The idea of "content" refers to digitally displayed information, and products of value and use. Usually, content can be divided into two groups: commercial content and informative content. Commercial content refers to products and services sold or intended for sale, such as on-line catalogs, pictures and research services. Informative content is information published for free on the Internet. This article will focus on the commercial content.
According to a Forrester Group report, the volume of interactive retail sales will increase from $240 million in 1994, to $6.9 billion in the year 2000. It seems that Internet commerce’s labour pains have only just begun, although trends look positive. The "Wall Street Journal" site is successfully charging subscribers and catalogue company "Land’s End" sales are becoming significant. Every day new solutions are launched to problems of security and lack of customers.
In the event commerce becomes the Internet’s central pillar, and I believe it will, it is worthwhile to examine the requirements to establish a successful commercial content company, for what investors are looking, and what are the risks for Israeli companies seeking to enter the electronic market.
I believe it is possible to divide the world of commerce on the Internet into two kinds of players. The first kind is the companies with an existing brand name using the Internet to increase their business volume, improve service or save on costs. Federal Express, for instance, claims to have saved $5 million in customer support costs. In addition, early launch of Internet services enables such companies to create brand name identity unique to the Internet, rising above the chaos reigning there.
The second kind is new potential businesses using the Internet in order to create brand names and new business opportunities, for new products and services. Since the Internet is a disorderly collection of information and services, the need for a brand name clearly increases. Without creation of brand name awareness, there is no chance for success.
American venture capital investors look for four parameters in "new commercial content companies". Content with fresh, added value, an opportunity to create a defensible brand name, a well-defined, vertical market, and a business model which can become habitual and enables repeat purchases through exemption from marginal price pressures.
Following are three examples: An American venture capital fund invested in Tuneup Com, which offers on-line computer examination and repair service. The reasons for the investment:
Real added value - it is much easier to deal with a computer on-line than to drag it to the repair shop.
Tuneup created a protected brand name by signing strategic agreements with Symantec, a leading software company in the field of diagnostic computer examination.
The market is well-defined; customers are those searching for one-stop computer repair.
Tuneup charges a monthly fee for the service, a familiar model to computer users.
Another successful site is a site for gays, which, despite its social sensitivity, makes business sense, and therefore the Sequoia fund invested in it. Its added value lies in its ability to attract homosexuals, whether or not they are out of the closet. The site is currently especially attractive to the second group, which finds the homosexual content on the site from "inside the closet". In addition, despite the fact that it is difficult to segment the gay market, the site serves as an up-to-date database of a well-defined market sector.
The third example is Jerusalem company Picture Vision, operating in Virginia, and supplying development, processing, ordering and usage services for pictures. US funds have invested more then $6 million in the site.
The content has clear added value. The company gives clients access to previously unavailable processing and display services, including remote printing, simple transmission of photos via electronic mail, ordering of enlargements and presents and home prints, without leaving the home.
The company protected its brand name by strengthening ties with large concerns in the market such as Konica, Wolf Camera and Fuji. It is already possible to pick-up photos in more than 2000 shops in the northeastern US.
The target market is well-defined as people who photograph, and therefore easy to find via photo labs.
What are the chances for an Israeli content provider to achieve international success? I believe investors hesitate to support Israeli companies in the retail field due to distance from most American consumers, and due to the culture gap between Israelis and Americans. Picture Vision overcame this by finding an American general manger and sales staff from the start of operations, and through frequent trips abroad. Despite the above, there are many opportunities which can attract funding from US venture capital, and, in my opinion, American financing is vital to the success of commercial content companies.