User-generated profit
Web 2.0-style sites are all the rage in Poland's corner of the internet, with networking sites especially popular. All of the excitement is attracting investors, including major multinational players. But analysts warn that the fledgling sector remains too volatile for the risk-averse, and concerns over the security of personal data are causing a nationwide stir.
The prom queen now weighs 108 kg, the senior stud is married with five children and the class dunce has grown up to become the head of a bank - reliving the halcyon days of youth is the latest fad on the Polish internet, thanks to portal Nasza-klasa.pl ("Our-class.pl"). Over six million Poles - nearly a sixth of the population - have set up accounts on the site, which was created by IT students from the University of Wrocław in the autumn 2006. At its present pace, Nasza-klasa.pl grows by around 8,000 new users everyday.
Reminiscing isn't the only popular online pastime these days, either - the anonymity and ubiquity of the internet has fostered the art of political debate. In Poland, Salon24.pl, a free political blogging platform, has recently surged in popularity, attracting both renowned columnists and amateur bloggers. Founded in 2006, the site is emerging as an opinion-shaper.
"It is read by 90 percent of Polish journalists and a huge number of politicians," said Igor Janke, the founder of the portal and a columnist at Rzeczpospolita daily. "The site sees about a hundred new posts a day and during the [October parliamentary] elections this figure reached 500," Janke added. According to research firm Gemius, Salon24.pl ranked third among Polish websites in terms of non-unique hits in September 2007, approximately a year after it was founded. It ranked second in time spent monthly per visitor, which amounted to 70 minutes on average.
Other darlings of Poland's internet surfers include: Grono.net, a social networking site; Goldenline.pl, a professional networking site; Allegro.pl, an auction site; and Fotka.pl, a photo hosting and exchange portal.
Fast buck opportunities?
The popularity of Web 2.0 - or, simply put, user-generated and edited online content - is growing globally. "This is a broad trend in mass media and pop culture," said Michał Faber, CEO of Web2, an internet solutions firm. "People want to communicate, share and interact in a myriad of different ways. It is the evolution of the way we enjoy time together. Once [this evolution] has begun there is no stopping it," he told WBJ.
In addition to the start-ups themselves, other businesses are cashing in on the trend. Large communities of people sharing the same interests and exchanging information about themselves offer an excellent opportunity for advertisers. This advertising potential is one reason why community sites, which require little capital to launch, attract investors from among the biggest players, both in Poland and internationally.
European Founders, a German investment fund, acquired a 20-percent stake in Nasza-klasa.pl in September 2007. The portal, whose launch cost no more than zł.200, is now worth about zł.15 million, according to analysts interviewed by Gazeta Wyborcza daily. Another example is Grono.net, which sold 10 percent of its shares to Intel Capital last autumn. Salon24.pl's Janke said he would welcome a financial injection for his site, although he is reluctant to reveal any details. "We do not want to remain static, and developments require investments," he said.
Getting bored
Not every popular website deserves investors' interest, though. "It is not difficult to launch a community site," said Marcin Hejka, Intel Capital's director of strategic investments for CEE. To achieve success, a site needs to offer high quality and strong functionality, though a bit of luck and intuition comes in handy too, he added.
"The task is not only to attract users, but also to encourage them to stay," Hejka noted.
However, the online market is quite young, especially in Poland. Predicting which portals will guarantee a profit in the long term is therefore rather difficult. "We can only guess that this is a profitable branch - there are no records of the market's earlier operations and it is impossible to compare it with the development of any other medium," Magda Borowik, a research analyst at Communications IDC Poland said.
Both Marek Borzestowski, an expert in new technologies at the Sobieski Institute, and Jakub Nowakowski, an analyst at financial advisory Xelion, stressed the value of investing in a site which is not just a novelty, but rather a useful and practical tool. Those portals that appeal to basic and universal needs - like job, dating or hobby sites - are most reliable, Borzestowski stated. Yet, to enter these areas of the online market is difficult because they are already saturated, Intel Capital's Hejka pointed out. "The cards have already been dealt," he said, noting that community sites devoted to brand products - Sony products, for example - have a chance for fast growth.
