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Summary of directory: Rednano
Rednano
Financial & strategic value
Financial & strategic value
SIN online directory market
How to capture it / What to do
How to capture it / What to do
Focus on directory and discontinue non-core activi tiesexpected to grow to $15-45m by
2015 20% target share translates to
$5-10m online upside for SPH
in search / search-reseller and other businesses
Some services can be done by IBU Enter new businesses only based on compelling
business plan and clear competitive advantages
Financially, search-relatedbusiness is not attractive to SPH
Search market going to be big
Match investment level with the size of the opportuni ty
Reduce cost base by at least 50%
Potentially leverage 701 sou / panduan platform to moveto a leaner model ,
be dominated by Google
Search-reseller businesssizable, but unattractive due toshrinking margins
Within directory, focus on a few categories and enhancecontent and user-friendliness
Potential categories: Food, Health, Female, Home &Decor Travel ca turin a lar e share of director search
Low-medium strategic value
Some value in offering"complete" solutions toadvertisers incl. director
Embed directory function into main content verticals Add user-generated content and use editorial content in
a more focused way
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listings
Option value with regards tolocation-based mobile plays
nves w an eye owar s op on va ue, e.g.
flexibility of platform to offer mobile services or embed
sub-sections in content verticals
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Rednano consists of several business, many of which are
unattractive or overlap with other SPH operations
Directory
DirectorySearch
Search Reseller
Reseller Other
Other
Search Directory
Paid listings Editorial content
Algorithmic search Web, people, news,
maps, images Ad platform
Adsmart Rednano CAN
Campaign management SEM (reseller) SEO (workshops) eDM / mDM Rich media ads Microsite dev
Mobile directoryservices Paid listings SMS, short codes Mobile portal dev Contests
Sub-businesses
DB intentions Licensing services
Other
FY09 Revenue
734
99s
45
?
Mid-sized market wherelocal players can buildcontent advantage
Winner take alldynamics favor globalplayers
Low barriers to entry,intense competition, andlow margins
Potentially veryattractive future market
Need to build strongdirectory business first
At tract ivenessto SPH
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n/a; minor duplication onnews content
n/a; minor duplication onnews content
ClickTrue (SEM, SEO) IBU (eDM/mDM, Rich
media ads, microsite)
IBU (SMS, short codes)Duplicationwith in SPH
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In search, Google is breaking away from competitors both
globally, and in Singapore
Search
Google extending its global lead...Google extending its global lead... ... and locally in Singapore as well2... and locally in Singapore as well2
17 15
% share of global searches1
100
Others
80
Page views per user
11
89
780
60
Yahoo!
Baidu
Microsoft Sites33
60
Yahoo
Google
Search
6067
40
20
Google
20
Bin
SingaporeSearch
~30M
Page views(usage, sheer size)
Lighter = Aug=
0
Jul-09Jul-08
0
0.0 0.5 1.0 1.5 2.0 2.5
RMS of UVs
Rednano
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1. Comscore qSearch 2009 (Search Engine Watch) search share is not an exact proxy for search revenue, but Google reported ~$24B in combined Adwords & Adsense revenue in 2009 2 Metricsfor Singapore market only, ComscoreSource: Comscore, Search Engine Watch, BCG analysis
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Search advertising platform dynamics favor the leader
Search
Revenue per search iskey to search ad platform
Revenue per search iskey to search ad platform
RPS is driven by manyfactors
RPS is driven by manyfactors
Syndication deals favorthe leader
Syndication deals favorthe leader
Volume of searches Organic (ie. through own
site)
For example, if #2 playerwanted to power AOL'ssearch, it would have to offer
0.06
Revenue per search (RPS)1
0.05 Leader .partnership deals with AOL)
Ecosystem of contentpartners
Leader can share ~80% of$0.05 revenue = $0.04
#2 player must share~160% of $0.025 to match
0.04
.
ua y o searc anadvertising results
Relevance affects click-thru-rates, conversions, etc
e . revenue s are
Same dynamic holds forecosystem of smaller content
artners ie. blo s
0.02
$0.025 #2
$0.010
illustrative only1
Number of advertisers Bid density drives up
Small publishers willchoose the option thatmaximizes revenue
0.00
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1. Illustrative only, exact numbers n/a. Based on BCG interviewsSource: BCG interviews
ery ew p ayers ave enoug money o uy e r wayinto competitive position
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Rednano's reseller business primarily focused on search
engine marketing (SEM)
Reseller
SEM: an illustrative example
3rd party wants to improve search ad3rd party wants to improve search ad Rednano manages campaign to ensureRednano manages campaign to ensureresults; approaches Rednanoresults; approaches Rednano highest placement at lowest costhighest placement at lowest cost
3rd party typically starts with a goal ie. 1000 clicks and 10 conversions
Campaign manager then uses various tools to help3rd party achieve those goals
At minimum, reseller will manage key words, design
and test ads, & optimize performance More sophisticated campaign managers will optimize
services
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Source: Yahoo, Clicktrue business model presentation, BCG analysis
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Reseller revenues driving largest portion of Rednano revenue
Reseller
30%33%
8%
4%
% of total
Directory
SearchOthers
$782
100 1% 0%1%
$129 $1,183
26%
60
62%69%
55%
Reseller
40
20
11%
0
YTD FY10FY08 FY09
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Source: SPH finance, BCG analysis
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Unfortunately, reseller revenues generate very small margins
Reseller
Rednano gross revenue artificiallyrossed u b advertisin ex ense
Rednano gross revenue artificiallyrossed u b advertisin ex ense
What remains is a relatively unattractivebusiness
What remains is a relatively unattractivebusiness
Net revenue driven by management fees and revshare from partners
For Rednano, on a weighted avg basis, the twore resent ~20% of adex1
452540
600
YTD (Jan '10) 000's SGD
$88K represents net revenue; when costs areadded, business is likely to be unprofi table400
ore an o e nano s o a rese errevenues generated by 701 Search2
701 Search is the largest customer
No management fees earned by Rednano88
200
Margins are small and getting smaller On a fully burdened cost basis, reseller business
likely upside down3
New entrants creating pricing pressure
0
GrossRevenue
Adex NetRevenue
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1. Reflects weighted average management fee. No fee is collected from 701 Search which decreases avg. Typical rev shares range from 12-18% for Yahoo. Though Rednano believes it receives
rev share from Google, both SPH finance and Google website state that no rev shares are provided to resellers 2. SPH finance 3. Assuming ~$200k in net revenue on an annualized basis, this isbarely enough to cover the cost of 3-4 heads. As another point of reference, Clicktrue operated at ~10% margin in FY07 & FY08.Source: Rednano, SPH finance, BCG analysis
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Directory advertising likely to be a modest opportunity in
Singapore...
