ROBERT BONNIER - SCOOT.COM - (SCO.L/SCOP)
CEO Interview - published 08/14/00

DOCUMENT # KAP005

ROBERT BONNIER, 30, is the Group Chief Executive of Scoot.com Plc. He was appointed Chief Executive in December 1996. Robert Bonnier was a seed capital investor in Scoot and joined the Company in February 1995 as Chief Financial Officer. He is responsible for the overall strategy and development of the Group. Before joining Scoot, Mr Bonnier spent three years at Swiss Bank Corporation, where he was a Corporate Finance and Mergers and Acquisitions Manager, specialising in media and telecommunications.

Sector: Internet Services

TWST: Can we start off with an introduction to the company?

Mr. Bonnier: Our IPO was four years ago, so it’s been quite a while. Basically, what we’re building is one of Europe’s leading — and, we believe, most comprehensive — multi-access transaction exchange, where we focus on a select range of vertical markets and trading models. Our service experience for buyers and sellers is unique and easily transportable across the whole of Europe.

TWST: Can you profile your customer base?

Mr. Bonnier: Effectively what we run is a big transaction exchange. On the left hand side of the transaction exchange, we have what we describe generically as our buyers, who are primarily consumers, 75% and 25% are businesses. A consumer’s typical profile is, affluent, higher-spending, between 18 and 45 years old, and our regular buyer of the Scoot exchange uses it between 10 and 12 times a year. On the right hand side of the exchange, are our sellers, 75% businesses and 25% consumers; so both C2B and C2C. The business and consumers offer services and products for sale in five vertical markets: home and garden, business services, travel and entertainment, retail, motoring. Through our proprietary exchange, we can perfectly match a buyer and a seller request, therefore creating unique benefits of transacting through the Scoot exchange.

TWST: Can you give me some feeling for how large the market is in which you’re operating?

Mr. Bonnier: It’s enormous. Effectively, it’s something like 45% of GDP, which are covered by the aforementioned five vertical market segments that we cover. However, we are very focussed in terms of audience reach (the buyers) and the extent to which we want to penetrate certain market segments. Scoot is not interested, like Amazon or e-Toys in selling homogeneous products; we are really delivering value on the services side, where margins and competitive barriers to entry are much higher. In addition, our business model is now leveragable as a result of the introduction of variable fees. The more traffic we can direct to our businesses, the more referral fees we can make.

TWST: What are your geographies; are you Europe-wide?

Mr. Bonnier: Today we’re operating in the United Kingdom, Holland and Belgium. We will be launching in the autumn in France and towards the end of this or early next year in Italy, and in 2001 we will launch in Germany, Spain and Portugal; so by the end of next year we will cover around 85% of the population of the European Community.

TWST: You mentioned that you didn’t view the traditional channels as being competitors. Who are your competitors? How do you categorise them? What differentiates you from them?

