GoGlobal is Morten Lund’s new venture. Earlier this month, Lund pitched GoGlobal live on stage at The London Web Summit. Despite a few people thinking it was a ruse, GoGlobal aims to be a platform to grow globally for Software-as-a-Service (SaaS) companies. Lund says he wants to take three to four companies in to 40+ countries every quarter. Here is the problem I think he is looking to solve.
As soon as an Internet startup shows signs of success, somewhere in the universe its business model is replicated with razor-sharp execution tactics. If the startup is under the radar still, selling its products and services internationally is difficult without prior knowledge and business network.
Take online music streaming industry for example, its pioneer Spotify launched in Germany this month. Eagerly awaited by the German public, whose current suppliers of streaming music services include Deezer, Rhapsody, Rdio and Simfy, Spotify is now present in only 13 countries. Its French competitor Deezer has gone to as many as 45 countries and expects to conquer the world outside of the US by the end of 2012, according to its CEO Axel Dauchez. Will Spotify ever catch up?
First movers have good reasons to worry about competition. Deezer may not be a copycat, it was founded only 16 months after Spotify, but its plans to grow are much more aggressive.
So I spoke to a number of industry players to understand what it takes to grow an Internet business internationally.
Dauchez says that customizing the service was key to entering new markets. For Deezer it meant adding local artists, negotiating licenses with the labels for each individual country, and segmenting music into relevant genres (adding French Chanson for the Russian audience and Schlager for the German).
For some companies product localization may not need to be so extensive: for example Instagr.am did not do anything beyond translating its app into eight languages. For-website translation tools from EasyLing or SmartLing could work well.
In mobile apps industry, app store optimization, including localization of the screenshots in the appstore promotional materials, can increase download rates of a mobile app by 30 percent according to the mobile expert Stefan Bielau.
Distributing mobile apps internationally goes beyond Google Play and iTunes. Distimo lists 60 app stores, but some local ones would not be included. Publishing apps in those stores is still largely a manual task, according to Bielau.
For an online business operating in the B2C space a desirable marketing channel would be a global partnership with Facebook. Having accomplished that, Deezer enjoys a Facebook-driven user base growth of 20 percent per week.
Using other social networks such as Nasza klasa in Poland, Orkut, owned by Google and popular in Brazil and India, or Russian Facebook equivalent Vkontakte for marketing purposes also makes sense, as they are admittedly cheaper for user acquisition, although Facebook’s audience is larger.
Earning money from some of the social networks may be tricky. According to Danil Kozyatnikov of Questli from Novosibirsk, Russia, his social games company partnered with Russian social networks, but in some cases the company did not get paid.
Thankfully, for those with a sizable budget, B2C user acquisition can be done through advertisement. According to Siegfried Müller, the co-founder of a hugely successful Munich-based Travian Games (120 million registered users), advertisement networks are well established globally, and buying ads in different countries is an easy task. Travian is present in more than 50 countries.
All the “likes”, clicks and registrations are useless without adequate payment methods. PayPal and credit cards may not always be a payment method of choice outside of the developed countries. Even in Germany bank account transfers are still preferred over other payment tools, and the country has one of the lowest numbers of credit cards in the EU.
XS Software, a Bulgarian online games company that sells its games in 80 countries, uses over 100 payment providers. According to the company’s project manager Dimitar Yanchev, SMS payments are the third most popular payment method after PayPal and credit cards. This is especially true for those customers who have not yet reached the legal age to have a bank account or a credit card. Such payment methods can be quite expensive, as telcos take a significant cut as a commission. InSyria, for example, it can be as much as 80 percent of the total revenue.
Many countries have so-called e-wallets for those who are unwilling to use their bank account or credit cards for online payment. In Russia and some Eastern European countries it is QIWI, in the Middle East and North Africa there is CashU, BoaCompra in Brazil, DotPay in Poland and ePay in Bulgaria. The way most of these e-wallets work is by allowing the customers to deposit money into the online account through a payment terminal or a kiosk. But even in Russia, e-commerce leaders such as Ozon still receive over 80 percent of payments as cash on delivery, as its CEO Maelle Gavet shared at TechCrunch Moscow.
