”The main point in our previous model was that it spoke of an independent web site,” said Yossi Shaked, CEO of the Israeli branch of start-up Websplit, which decided in June to alter its business model. Under the previous model, users would download a complete browser competing with the gorillas, Explorer and Netscape. Of course, it is easy to say now with hindsight that entrepreneurs considering such a model are hallucinating, but in 1999, it seemed everything was possible, including in Websplit.
Shaked: “We want to reach millions of users. In our previous model, we had some tens of thousands of users. We quickly realized that putting up our own site wouldn’t work.”
At the beginning of the year, Websplit launched an advertising and marketing campaign, which penetrated the awareness of large numbers in Israel for an online application, but to a large degree failed to convince web surfers to abandon the pleasures of Explorer. The basic product involved splitting the surfer’s screen into a number of windows, enabling bookmarks to be defined for simultaneous viewing in a single window.
Websplit is now citing a different concept, in which the product will be added to a browser, rather than constituting a browser in itself. Shaked notes that with its current product, the company is appealing to the large web sites, which will henceforth be responsible for marketing the software, facilitating cost cutting. “We have left the concept of a bookmarks company. We still allow access to bookmarks, but it is not our main focus.”
Websplit founder Ariel Haroush says a problem must be found for a Internet product to provide a solution. “There are many Internet sites, each of which wishes to be the user’s home page. The Internet is like a giant office tower, with the home page being the lobby. Everyone enters through the lobby, so that’s where the rent is highest – everyone wants the store in the lobby. This is the problem today in the Internet world – too many sites are competing for the same place.
”At the moment, the user has to choose one home page. We are trying to provide the user with several visual possibilities, in order to allow the user to avoid reading the whole story of each web site. It’s like a newspaper stand – you don’t read everything in each newspaper in order to chose one of them. You glance at all of them, then choose one to take home. It’s the same with web sites; they are all becoming very visual. We are going to advance that goal. We’ll let the user get a sense of the sites and choose one, which he can surf normally, one by one.”
”Globes”: How are you now planning to distribute your product?
Haroush: ”I tell Amazon.com that no one will make it their home page, because other sites are more interesting. Through us, Amazon will be able to offer its users a split screen, in which it will get the main screen as a home page. The user will not see Websplit continually as he surfs, except for the first moment he opens the browser and chooses where he wants to go.
”Our ambition is simple. Once upon a time, people said B2C was necessary – you get a lot of money from advertising, and everything is fine. We have no advertising revenues; it doesn’t interest us. Our partners are the web sites, to which we provide service. The site gives us distribution and receives many advantages, including data mining, which helps it to make important strategic decisions, such as which product to put in its main window.”
Why should data mining companies want to get information from Websplit?
”Because I am the only one that can provide them with comparative information about the sites. For example, we can tell them that CNN is better than MSN on Sunday. We don’t work with a panel, but with a huge user population, and the information is available and instantaneous.
”We are the only company in the world today that can provide information about the number of times the user didn’t click on you site, in a comparative situation, because our platform splits the screen and the user chooses a site from among several possibilities. When is this important? If Amazon puts a book on its home page and everyone goes to CNN, while on a different day it puts a CD on its home page and everyone buys it, you can derive a lot of important information from that.”
How does your software save web sites money?
”Today it is very hard to bring surfers to a site. The average cost is $10-50. The cost of bringing a user to register for a given type of service or product from the site is $50, while $10 is the price of getting a customer to visit the site. The problem is that even if you spend the money, you can’t be sure the user will return to you. We ask the sites to pay us per monthly user. On a yearly basis it comes out to $3. That is a very cheap price, compared to what the site wastes in bring the user to it. Incidentally, a Harvard report stated that for every 5% of users a web site manages to keep, it raises its revenues by 100%.”
Websplit’s last financing round of $2 million in June was preceded by the change in marketing concept. Do you think you could have raised the money without the change?
”Absolutely not. I think everyone understands that these days money cannot be raised with an unclear revenue model. Dreams are all very fine, but if you cannot clearly demonstrate where the money is going to come from, you can’t survive, particularly in view of the crash, which I predict will not be as brief as everyone is saying. In my opinion, only 7-8% of the Internet companies we see today will last.
”It is difficult to find a revenues model as clear as ours. It is no easy task to reach a situation in which everyone is satisfied. To create the need from which a company can make a living, while the web sites also make a profit, is a very complex affair. There is an eternal triangle here, each end of which must be satisfied. It took us a little time to get there, but we finally made it.”
Is your competitor, Duplinet, also talking about marketing to the web sites themselves?
”Duplinet is not in exactly the same field. It provides visualization of sites on the worktable. They don’t use the concept of a home page, but appeal directly to the users. They don’t have the same model, direction, or strategy, although a certain resemblance between us, the idea of producing something more visible, is evident. There are more than a few players in a market trying to make surfing more visual, but not in the home page niche.”
Your previous business model, like that of most Internet applications companies, involved getting as many users as possible and possibly selling the company afterwards to one of the large Internet providers. Now that you have changed your revenue model, do you expect to stand on your own two feet?
”Our strategic change really shows what our current thinking is. We don’t want to sell the company tomorrow. The exit model no longer exists in the company. I won’t tell you that our board of directors is unwilling to consider the entry of a large investor, if one should come along. I will say, however, that we are building a company for the long term. Our model is no longer that of ICQ. We now provide a service, and in this niche exits are less of a factor.”
There were no revenues at all this year. Will you have to raise large sums in the coming year?
”We have money. We will probably reach a situation in which we will have to raise more. At the same time, we will not raise a lot of money, because according to our revenue model, we will already reach profitability next year; otherwise, it won’t work. Nowadays, investors don’t give many chances; they are wary of an unclear revenue model.”
According to Websplit.com CEO David Schwartz, Websplit has made the necessary adjustment, even before the collapse of the Nasdaq index. “Today we are already no longer B2C; today we are B2B2C,” he says.
Aren’t you worried about managing a dot.com, after managing two relatively well-based companies and being a vice-president of Chase Manhattan Bank?
Schwartz: ”I was offered the job by one of the families that invested in Websplit. I was considering entering the Internet world at the time. I examined several offers, but they were all very run-of-the-mill. After I visited Israel and heard Ariel’s vision, I understood that the company had something to offer. In my current position, I felt it was a wonderful opportunity to enter the Internet world.
”To answer your question, no, I’m not worried; I’m excited. What is happening in the company is very exciting to me. I think the upheaval in the Internet market is very good for Websplit. People will now think twice before investing in advertising. They will focus more on content and who their users are.”
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Business Card
Name: Websplit.com.
Date founded: April 1999.
Stockholders: Ariel Haroush, Shaked Shani, Eyal Gen, Ruth Wertheimer, Itzhak Dankner, TC Systems, Mittel.
No. of employees: 20 in Israel, seven in New York.
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Published by Israel's Business Arena on December 18, 2000