Mr. Bonnier: I don’t perceive myself directly competing with the traditional media companies, whether that’s regional newspaper publishers or yellow page operators; the market opportunity is vastly wider than that, if you are able to provide them with a tailored service like Scoot does through whatever access channel they want to use you. So we believe there are two types of competitors. First, there are the new entrants with even more domain expertise than Scoot. They are totally focused on, let’s say, just the home improvement market or just second-hand cars or just real estate, and therefore have even deeper and richer transaction-related content than Scoot would have. We are already far more advanced in providing our buyers with relevant content which will allow them to make a very informed purchase decision, whereas if you open the Yellow Pages, you don’t know whether the electrician is good or not or whether he does a special type of electrical wiring, whether he would have a call-out charge, whether he is registered with a trade association. All of those things you would find with Scoot and would be relevant for you to make an informed purchase decision. So you have start-up companies that are really just focussed on one particular market segment or domain, as we describe it; and basically they would have a chance to compete head-on with us. Secondly, there are a number of incumbent companies, some of which are actually publishers or media companies but they could also be insurance companies or banks, who have already established market presence. For example, there are insurance companies who also own real estate networks, so not only do they have a lot of additional opportunity to provide people immediately with mortgages and with their content insurance policies, but they actually also own the real estate networks and are, therefore, able to offer pretty much a turnkey solution in such market segments. I think what makes us different is that we really position ourselves as being a buyer-centric impartial transaction facilitator who with its proprietary technology and databases is able to deliver a range of trading models that really satisfy every buyer request that we get to our exchange. For example, if you are interested in finding out about a hotel, it might be that you’re actually looking to organise your complete weekend away with your kids, so the hotel needs to be, say, four-star, but it needs to have a special weekend rate, it should also have a heated swimming pool and be within a 20-mile radius of the entertainment park you want to take your kids to. The advantage of using Scoot is not only can you immediately make a reservation, you will also get the benefits of going to the entertainment park at a discount, being able to book a nearby restaurant for a Sunday afternoon lunch, etc. So, effectively, we provide you with a turnkey solution; and this is where we can also fit very nicely as a sort of overriding application to these very specialised exchanges, like, for example, somebody who would just be focussed on the home improvement market. We can provide them with an umbrella where we will get a lot of usage into our exchange and can actually link that directly to their exchange if they have better transaction solution than we’ve got. But in many cases, our content is already superior to what is available on the marketplace. The last thing you have to realise is that we have, over the last three years, gathered a tremendous amount of behavioural purchasing information which nobody else has been able to do yet because we have had a direct contact with our buyers. They tell us what they want, they tell us when they want it, they tell us how they want it, they tell us in many cases what they’re prepared to pay for it. Therefore, the way we’ve been able to build up our service is not only from a very localised basis, but also being able to extrapolate that and take that into a national and international context. Let me give you two examples. Why would you find on the Scoot exchange taxi companies with female drivers? You wouldn’t find them on a regional newspaper directory exchange or in Yellow Pages publication. Because we know that in London alone there are thousands of women that call Scoot or use Scoot’s Internet site or use our mobile voice application to tell us that they are actually interested in getting a taxi company that would have a female driver. Now, not only is it relevant for us to provide the buyers with a solution, it’s also relevant for our sellers because we have, I think, something like 28 taxi companies in Greater London alone who have actually made the effort to employ female drivers. Clearly, if they employ female drivers, they would like to get business that is really satisfying the demand for that type of service. So this is where we can really bring buyer and seller seamlessly together and where obviously we have a substantial advantage because we’ve already got all of these purchasing patterns established and, therefore, we can build our content and establish our relationship ahead of the competition. If you then extrapolate that into an international context — if I was an Englishman, what is Scoot going to offer me when I’m travelling internationally? Well, a couple of things. If I step out in Holland today and I say, I want a black cab, many people in Holland would not understand what I’m trying to say, but what I really want is a licensed taxi company. The way our databases are synchronised is that that would immediately provide me with a licensed taxi company so I can keep my own cultural experience to myself whatever the request is I make to the Scoot exchange, whether it’s an international request, whether it’s a local request or whether it’s a nation-wide request.

TWST: Do you commercialise the information that you gather from the consumer side of the equation?

Mr. Bonnier: No. We only use it for our own benefit for establishing and further enriching the service applications that we offer to the buyers and sellers. We are very careful with the information that we gain from our customers, and I’m pleased to say that in the last five years we’ve not had one complaint about somebody actually providing us with information and saying, well, this information must have gone somewhere else. The only way we use it is with our partners in order to build even better service applications than we already offer today, so we don’t sell it to list brokers or other database companies. We use it for ourselves because we believe that ultimately the best way to commercialise it is by offering an even better service, whereby buyers come back not 10 or 12 times a year but come back 20 or 25 times a year.

TWST: Let’s talk about the business model. Where are the revenue streams in the electronic exchange business, specifically for Scoot?