In Serbia, Internet businesses cannot implement payment methods because it is necessary to register a legal entity there. In Eastern Europe the same requirement applies in Bulgaria and Croatia. A group of Serbia’s leading e-commerce sites, which includes Limundo (Serbian eBay) and Kupindo (Serbian Amazon) is currently developing their own escrow-based payment system called Platindo which will eventually become an e-wallet.
There are of course payment aggregators such as Moneybookers, recently rebranded as Skrill, which offer integration of 100 payment methods in 200 countries, but they do not come cheap and according to Müller of Travian Games have a small market share in many countries.
Deezer’s international roll-out did not go beyond credit card and PayPal payments for now, but the company intends to improve on this and other localization efforts gradually by establishing offices in 15 key countries, and participating in local scenes: marketing at festivals, and engaging local artists. Currently its international team is 20-strong, but the company expects to grow its total staff from 120 to 300 by the end of this year. As for payments, bundling its music streaming service with telcos’ annual mobile phone contract is likely to boost their user retention and allow them to collect revenue from their telecom partners.
Deezer’s product is a digital good, and online piracy is its main competitor. Russian Vkontakte, for example, is blacklisted in the USbecause its users are enabled to freely upload music files and listen to them through Vkontakte free of charge. There is even a tool called Meridian that offers the creation of playlists using music on Vkontakte, all perfectly illegal and completely free. Dauchez believes that offering its users a premium music streaming experience. The rest is down to finding the right price point to get them to pay for it.
For online retailers of physical goods, further challenges abound. I spoke to Jonathan Teklu, the managing partner of Berlin-based incubator SpringStar, which backed KupiVIP, the Russian version of Ventee Privee. He told me that when its founder, Oskar Hartmann, launched KupiVIP in Russia, he had to buy a fleet of trucks to deliver goods to its customers.
Indeed, logistics is another significant operational challenge in many of the world’s markets, where consumers are likely to cancel a purchase if no suitable delivery method exists. To address the challenge, Russian iTech Capital has set up QIWI Post, a joint venture with Polish Integer (owner of InPost), which leverages the brand of QIWI e-wallet and its network of terminals. QIWI Post is a terminal where a courier deposits a shipment, and buyers pay for the goods at the terminal and open the box using a provided code. Similar solutions exist elsewhere: for example in Germany, Estonia, and recently – thanks to InPost – also in Ireland under the name of Parcel Motel.
Companies looking to establish presence in the large developing markets such as Brazil or India will need a local partner to set up a legal entity, according to Teklu.
Educating online users is also essential. The online room and sublet reservation company AirBnB partnered with SpringStar in October 2011 to boost its international expansion. In Israel and the Middle East it is currently facing a problem of a cash economy, where the apartment owners prefer to be paid in cash, rather through an online transaction, an essential element of the Airbnb user experience. Changing such an attitude requires time.
Another example of having to educate consumers is India, where Internet users still have trust issues with buying online from unknown brands. A ticket-selling website MakeMyTrip engaged local travel agencies to let them use its website to book trips, and by so doing, educate their customers that it is safe to do so, according to Teklu.
These are few examples of challenges that come with need to grow internationally. Going back to Lund, he plans to target SaaS companies supporting them with legal, accounting, affiliate marketing and payment services amongst others, all offered as one platform.
Interested in what others thought of the idea, I asked Tom Cupr, from the Czech Republic, who has grown his daily deals business, Slevomat Group, into a 60 million Euro company with a presence in 7 Eastern European countries in just over a year. He said what’s really important is execution, but then again, he thinks that GoGlobal could make international expansion a lot easier.
This post is written by our regular contributor Natasha Starkell, the CEO of GoalEurope, the outsourcing advisory firm and a publication about outsourcing, innovation and startups in Central and Eastern Europe. Twitter @NatashaStarkell. Gplus.to/natashastarkell.