Russell Perry was the CEO of the internet’s biggest real time people search engine, 123People. Bandwidth Blog takes you inside his tenure as CEO from when he joined as employee number three – taking the company into 13 countries, available in 11 languages, reaching 50 million unique visitors per month and fighting off competition from big US based rivals like Spock.
You started 123People, the biggest online people search engine. When did the idea come to you and how long did it take to get the first product up?
In fact, I was NOT one of the founders of 123people, I was “merely” the startup-ceo. The idea to create a people search engine was born by Markus Wagner and Martin Stemeseder who had sold their first company 3United (a Vienna based WASP) to Verisign (USA) and in 2007 started to look for new ideas. They were looking at the overall online search landscape and saw that there were some players such as spock.com in the USA and another German vertical search engine focusing on publicly available personal information.
However, it was more an aggregation of data (USA) and a link compilation (Germany) but no real-time search for this vertical.
So both set out to build the protoype and launched the website end of January 2008 out of their New York City apartment. I happened to be in NYC that week and I had been working with Markus and Martin for nearly 10 years ““ they used to build the stuff for online gaming and also the first mobile gambling platform while I was at bwin.com
I liked what I saw and I was asked if I wanted to build the website into a company. Over the next few months I followed their progress and joined them in the fundraising pitches for series A. In July 2008 we closed the first funding which was contingent on me coming on board as CEO.
The first few months were pretty rocky as we had a business plan but an unusable business model and the product was still in beta. There were no revenues, but there was growth. So I set out to get my A-team together and revamp the business model. Despite the opposition of the main shareholders and the VC guys to take a ““ what I call the 33-1/3 approach ““ and split revenue sources into display advertising, affiliate revenues and premium/charged services, we went ahead with it ““ thanks to one of the smaller strategic investors ““ and continued to grow the traffic and after six months ““ July 2009 ““ we actually broke even. By then we had a commercial product, were active in 8 countries and 6 languages, two of the three revenue streams where generating enough revenues to grow the business even further to about 50mln unique visitors per month by the end of 2009. This made us the most profitable and largest people search site globally.
Did you operate 123People from Austria? Do you believe you can truly build a global internet company from outside of Silicon Valley. Did you have a small presence in the valley?
Due to the fact that that there were several US players we decided to focus on Europe which also was supported by the fact that we had a Austrian VC and a German strategic partner. 123people was HQ’d in Vienna which was a benefit due to the proximity of our initial markets and also advertising partners.
Yes, I do believe that you can build a truly global internet company outside of SV ““ just look at Skype (Estonia/Luxembourg), and the Chinese online mega-players (though China is a whole market it is’s own, of course).
The only difficulty is that the VC money and a lot of the dumb money is in SV ““ in Europe there is less risk capital for startups, ample amount for expansion financing, but there is a clear focus on fundamentals of the business model ““ in SV a lot of dumb money goes to ideas, not fundamentals.. But, in SV the idea creation allows for mega companies to be build much more rapidly ““ look at FB with nearly USD 2bln in funding. THAT ““ would not happen in Europe.
No, we didn’t have any presence in SV or even in the US, only some PR support through an agency.
Was partnering with an incubator like i5invest, to gain access to their resources, critical to 123People‘s success?
Yes and no, the incubator itself was not really instrumental in the success, it was actually due to the network the CTO (one of the founders) and I had and the people (A-team) we brought on board. What was beneficial, though, was all the back-office resources like accounting and finance that allowed us to manage our costs through being associated with i5invest.
While you where in charge of 123People what was the peak audience number?
Just above 50mln unique visitors per month. An “actual” and audited number since we were listed in the official audience tracking in all countries. Always have to laugh about this, because we didn’t inflate out numbers since we had to deliver to the advertising customers..
If we had been a company without revenues, my answer would we Silicon Valley-eque ““ 200mln visitors!
How did you beat rivals like Zoominfo and Spock to become the largest online people search?
Spock had really great technology, but they were focused solely on aggregating and creating new profiles of people and making them searchable ““ but they didn’t have a business model, no revenues and put 100% on product instead of taking a 33-1/3 split in market approach as we did. They burnt through something around the lines of USD 12mln in just a few years without revenues.. Clearly, not sustainable. They also had major issues going into new markets, especially Europe since they didn’t have the legal know-how ““ which we did.