Mr. Bonnier: Although we run a very revolutionary online service, we used to charge on a subscription basis to the sellers. So a hotel or restaurant would get charged around GBP700 a year to be actively published in the exchange. Today, because of where and how we generate those buyer requests, we improve on our long-term economics taking into account our acquisition cost and our operational fulfilment and development cost, we should charge on a variable referral/transaction basis. That lead value we charge to a seller is determined by the individual business, i.e. if I’m a taxi company, and I get a referral from Scoot, I should pay 75 pence for a referral. But if I’m a recruitment agency I might pay GBP4.50, so it’s on a value-based approach and not only is that the case, we also take into account obviously whether the purchase will take place, what Scoot’s local competitive market position is and many other factors that ultimately determine the fee that we would charge them. So today the seller would get charged a very small publishing fee of around GBP200 per annum, to be actively listed on the database and receive the attributes and geospatial benefits and then pay on a per lead basis. So in two or three years from now, the lion’s share — 75%-80% of Scoot’s total revenue — will come from the referral and transaction fees that we will generate on connecting a buyer with a seller.

TWST: How do you resolve the tension between the fact that, for example, there are search engines out there that cover the Web and your database, which is still subscription-driven?

Mr. Bonnier: It’s not, because obviously we have a complete database. If you come to Scoot and you ask for a chicken sexer we’ll provide you with one whether you’re a subscriber or not — that doesn’t matter. So I will always provide you with the answer, but obviously again if you look at our five core vertical market segments, 85% of our total usage takes place in those segments, and therefore you can ensure that in those five areas you build much deeper transaction-related content than you would do in areas such as the ones I gave you just now which might happen — one in a million requests you get are weird requests like that. But basically all of the databases in each of the countries that we operate and all of the countries across Europe that we will operate in, we will have complete databases. So even if you ask for something very obscure we will provide you with a relevant answer. It’s effectively perceived as an opportunity cost for our exchange, because in nine out of ten cases we will be able to make a referral fee in the future.

TWST: Can you take me through your acquisition strategy, the sort of projects that you’ve been looking at recently, and highlight what you’ll be doing over the next 18-24 months?

Mr. Bonnier: We recently acquired Loot in the UK, which is a leading free advertising publication for around GBP190 million, and that brings us into the classified arena, so effectively today there are three types of services that we offer. First, we offer product-related services. We might provide information but that’s not where we’re going to make money, on homogeneous products, but what we’re very interested in is, for example, apartments to rent, second-hand cars for sale, saxophones, washing-machines and so forth. Two, the business services side, which is our core service, which is basically the hotels, restaurants, estate agents, solicitors. Three, the event-driven side, for either products or services. So within that integrated classified infomediary space, as we describe it, we intend to roll out services across Europe. We will do that primarily through our partnership with Vivendi, who obviously have got a major reach across Europe in terms of providing us with a lot of buyers into our exchange and also in many cases a lot of sellers, and together we will actively pursue opportunities to further increase the liquidity of our exchange either seller or buyers. I think going forward in the next 18-24 months you will see us very aggressively rolling out our European network. As I said, we want to have most of that completed by the end of 2001, and we’re very much on track to achieve that. We will do that with Vivendi and associated related partnerships in the other countries. We will make other strategic alliances that will bring us more domain expertise in one of those five vertical markets or that will bring additional primarily classified content into our exchange.

TWST: You mentioned operational fulfilment costs; what sort of costs are we talking about?

Mr. Bonnier: If you look at where we stand today, that’s primarily in the call centre environments, because obviously we are still very much a voice-driven service, both mobile and fixed, so in the UK, to give you an example, we employ now 350 people full-time to answer the enquiries of our buyers, so that’s considerable expense. On top of that you have just the running of your generic infrastructure, which is basically very much the Internet site, the WAP, and the digital television side. But the operational fulfilment costs are primarily being able to put buyers and sellers in touch with each other, and obviously the fulfilment costs are the highest on the voice side and the lowest on the Internet side.

TWST: In which areas do you anticipate making the most significant investment over the next 18-24 months in terms of either technology or infra-structure or acquisition?

