director loading up, packer sniff sniff
Killers on the superhighway Michael Sainsbury and John Lehmann October 08, 2005
IN August 2003, when the Packers tipped $33 million into online jobs website Seek, Greg Roebuck, managing director of internet auto site carsales.com.au, said: "We would never say never." This week Roebuck finally bowed before the latest wave of investment sweeping online business around the globe and across Australia.
A cashless deal with the Packers to team up with carsales will doubtless result in a similar pot of gold to that yielded by the float of Seek in February.
"When PBL paid $33 million for Seek, it was valued at $130 million. That was two years ago. Now it's valued at $818 million," Mr Roebuck says.
Driven by booming demand for ever-faster internet services that have turned the home PC into a vital part of people's everyday lives, the net is again becoming big business.
Even in the pint-sized Australian internet sector there is action aplenty.
News Limited, publisher of The Australian, has made a bid for the remainder of property listing website realestate.com.au, valuing the company at 94 times historic earnings; and accommodation site wotif.com is pursuing a float or trade sale for up to $500million.
Globally, the sector is on fire - and the old media bosses are again paying up in the hope of building online brands that match their off-line dominance.
"Yes, incumbent media companies are going to try to colonise the internet and establish controlling positions in online delivery," said former Telstra chief executive Ziggy Switkowski in a provocative speech on media this week.
"In my opinion, they will struggle to do so," he said.
"Their business models inevitably are directed towards the protection of existing profit streams, and their corporate cultures are generally hostile to the more free wheel."
There are two models emerging. One is analogous to a phone book, where the value is in its completeness.
For the old media players, that means attempting to create a one-stop shop for online services based around internet search capabilities.
The other is to create lots of little communities of like-minded users - with the power to sell targeted advertising and services to all of them, depending on their interests.
Just which model will win is the conundrum that the web's latest convert, News Corporation's Rupert Murdoch, has been grappling with over the past three months as he has spent more than $1 billion on internet businesses such as Intermix's MySpace. The Packers' deals have necessarily been smaller and focused on the Australian marketplace.
Publishing & Broadcasting Ltd executive chairman James Packer made the first overtures to carsales.com.au just over two months ago. PBL got under the guard of Fairfax, which earlier this year bought a 12 per cent stake in the company from Yahoo and, sources say, had made at least one tentative approach to carsales.
Part of PBL's appeal to carsales, which counts around 500 car dealers among its owners, was that it wasn't a traditional classifieds owner.
"They saw PBL as not being a traditional classifieds player and not having a conflict of interest - that helped," says PBL director of classifieds strategy and business development Gregg Haythorpe.
Haythorpe says dedicated online players have so far displayed an advantage over traditional media operators in the development of internet businesses.
"They are focused - you don't have to be Einstein to work out that each of the leaders in the three classified categories (auto, real estate and jobs) are stand-alone businesses with a single online focus."
Mr Haythorpe said the challenge for online classifieds sites in Australia in the short term was to provide richer exclusive content.
Whether John Fairfax Holdings launches an expensive counter-bid for carsales or not, this week's deal confirmed what has become abundantly clear: the Packers' PBL has emerged as the country's pre-eminent internet player.
Led by James Packer's growing reputation as Australia's Mr Internet, the group has outflanked print classifieds giants John Fairfax and News Limited.
Both groups pumped millions of fruitless dollars into dotcom-era strategies such as F2 and News Interactive only to watch the Packers leverage Ninemsn, their internet joint venture with the world's biggest software house Microsoft, into two stellar online deals this year.
The proliferation of high-speed internet or broadband services means that Australian households are increasingly using the internet as an information utility.
About 40,000 new connections are being made every month and the trend shows no signs of abating, according to Justin Milne, head of Telstra's Big Pond internet group, the country's largest internet service provider.
There now are more than 2 million broadband users in the country, about 25 per cent of households.
The number of Australians with access to the internet either at home or at work has grown by 11 per cent to 10.8 million in just the past year, according to Nielsen Net Ratings.
Australians are spending more and more time on the internet - last year they spent an average of 7 hours and 7 minutes online each week, 48 minutes longer than in 2003, according to Roy Morgan. This is 14 per cent of the total time they devote to all media, and it is growing apace.
Now, as surely as night follows day, millions of advertising dollars are starting to flow on to the net.
The Australian online advertising market grew by almost 63 per cent in the 2005 financial year and is now worth $488 million, according to figures released by the Audit Bureau of Verification Services (ABVS) last month.