Zoominfo ““ we actually partnered with them for a while until they change their focus to only sell their data instead of utilizing the vast database they had to generate traffic on their own.. I had long talks with them that I thought that was not the way to go and clearly 123people, being the startup, wasn’t in the position to pay upfront for data ““ and that wasn’t our overall business and traffic model. Also, their international efforts changed and they focused only on the US, if I remember correctly.
Did you experience any privacy issues with your content aggregation model in building out profiles of people on the internet?
As a real-time search engine we didn’t aggregate content, we generated an on-demand dashboard of a potential profile out of publicly available personal information Big difference, especially as we were operating in a very strict European and especially Austrian regulatory environment.
Yes, there were several privacy issues from a customer and also legal side. We tackled this by being very transparent with the regulators. I introduced the credo that we need to work with the regulators and do not want to be the pirates of people search and are not building a black-box and hiding how we conduct our searches.. Additionally, I set up customer service right from the start and also established a independent position within our company to cover regulatory and governance topics ““ way ahead of the regulation being introduced now.
We had some challenges in Germany, but because we were set up the way we were setup we actually won a landmark decision on online privacy in Germany ““ the courts ““ usually very aggressive towards companies, see Google Street View restrictions and Facebook inquiries ““ changed their point and stated that: if a person seeks online presentation of him/herself he or she automatically loses their full rights under German personal law and under the data protection law. This is fundamental as it means that online citizens are protected but they are at the same responsible for their own actions when they post personal data online.
We read that 123People was available in 11 languages – what territories do you consider important to break into besides English speaking countries?
Yes, we were operating in 13 countries and in 11 languages. Clearly, the English speaking countries can be counted easily. The US is the most difficult market to crack, but at the same time there is enough “room’ for several offers from several players. The US market, however, becomes very focused and dominated by the company that can buy their audience. Look at Twitter, spending about USD 1 per user (in acquisition) without regards to the business model. At the same time, they dominate and that will be difficult to break into.
I would go for the UK and Australia ““ good eCommerce penetration, working online ad eco-system, large online audiences.
Russell Perry interview on Emerce TV
Within two years you sold 123People to the PagesJaunes Groupe – how long did you stay on after the acquisition? Was it a stock and cash deal or pure cash? How did you find working with a corporate parent, trying to keep your small agile company culture?
I was at 123people just over 2.5 years. We sold in March 2010 and I stayed on until end of 2010 and finished the year with a seven-digit ebitda. For me it was bit too early to sell and also to leave the company, but at they say in France: c’est la vie.
The deal was an all-cash deal.
The yellow pages sector is an old publishing environment and hence remains focused on publishing things rather than building eco-systems for customers and users to interact. The good thing about PagesJaunes Groupe was that they were/are generating about 50% of their revenues from online activities ““ though ““ and I own a few shares in them and read all their statements of course ““ is that while they are ahead, the culture is as cumbersome as any large company and their business model relies on off-line sales. I am not saying that that is a bad thing ““ compare to Groupon’s business model (comment: failing business model) – but when you are a small an agile company that generated revenues purely through online, activities, you have to really watch out that the excel sheet specialists don’t bog down innovation. While I was at 123people under PagesJaunes I was able to keep this innovation drive going and remain agile, I had quite a bit of leeway (and every now and then I wold beg for forgiveness)“¦
You raised venture capital from Gamma Capital Partners, tell us about that process – is it tough raising VC in Austria?
The process was quite quick since the VC sector in Austria was small and informal. After our exit, Gamma’s old partners pretty much disbanded and today, I would say there are NO VC’s left in Austria ““ at least not for startups.
What do you think of the current venture capital climate? With so many tech IPOs and high valuations is there a bubble emerging in some sectors within the internet industry?
I have to laugh ““ going back to dumb money, the VC sector is running after the next Facebook and pumping billions into companies that have no viable business model. I think that we are close to equalizing valuations again. The formula needs to be 3x revenues plus 8x ebitda with a potential upside allowance of 50% or max 100% if it’s a consumer service.
Do you think its important for internet companies to have a business model before they launch? Many current silicon valley companies seems to build product and audience first without thinking about how they will monetise.
I don’t think you should start a business without a business model ““ otherwise it is called a hobby. But when you see that your hoppy and garage operation can actually be sold or generate a large enough audience to generate revenues ““ be it primary or secondary revenues ““ then I would say, go for it!