Mr. Bonnier: I think the way in which we can set up a local Scoot now has become much easier and more cost-effective, so the primary cost of setting up a Scoot is on the one hand your infra-structure, on the other hand the building up of the database, which is initially very much front-loaded, and then the overall marketing communication. But if you have the right partner then the marketing communication becomes much easier because, typically, you can tap into very large existing subscriber bases, so that cost will be considerable, but — in light of what our investments to date have been in the UK and in Holland and Belgium — will be significantly lower than in those countries when we establish our new entities across Europe. So I think that, overall, I can see that our operational fulfilment costs will continue to decline as a percentage of sales; so will our acquisition costs of buyers and sellers — they’re coming down very fast, which is really encouraging. The investments in R&D will continue to increase as a percentage of sales to probably around the 7%-8% level from the current 4%-5% level, and on top of that I think the most significant area of expenditure will be either in strategic alliances or acquisitions.

TWST: Can you give me an idea of what R&D means for Scoot; what actually does it comprise?

Mr. Bonnier: We have developed our own proprietary technology platform. With regards the buyer and seller databases, when you make a request into the exchange, it will apply, as we describe it, escalating intelligence — other people call it just simple propensity modelling, which is basically the use of artificial intelligence. We use not only your historic profile — looking at what you have done with the exchange in the past — but also at the peer group and recent requests for similar types of services that have been made against the individual that you are to then determine what the best service provider is for you. All of that technology is developed in-house. That technology can be further extended; today, we offer you primarily referral services and requests for quote services. In the future, we will offer you auction services, scheduling services, and so forth. As we, obviously, go further out and link up this whole European network, then there are a number of other commercial avenues that we can exploit for which we further have to extend our technology. That type of development takes place in-house. In terms of the actual day-to-day running of our systems, we work very closely with IBM. Not only does that give us, on the one hand, far more resilience than we could otherwise offer, but it also allows us to expand and ramp up the usage of the service much more effectively than if we were to take control of that ourselves.

TWST: What are the most important metrics for an investor to monitor in trying to understand how Scoot is progressing?

Mr. Bonnier: Going forward, it will be very much the speed at which we will increase the number of subscribers in our exchange — by subscribers, I mean sellers — and therefore the coverage ratio of the number of buyers that come into the exchange vis-a-vis the number of referral fees that I get. Let me explain this to you: if today I get 100 buyer requests, I will only get three or four referral fees, but as the number of subscribers grows, that figure will grow exponentially from 4% to 20% to 25% to 40% to 50% and so forth. Now, that coverage ratio will be the key, because the faster that coverage ratio goes up, the faster the underlying leverage will actually materialise, and that’s something that’s really starting to accelerate as we speak.

TWST: What about your marketing strategy and brand-building activities; how do you go about that?

Mr. Bonnier: If you look now, we have a very comprehensive marketing communication plan which stretches into three main areas. One is obviously very much above the line, focussed on the buyers, trying to get them to understand the product and how to use the product that Scoot offers. The second one is on the sell side, which is partially above the line, primarily below the line, where we prepare our sales force or our indirect sales channels to explain the reasons why they should publish their information on the Scoot exchange and why they should use the Scoot exchange as a mechanism to attract new qualified customers. The third element is just a generic brand building, i.e. making sure that people recognise the Scoot brand, understand the brand value we’re building up, that we’re, on the one hand, very serious, but we’re also fun; we’re very flexible and efficient and functional, and that we’re able not only to provide you with a local service, but we’re very much able to provide you with a national and international service. So there’s a three-dimensional approach which interlinks very closely. So for example, because we know where we generate buyer requests and when we generate these buyer requests, and because we understand the seasonalities of business patterns and so forth, our sales force can actually manage a particular market segment very effectively. You should not sell to estate agents in the summer; you should sell to estate agents, let’s say, between the 15th of October and the 22nd of November. We have that flexibility; we’re not bound by publication dates. What I can do is actually make sure that I’m giving the right marketing support to my salespeople if and when we tackle a particular segment. So we can be very precise with our marketing messages. The same applies to the buyer, “Scoot is your personal, resourceful transaction friend” in your day-to-day life, and should become first port of call: hey, I need my bicycle fixed, or I need a new washing-machine, or I need a solicitor, or I need a car-washing shop — just Scoot! And that’s really what we’re trying to do now. From an initial point of view where you have very little brand recognition and where people really have a lot of misconception or misunderstanding about what the service offers, we have now reached a level where we can actually start to build through a lifestyle mechanism on these messages. I shouldn’t just use Scoot like a negative response mechanism — i.e., bloody hell, my roof is leaking, so now I need a roofing company, so now I need to use Scoot. I should use it in a proactive way: I want to organise a weekend away with my girlfriend or I want to go out for a night. They will make me a reservation at a “hot” restaurant. They will make sure that I get a taxi to pick me up from my house.

