer behind last summer’s eagle-cam, for up to 17 channels of live wildlife webcasts. Insinc also does some webcasting to a mass market, but only on a revenue-sharing basis rather than paying up front for Internet rights. For example, it has an agreement with CTV to webcast its evening news and such hit shows as Corner Gas and The O.C. With the infrastructure already in place, the upfront costs to Insinc are minimal. Shared subscription revenue with CTV covers the fees Insinc pays for broadband access, plus a tidy profit.
Having been there himself, Dobbie has nothing but respect for entrepreneurs with visions of global empires centering on their Vancouver Internet operations. But it would be naive to ignore the long odds, he says. “It’s like building a model based on hitting a hole-in-one on a par-four course,” he says. “If you want to go for that and you’re feeling lucky, you just might be that person.” So yes, there will undoubtedly be another Flickr, or even a MySpace or YouTube to emerge from Vancouver’s vibrant demimonde of Internet entrepreneurs. But in the meantime, a new generation of businesses is also emerging, one that has nothing to do with “portals” and “eyeballs” but with simple laws of supply and demand and profit margins. As NowPublic’s Brody puts it: “It isn’t just fun and games and a bunch of dreamers pissing money away today; it’s about business doing well economically,” he says. “There’s so much more rationality in this market.” Brody bristles at the suggestion that the success of today’s Internet companies signals another bubble. “Everything is cyclical. Are we potentially at a high point in the cycle? Maybe, but the difference now is that the fundamentals are strong.” He points to the widespread broadband infrastructure in place today that will allow the industry to grow, and to the demographics. “You have the 15- to 35-year-olds completely focused on the Web as a medium. They won’t buy newspapers and they will not buy music in record stores,” he says. Brody adds that tech execs who survived the bubble know things are different today. “We’re all well aware of what could blindside us. Now, people are a lot more serious about execution,” he says. “This isn’t the junior prom anymore.”