Directory
BCG believes total online directory1 ad marketwil l reach ~$45M in Singapore by 2015
BCG believes total online directory1 ad marketwill reach ~$45M in Singapore by 2015 Methodology and key assumptionsMethodology and key assumptions
S$ M
Singapore directional advertisingrevenue (2008-2013E)
Print Yellow page print revenue ~$49M (2008)3
Other players (ie. Greenbook, eGuide, etc)~$40M in print2
100
118
105
CAGR(08-15)CAGR(08-15)
- growt rate ase on e ow pagegroup's print revenue historical growth3
Online Yellow page internet revenue $5M (2008)4
90
73
50
Print -3% Assume IYP accounts for 40% share in 2008 ,
total online pure directory market ~$12.5M Local search and pure internet players:
Google 2008 revenue $38M6, assume 5%7
from directional search $2M
15
45
0
Online
2015E2008
17% Pure internet players: Hungrygowhere:
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...but given size of prize, SPH will have to reduce investment
Directory
Across scenarios, SPH online directoryrevenue will be limited
Across scenarios, SPH online directoryrevenue will be limited
Limited top line will require a large reductionin cost to achieve breakeven by FY12
Limited top line will require a large reductionin cost to achieve breakeven by FY12
15Revenue ($M SGD)
13.4
15Cost ($M SGD)
10
10.5
9.6
8.2
6.0
10
137%
6.3
.
7.6
4.16.0
3.01.1 1.5
0
5
0.60.30.3
4.1
0
5
1.2
3.4
1.21.9
3.7
FY11FY10 FY12FY09
Est. director rev er YTD run-rate 3
Est. directory rev (per Rednano 3 yr plan)2
FY09 FY11FY10 FY12
Re d cost to break even assume 3 r lan rev
Total Rednano cost base (per 3 yr plan)
2% 5% 12% 21%2% 3% 6% 14%Implied shr.1
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1. per BCG market size estimates 2. per Rednano 3 year plan 3. Assumes FY10 YTD performance through January is grossed up on a straight line basis. FY11 and FY12 assumed to grow perRednano FY09-FY12 CAGR 4. ~20% represents proxy for reasonable business for SPH.
Reqd cost to break even (assume YTD run-rate rev)Est. total revenue (both methods)
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Thus, SPH should consider " investment light" options for the
directory business
Directory
Option 1: No-fril lsdirectory
Option 1: No-fril lsdirectory
Option 2: Enhanced/focused directory
Option 2: Enhanced/focused directory
Option 3: Specialized pureplay
Option 3: Specialized pureplay
Sample players
Basic directory listings Name, address, telephone,
Enhanced directory l istings No frills + company description +
Topic specific directory (ie. food) Enhanced directory +
?
experience map
Compete based on depth andbreadth of l ist in s
reviews and rankings
Focus on limited set of categories
Compete through variety of means Enhanced content
Robust reviews (UGC) Supplemented w/ editorial
content
Compete through specialization S ecialized content
Focus on content (editorial,UGC, or combo)
Supplement with enhancedlistings
Multiple sources of traffic
Provide robust listings Surround with specialized
content - UGC, suppl. w/editorial
Multiple sources of traffic
Bases ofcom et it ion , ,
partner Focused user experience
Can be both standalone andembedded experience, butmust be focused, unique &
, ,
partner Focused vertical experience
Typically focused on onekey topic
User experience optimized
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Biz model Primarily paid listings
Paid li stings & advertising
Primarily advertising
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Each option evaluated across three key criteria
Directory
Key questionsKey questionsNo frills
directoryNo frills
directory
Enhanced /focuseddirectory
Enhanced /focuseddirectory
Specializedpure play
Specializedpure play
User experience
Does it meet / exceed consumerexpectations? Is it inline with market trends? Does it enhance ex erience on
other SPH properties?
Does it leverage SPH content?ompara ve
advantage
(ie. 701 platform)?
Can SPH maintain comparativeadvantage?
Option value
Is it scalable (ie. geo, content)? Does it enable other business
models? Does it preserve future option
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value?