Monday Note

In the social network business, the European success story is called Skyrock. Built on top of the #1 FM radio station for 18-25 year-olds, it first expanded into a blog platform, then into a full-blown social network making full use of links users waved between themselves. In Europe, according to ComScore, Skyrock.com ranks #3 among social networks, right behind Facebook and MySpace, and #6 among conversational media including platforms such as WordPress or Blogger.

The key figures:

• 39 million accounts, including :
• 25,4 million active blogs with 33,000 new blogs added every day
• 16 million individual profiles with 35,000 added every day (there is a small overlap between the two categories)
• This online population has created more than 650 billion articles, loaded 580 million pictures and 37 million videos.
• French monthly traffic is 8 million unique visitors (Nielsen), versus 13 million for Facebook
• But Skyrock gets about half of its traffic from abroad: worldwide, its audience amounts to 23 million UV (ComScore). As a comparison, Facebook logs 275 million UV worldwide, approximately 100 million in Europe and 70 million in the US (ComScore).

Now let’s look at the money side. Unlike Facebook, Skyrock is a profitable company. Last year, Skyrock as a group made €38m in revenue; half coming from its radio operations, and half from the internet; with an ebitda of about €7m for the group and €5-6m for the internet alone (last year was not great for radio advertising). Even better, Skyrock doesn’t seem to be affected by the worst year in internet history: its internet operations revenue is up 42% for the first half of 2009 versus the same period last year (the radio side is up 22%). These numbers make its owners happy. The group is a privately held company owned by the private equity arm of French insurer Axa (for 70%) and by the founder and CEO Pierre Bellanger (30%); being blissfully private, it doesn’t release financials. Most of the data mentioned here come from interviews conducted with Pierre Bellanger and his staff in recent weeks.

How can Skyrock thrive in such devastated online environment ?

The short answer is: by adapting its relationships, both to its customers and to the advertising community. For a blog platform or social network, page views are measured in billions per month. Nielsen gives Skyrock 1.2bn page views, Comscore 4.4bn, both for the French market, and 5.6bn worldwide. Nielsen grossly underestimates young audiences, it ignores people with only a cellphone subscription; such disregard explains the discrepancies between Nielsen and Comscore measurements. Until recently, the obvious business model was capitalizing on this huge traffic by selling advertisers audiences with inexpensive CPM (Cost per Thousand). Then, two problems arose: CPM became structurally cheaper as global inventories kept growing, and the financial crisis relentlessly pushed prices further down. For Skyrock, as for everybody else, it was time to update the model.

In marketing parlance, the main idea is to have members of a community participate in the advertising experience and to involve the brand well beyond the traditional sales pitch mechanics. The result was dozens of special mini sites, each dedicated to a single marketing operation, designed for a specific purpose, for a limited time. A couple of examples will help clarify. The first one is a traditional “tough sell” in French media: the Army. The Army wants to improve its image and to increase enrollment rates. To do this, the Skyrock’s commercial team proposed a complete web program built on a Reality TV show concept where a candidate borrows someone’s life for a period of time. Here, the idea was to take young guys — preferably not fans of the military — and to transfer them into an army environment. The program was called “Full Immersion”. A complete online casting operation was set up within the mini-site. Selected candidates joined their unit for the usual training, while a camera crew was followed the temp-recruits. It was quite a success, generating lots of traffic, with people following the candidates’ fortunes and misfortunes, as in a TV series, all told in a fairly authentic and human way (there is no forgiveness for fakery in such a setting). The Army was happy with the results (they measured it, of course), so much so the Navy now wants to follow suit. A broadcast TV network even bought rights to a short reality show.

In the last year, Skyrock has run about eighty similar operations. Banks, for example, are eager to capture the nascent savings of the youth; some financial institutions will assign most of their investment targeting the 18-25 year-olds to Skyrock (combining its FM radio and internet networks). Consumer brands like to propagate their products in viral ways, for instance through user-generated emails; such messages will eventually reveal themselves as sponsored. The film industry joined the fray with studios providing bonus, exclusive material on new releases with the intent of triggering buzz, conversations, links… “On movies”, explains Pierre Bellanger, “speed is key. The buzz has to be spread as fast as possible after the film’s release. Quickly amplifying the world of mouth is essential. Not only we are able to tell a film distributor ‘we can serve  you 200,000 people aged 18-25 in region X’, but we can do that in two hours”.
The fabric of a social network helps: more than data-mining its 40 million members, Skyrock wants to capitalize on actual links, relationships, affinities: if Zoe happens to click on an ad, the banner will be served to all her friends; this, in itself, dramatically increases the likelihood of a click on the ad, and therefore accelerates the spread of a message.

Needless to say, Skyrock makes a great deal of money in such operations. Cash comes from three different sources: the design of marketing campaigns, billing for the duration of the operation (forget about depleted CPM , “Sky” is charging by the day), and charging for technical services. With 150 people working on its internet operations, Skyrock can produce sophisticated sites swiftly and inexpensively. And when developing a new application is required, it is often supported by a client. I can’t think of a better system in our industry.

As expected, advertising agencies are looking at the Skyrock model with a mixture of concern and hostility. Weighed down by their massive overhead and lavish lifestyle, big firms find hard to compete with Skyrock’s swift-boat tactics… which discreetly jubilates when eating their lunch. Wisely enough, Skyrock treats big media buying agencies differently, they are closely associated to each special operation. Since it talks directly to the brands, Skyrock could, in theory, bypass media buyers, but it would expose itself to retaliation in other parts of its business. It’s OK to cause some to go a bit hungry for a while, but, in the end, a certain balance must be preserved in the food chain….

What’s next for Skyrock.com? Last week it put all its special advertising unit under a new umbrella called Springbird. The goal is to send the market a message about its new revenue model, one that shifts from classical, “one-size-fits-all” marketing campaigns to tailored-made operations.
The next big step involves mobile communication. The network plans to launch an experiment in cellphone-based coupons. User involvement in the marketing operation results in sending a coupon to his/her cellphone. The coupon is a barcode image to be redeemed in a supermarket chain, for instance. Teenagers are good targets: you have to spend an hour with Sky’s marketing team to get an idea of what your teenage kids are willing to enjoy. Fascinating, and a bit chilling…

The private equity market closely monitors Skyrock’s evolution. Late 2007, Yahoo! Inc. had agreed to buy Skyrock’s internet operations for almost $300 million. But the deal collapsed when Microsoft declared its intention to acquire Yahoo!. In themselves, Skyrock’s internet operations were valued at three to four times the entire company when, in March 2006, Axa Private Equity jumped in.  Since then, even in the current downturn, Skyrock’s valuation has been holding well. It is recent analysis tilted Modeling the True Value of Social Networks, TechCrunch prices Skyrock at $589m. Such number is based on Facebook’s most recent valuation. Even if this figure is inflated by a couple of hundred million, Skyrock is a nice business. With time is on its side. —FF

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