Leslie Walker's .com Live
Discussion with Naveen Jain
Chairman and CEO of InfoSpace.com
1 p.m. EST: Thursday, March 30, 2000
As the Internet goes wireless this year, leading
Internet and telephone players are locked in a
frenetic race to grab their share of the new market.
Web portals like Yahoo and America Online are going
head to head with AT&T, the Baby Bells and other
telecommunications carriers in a war over who will
collect the revenue from shopping, chatting and other
activities that analysts say we'll be doing soon over
the air waves.
Shopping over the airwaves? Yes, that's the
Internet's cutting edge this year. While fewer than
four million people in the United States use wireless
Web services now, analysts predict that number will
skyrocket to between 40 and 60 million within three
years. That's why all the top Web sites are
reformatting their content to squeeze it into portable
devices such as cell phones and PalmPilots. Carriers,
meanwhile, are trying to build mini “Web portals” that
will display tiny shopping menus on postage-stamp size
cell phone screens.
Smack in the middle of the wireless hubbub is an
unusual company called InfoSpace and its hard-charging
founder and chief executive, Naveen Jain. A former
Microsoft manager, Jain has built his little-known
company into a $14 billion powerhouse by providing
technology to warriors in the Net wars, including the
InfoSpace makes software to help people navigate
the Net from phones, pagers, PalmPilots, kiosks, and
various wireless devices. It also provides
non-wireless Web content—such as yellow page
directories and comparison shopping services—to many
Web sites. Jain believes many people will soon be
trading stocks, buying clothes and sending email from
the back of taxicabs. He believes we'll be turning to
our cell phones to find out what's on sale at Macy's
or Nordstrom much as we now turn to the weekend
Tune in Thursday and join the dialogue with Jain about
Hello everyone and welcome to Naveen Jain. We're glad to have him here today to talk about the future of wireless communications. Let's go right to the questions!
InfoSpace the company is quite a story on Wall Street. I don't want to put you on the spot, but your stock shot up like a rocket after going public at $14 over a year ago, then lately has been declining sharply. Why the recent slide?
Naveen Jain: We are focused on building the information and commerce infrastructure for the information age just like intel, microsoft and cisco built the infrastructure for the PC age. Information infrastructure has hundred times larger potential than the PC ever had. Think about it!! there will be 200 million PCs in the next 2 years compared to 1.5 billion cellular phones and billion TVs and Billions of other appliances that can use information and commerce infrastructure. If we continue to execute the way we have done in the past, we are in a position to dominate this industry with substantially larger market cap than of cisco, microsoft and intel combined. If you are an investor, would you want to miss out on such a great opportunity. Just think on how owuld you answer this question from your grand children "you mean, you could bought infospace at 25 Billion valuation and you didn't, I thought you were a smart guy"?
I guess you could say that I was smart and I did buy it and I still have it and it will go to you when I die.
So you know that we can't worry about the daily/weekly swing in the stock are more focused on building the company for the next century.
Let's start with Wireless 101. I know there is a stampede under way to put Internet content onto wireless networks. But a recent study by the Yankee Group showed most Americans don't have much interest yet in getting info from cellular phones. Weather registered the most interest, yet it drew only a 2 on a scale of 1 to 4. Do you know something most Americans don't?
Naveen Jain: Cellular phones are likely to be the device for people to get information, coduct commerce and manage their lives. Most people have not seen the new versions of cellular phones and services that allow them to get access to their calendar, address book, email, stock quotes etc. They are also able to conduct commerce directly from these devices. Most users do not have vision but tend to use the devices when they see it. It's like any new technology like ATM, credit cards that will be adopted once users see the benefits of it and see how easy it is to use.
We are likely to see over a billion such devices whether cellular phones or other non PC devices that people will use to access information, conduct commerce and manage their lives. These devices are already very popular in Europe and Japan.
InfoSpace is very well positioned to take advantage of these devices today while continuing to provide service on existing PC/Web format.
As I said earlier, we are building the information and commerce operating system for tomorrow and the next century.
Without mentioning specific agreements, what kind of revenue could be expected on a per user basis from one of Infospace's typical wireless contracts?
Naveen Jain: We provide a comprehensive suite of commerce, person to person instant messaging, communication, PIM, and location based information services to our partners. We are currently generating $1-$3 per subscriber per month in the US from our carrier partners such as AT&T, AirTouch, GTE, US West, SBC, Bell Atlantic and others. We also expect to generate significant commerce revenue ffrom these devices by generating commerce and transactions. We will be able to generate commerce revenue from on line and off line merchants for products and services.
We also get per query revenue from our services in Europe and Japan.
Ft. Myers, Fla:
On what fundamentals did you make the comment that InfoSpace could be a trillion dollar company?
Naveen Jain: If infospace continue to execute like we are doing. we will be able to generate $1-$3 per subscriber per month from Billions of cellular phones, and other non PC devices. In addition to this we expect to generate significant revenue from the commerce and transaction that are conducted in offline and online world.
You do the math. It could be a lot of money.. We still expect to generate significant revenue from our merchant and consumer services in the current PC/Web centric world.
How do you see 2 billion people using wireless devices by 2003 where only 1.5 billion have purchasing power to afford a wireless device? And assuming 100 percent penetration of that market is not realistic--there are 1.2 billion TVs out there after 50 years!
Naveen Jain: We expect that new cellular phones will merge the functionality of several existing devices like PDAs, pagers, cellular phones and even the existing wireline phones. Just like electricity, everyone will have these phones to access information, communication and conduct commerce.