TWST: Where are your marketing costs as multiple of your sales?

Mr. Bonnier: At the moment, if you look at the next financial year, then our marketing costs in the UK will probably be around 30% or so of total sales, but they’re coming down because we’ve been extremely successful in capturing that buying community quickly. We’ve done this in two ways. One is word of mouth, and the second one is that people who used the service five or six times a year a year ago are now using it 10 to 12 times a year, which is extremely beneficial to the medium and long-term economics that the exchange can deliver. So we continue to invest considerable amounts of money in marketing, but I would say in a two- to three-year time frame marketing expenditures will be between 12%-18% of our total revenue line.

TWST: More generally, can you take me through the financials of Scoot? Where are you in the profitability stakes?

Mr. Bonnier: We never really comment on profitability but effectively what we say is that we will reach a critical mass, getting around 75,000-80,000 subscribers in the UK market. That is where the business should turn into cashflow positive, subject to normalised marketing expenditures and infrastructure expenditure. At the moment, our last reported figure was about 22,000 subscribers. As I said, that number is starting to grow quite quickly now. We have said in January of this year that we expect to be at 60,000 subscribers by the year end — that’s December 2000. We’re confident that we will hit that number. So that means that, sometime next year, we’re going to hit that magical milestone of 80,000+ subscribers. As I said, if the competitive landscape doesn’t change or we’re not forced to accelerate further marketing efforts or make other moves to ensure that we retain our leadership position, then the economics should really become apparent of this business in the UK in the next four to six quarters. Going forward in Europe; one, we will have to spend less money to gain the critical mass that we’ve done in the UK because the model has become so much more flexible; and two, our partnerships. We’ve learnt from the numerous mistakes that we’ve made. The positioning of the service is much stronger, but just as importantly, we will be able to benefit from the partnerships that we’ve established and that we will be establishing that will allow us to acquire customers, both buyers and sellers, at a significantly lower acquisition cost than we’ve had to do in the UK or the Dutch or Belgian markets. So therefore, the returns in those markets will be higher, but also the speed at which they can come to an overall break-even point will be brought forward considerably from the time it has taken us in the three territories that we operate now.

TWST: What is the cash situation of the company? Is it sufficient to enable you to survive to your anticipated break-even or cashflow-positive?

Mr. Bonnier: Yes. We have after the Loot transaction around GBP60 million of net cash, which, if you look at our quarterly working capital requirements, is sufficient to cover our present requirements. Going forward, in terms of expansion, clearly, we want to be very careful and make sure that we keep significant headroom availability to take advantage of acquisition and investment opportunities. So we will continue to be very careful. We have not taken any money from the public markets for the last three and a half years, which is very unusual. We’ve always relied on either doing private placements or getting money from strategic investors like Vivendi, so we’re very comfortable with our financial position, and as we demonstrated with the financing of Loot, which basically Vivendi financed at quite a considerable premium to our current share price, if we believe it’s the right strategic move for the company, we’re able to find the necessary financing.