In 2001 a mere $80 million was spent on internet advertising.
On the way, too, are internet and internet-like services on mobile phones.
They have been hamstrung by slow data speeds, but by Christmas Telstra, Vodafone and Hutchison will be tempting users with new third-generation phones which promise myriad new applications and services.
In the traditional media world, News is sharpening its web focus, says Nationwide News general manager Mark Webster.
"One goal moving forward is to think more about using the two mediums (print and internet) differently," says Webster, a former head of the company's internet division.
More user-generated content will be worked on to the newspaper websites, giving users an opportunity to provide their own news analysis and contribute their own content.
"That's where newspapers are going - using their online product to expand their communication," he says.
Webster says while classifieds models undoubtedly work online, newspapers are likely to adapt their offerings. "Just having classifieds in the back of the newspaper may not be the way it looks in five years - there may be new ways of distributing that content in other parts of the paper," Webster says.
And it's all about distribution on the net.
Through Ninemsn, Australia' most visited website, the Packers have an edge over everyone.
PBL's Nine Network has been building a strong online presence, while the ventures of its television rivals - Seven's i7 and AOL7 joint venture and Ten's Roadshow joint venture Scape - are dotcom roadkill.
Seven recently assigned its strategy chief Rohan Lund to head a new digital division. Lund says: "Higher broadband penetration is clearly affecting the way people consume media.
"With around 12 hours a week now spent online, it's not surprising that advertisers want to allocate spend online," says Lund.
"For both online and mobile, the key is having the best branded content.
"Seven's recent focus has been to aggregate and build online communities around the branded content we already have from TV and magazines and start to bolster our sales capability.
"At the end of the day we know we're well placed if we have the best content and the best off-line reach."
It's a deadly race for the media companies because, out of nowhere, competitors that didn't exist a decade ago, such as Google and Yahoo, are threatening to eat their lunch.
Cashed up from a successful IPO, Google - once a simple search engine - has been diversifying at a bewildering pace into area such as maps, email, paid local search (effectively internet classifieds) and desktop software.
Search and directories advertising is the fastest growing segment of online advertising, up 78percent on the previous financial year to $165 million in Australia, the ABVS figures say.
Directories monopoly Sensis, a division of Telstra that is worth $10 billion, has been throwing more and more of its energies at the internet.
Sensis strategy chief Gerry Sutton says a major project is now under way to increase the functionality of the company's Yellow Pages online site to combat the coming threat of Google, Yahoo and Microsoft.
"The (Yellow Pages) is made up of a couple of thousand categories," says Sutton.
"Some of those are migrating to where they are almost online verticals (categories) in their own right.
"How do those things need to be represented in an online world, and how would we play?"
Google, fellow internet search giant Yahoo and MSN are already offering local search services in the US and other markets - challenging traditional directories business and, in some cases, working with them.
Google's head of sales for Australia and New Zealand Kate Vale says advertisers are shifting greater portions of their budgets online because they are realising its efficiency.
"With a cost-click model, it's low risk - they are only paying when someone clicks on their ad," she says.
"That's incredibly cost effective and there's no minimum spend, no contracts."
Vale says Australians can expect to soon see Google introduce a more localised search product.
"There's a lot of interest now around local-type products - Local.google.com hasn't launched in Australia yet but you would assume that isn't too far away."
"If you're looking for a florist in North Sydney, it will bring up all the florists, with addresses and maps."
Just as, at first, radio was simply reading out the printed word, and television was radio with pictures, the internet is a medium still very much in its infancy.
Companies are still grappling with the incredible functionality that the internet can offer.
Already new models are beginning to emerge.
In the classifieds markets in the US, new websites known as meta-classifieds - destinations such as Oodle.com which "scrapes" the best from a raft of other sites including Google and Craig's List - are presenting users with a "best of the web" listing.
In the jobs market there is Simply Hired, which has stitched up an alliance with booming professional community site Linked In - it won't just tell you where the jobs are, but who you might know at the company that is looking for new staff.
As Switkowski said this week: "Once consumers are set free by the internet - free to pick and choose their sources and timing of information and entertainment - the old business models, franchises and mastheads falter; a serious challenge to today's media companies.
"Systemic innovation will almost certainly be driven by pure-play internet companies, such as Google, Yahoo, AOL etc."
But it's still very early days yet for the net. It's barely 10 years old, after all.
Dial-up was learning to crawl, and now with broadband it's only just starting to walk.
As Webster says: "It's very early days in the internet marathon. There is a long way to go."
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