A lack of strong competition and an ability to stir emotions are key to success as well, as the example of Nasza-klasa.pl shows, IDC Poland's Borowik noted. But, the popularity of this portal may soon peter out. The problem is the limited range of services and lack of content, most analysts interviewed by WBJ argue. People are intrigued to see their childhood friends but are not able to strike any deeper relationship with them, and soon get bored, analysts said. "[A graphic representation of the] development of Nasza-klasa.pl is reminiscent of the shape of a hat," said Borzestowski. "We see rapid growth, followed by a period of stabilization, and finally a quick drop will take place."
Evolve or die
The portals need to evolve and surprise the users. "[It is] just like a computer game which requires [content expansion]," said Borowik. Still, what to add remains a difficult question. "The answer would be quite valuable," Intel Capital's Hejka said.
Internet firms such as Allegro.pl, internet messager Gadu-Gadu or Grono.net work on developing new services. "We are investing in young, creative people to develop new ideas and projects," said Robert Rogacewicz, Grono.net's president. For his part, Janke would like Salon24.pl to get into multimedia and the production of TV programs.
There's always the chance that the online audience may ignore or reject a new service. According to Web2's Faber, most popular portals offer a number of interactive services, but only few capture the attention of internet users. "The number of features isn't always a user's priority. Sometimes it is simplicity and social gain from using the services that matters most," he said.
Pinpointing the target
Advertising - the main source of revenue for Web 2.0 sites - is also evolving. So far Polish portals have been largely free from obtrusive forms of advertising, but greater capital investments will expect greater revenue and ad sales will be on the rise. Advertising will thus need to target consumers ever more accurately.
With massive amounts of demographic data on users' habits, it is possible to target ads more precisely and with greater benefit to the user, said Web2's Faber. He added that the next step would be taking advantage of all the assembled data to provide predictive delivery of information and services based on user preferences, demographic similarities, social network membership and so on.
Beware of your friends
While advertisers rejoice at the wealth of personal data available, users themselves face enormous risks. Many fall victim to abuse or crime. Last week, for example, the media reported several incidents of personal data listed on Nasza-klasa.pl being used inappropriately. In one case, a lawyer, for example, received threats from a dissatisfied client. In the addition, the head of Law and Justice's (PiS) parliamentary club, Przemysław Gosiewski, discovered someone was pretending to be him on Nasza-klasa.pl. As a result of these and other cases, the Bureau of the Inspector General for the Protection of Personal Data (GIODO) has announced it will investigate Nasza-klasa.pl's data protection protocols.
Analysts call for greater caution. "We need to be aware that this is not just 'me and my computer,'" said Torsten Hekkelstrand, group account director at OMG Digital. Still, he noted, people have the right to feel secure while using this sort of services. Web2's Faber commented that more people are getting online, but the general awareness of the lack of privacy is dropping. "While 10 years ago internet users were generally well-educated and self-conscious, right now most [are less savvy]."
Too early to float?
Networking portals and services based on social interaction and user-generated content will flourish and keep growing, said Faber. He added that some of these companies will raise venture capital and some will go public.
A stock exchange debut is generally a distant option for such sites, experts said. "It is much too early and the market is too uncertain. It is also difficult to evaluate such a company," said IDC Poland's Borowik.
Intel Capital's Hejka was more optimistic. "Any business bears risk, as the bourse has seen in the case of construction companies which have gone bankrupt. Of course the risk is higher, but so is the revenue. Those who are risk-averse should invest in state bonds," he concluded.
Xelion's Nowakowski was enthusiastic about the prospect of bourse debuts, but agreed that it is too early to enter the main exchange. "These companies should test the waters on the WSE's NewConnect platform," he said.
Analysts agree that the branch will soon see consolidation, leaving the fittest to survive. "This is the time for acquisitions," said Grono.net's Rogacewicz.