TWST: Where do you see potential constraints on your growth? Is it the customer acceptance of the business model? Where are the obstacles that you have to overcome?

Mr. Bonnier: I think it’s purely the execution skills and the management bandwidth. The market is still very tight in terms of labour. We have built a first-class management team in the last two years, with versatile skills sets. These are relatively complex businesses to set up, databases you don’t build up easily and overnight! If you talk about the whole infrastructure and the way in which you have to position your product, it’s far more complex than people are led to believe sometimes. So it takes time and, therefore, in order to gain the relevant local market expertise to get people up the learning curve to really understand the ins and outs of the Scoot model, it requires a lot of dedication to basically ensure that the human capital is available to us if and when we make our next move. I’m probably spending 30% of my time purely on the recruitment and management side, making sure that people get up the learning curve very quickly so that they can contribute to the growth path that we have set out, which is, I would say, the biggest challenge. One of the advantages we’ve got is that, as I say, we’ve already made mistakes and we’ve learnt very quickly from the mistakes. We are getting very smart in the way we execute our business plan, and we are focused in terms of making sure that the underlying dynamics, the economic dynamics, are really improving in the way that we expect them to do.

TWST: Finally, when you look three to five years down the road, how will Scoot look?

Mr. Bonnier: Scoot will be perceived as Europe’s leading infomediary play. Wherever you are, whenever you want to do something, your first port of call will be Scoot to either send a bunch of flowers to a sick relative in Glasgow or to organise a car breakdown recovery service with a certain capability in a specific country where you don’t speak the language. We will remain very focused on the five vertical markets. We’re not just going to be a generic directory play; we’re going to be ensuring that we get the best quality content in those five vertical markets. That won’t be easy. We will have to take a lot of additional steps to make sure that we can really do so, but basically you will perceive us as your one and only personal resourceful transaction friend and you will use us many times per year to satisfy the day-to-day purchase requirements you have in your life.

TWST: When you meet analysts, are they convinced that you’ve learnt the lessons of the past and that the future is bright?

Mr. Bonnier: The future’s purple! In the last 18 months that has changed in our favour, and I think actually now I can say that we’re under-promising and over-delivering, whereas it used to be different in the past. We’ve got a reasonable market capitalisation, we have a strong financial position, we have a first-class product, we have a great partner and a fantastic management team, so it’s going to be down to us. If in three years’ time we have not achieved what we want to achieve, we can only blame ourselves, and we all know that.

TWST: What sort of questions are these analysts asking you currently?

Mr. Bonnier: On the one hand, they’re asking how fast we’re building critical mass up in the core UK markets. We’ve been quite explicit about that. I think they’re probably awaiting a number of additional partnerships which we will announce in the near future, and secondly how our relationship will evolve with Vivendi, who now own more than 22% of the company and 50% of Scoot in Europe; thirdly, how fast we will be able to roll out across the rest of Europe. I think those are the three key questions that people are asking.

TWST: So the thing to watch, therefore, is the newsflow relating to those issues over the next six-12-18 months?

Mr. Bonnier: Yes.

TWST: If you were sitting down with a potential US investor, is there anything that you would like to add? Is there any feature that you’d like to highlight that would convince him to buy in?

Mr. Bonnier: I think that those are the three key questions from a US perspective, as well. I think they still need to understand how the financial dynamics work with the model as well. The acceptance rates of the variable referral fee as I explained it to you have been very high, and we believe that if we obtain that leadership position quickly then the pricing dynamics will only further improve for Scoot so we know that the medium to long-term margin that this business can generate is very considerable, and that’s why we will continue to invest heavily in development of additional technology and service applications and the strong marketing investment in terms of really getting to that critical mass quickly.

TWST: Thank you.

ROBERT BONNIER
Group Chief Executive
Scoot.com plc
Beaufort House
Cricketfield Road
Uxbridge
Middlesex UB8 1QG
United Kingdom
T +44 (0)1895 520 000
F +44 (0)1895 520 001
www.scoot.com

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