As chief executive, we know you have to stay focused on building a foundation for the future and can’t react to blips in your stock price. But seriously, how can you dismiss a stock decline of more than 50 percent as a “daily/weekly swing”? It looks like a more fundamental reassessment of your company’s prospects is taking place on Wall Street. Can you shed any light on this?
Naveen Jain: Company fundamentals have not changed in the last several weeks. In fact, infospace business prospects are only getting better as we are signing new deals on a daily/weekly basis.
The stock market has a mind of its own. Stocks go up and they go down. As CEO I have to focus on building the foundation for the long term growth of the company. Eventually the stock market will catch up to the potential of infospace as the next blue chip company in the information age.
What is Infospace's source of revenue makeup 3-5 years from now ? and do you see $1-3-phone service that you are providing ever becoming "FREE" ?
Naveen Jain: We expect continue to generate subscription revenue as long as our partners are generating revenue from their customers. Think about it, we are getting $1-$3 from the 10-$15 per month that we are helping our partner generate from their customers. Since we are providing the complete solution including hosting the email, address book, calendar, messaging and other services for our partners. they are able to keep 80% of the new revenue that we are helping them generate.
Is Infospace going to pursue getting into the hardware business, or is it strictly going to be a software company?
Naveen Jain: We expect always to be in the services business. We are not a software company. We provide complete service to our partners rather than sell software to them on a onetime basis. This allows us to generate recurring revenue from our partners.
We are halfway through today's dialogue, folks. Keep your questions rolling in. Naveen won't be able to get to them all, but we'll make sure he sees all of your questions and comments.
Infospace seems like a leader in wireless information industry but is there any significant barrier to entry in wireless information delivery market to lock in your leadership position ?
Naveen Jain: There is a significant barrier to entry because you have to build the technology that is designed for multi-devices and multi-standards rather than reformat the existing content and use the existing technology.
e.g. our person to person messaging allows a user to get the message on any device without the sender having to know where the person is or what device they are using. our instant shopping allows a user to buy any product from any website whether the website offers one click buy or whether the user is a memeber of the web site. Our intelligent transaction tracking technology allows a user to get promotions from the real world that can be used at a restaurant or a dry cleaner with no physical coupon.
We have 33 patents pending on our technology and that's a great barrier to entry.
NEW ORLEANS, LA:
What can you tell the small investor, who is currently getting crushed by the past selloff, to rebuild their confidence in your company?
Naveen Jain: Keep the faith. Nothing has changed in the company fundamentals. Just remember the reasons why you bought it first and has any of it changed. If not, don't worry about it.
How do you see competition evolving, eg, Oracle Mobile?
I'm interested, too, in your reacton to the announcement today that British Telecommunications, Microsoft and AT&T Wireless Services are working together to develop wireless services. Some folks thought At&T would be an InfoSpace customer,no?
Naveen Jain: Oracle mobile is competing with phone.com and microsoft for their technology and their portal is likely to compete with Yahoo and other branded portals.
Our customer is the wireless carriers and not the end user itself that goes to the infospace portal. We already have all of the major wireless carriers such as vodafone in 25 countries, AT&T, GTE, USWest, SBC, J-phone and others.
AT&T is our customer and will be launching their service built on infospace's platform very shortly.
What is to prevent a Yahoo! or AOL from entering into the same arenas that InfoSpace is counting on to generate revenue?
Naveen Jain: Let me answer it from the carrier's perspective....
Chris Gent, CEO of Vodafone, the largest wireless carrier in the world, recently said that why would any carrier ever partner with Yahoo and AOL? This will only marginalize the carrier turning us in to dumb pipes. Why would we want to lose our customer to Yahoo or AOL and increase our churn rate. We plan to provide our own private label services to increase customer loyalty and reduce churning from us to other carriers.
This is why all of the major carriers are partnering with infospace to build their own private label solution. Also, nobody has the commerce and communication technology that allows our carrier partners to generate revenue from the offline world.
How has the roll out been for AT&T, Sprint, and Vodaphone? Can you give specific details, numbers or percentages of sign ups. Has it met your expectations?
Naveen Jain: Our partners are thrilled with the roll out and the adoption rate has been sunstantially better than initial expectations.
Mr. Jain, I noticed that the message boards really took a turn for the worse when you expressed your honest feelings about Phone.com. not haveing as superior of a wireless business model as INSP. Since then your stock has really taking a beating. Do you think it is wise to express your feelings about other companies when it may bring concentrated retaliation by individuals who are angered by these comments?
Naveen Jain: Phone.com does not compete with us and I was only pointing out the trends in the industry. I think most WAP software providers will find themselves in a commodity business.
In what timeframe do you expect to be bigger than Cisco, Intel and Microsoft put together?
Naveen Jain: A whole lot sooner than what it will take Microsoft and CISCO to be trillion dollar companies.
I’d like to hear your vision for mobile commerce at the local level. You’re developing electronic coupons and various digital discounts that will be available via cell phones and handhelds. How many retailers are signing up, and when will this be widely deployed?
Also, will this kind of advertising/promotion eventually siphon revenue from local newspapers?
Naveen Jain: Local commerce will be huge. We spend 3.7 trillion dollars every year and 85% of it is spent in the 15 mile radius of our homes. Also, most service based merchants like dry cleaners and plumbers, who account for 2/3 of the GDP are not able to take advantage of the internet. Our technology allows these offline merchants to generate additional reveune and it allows us to get a peice of the 3.7 trillion dollars.
Will you spin off Infospace mobile in the similar manner than Oracle spun off Oracle mobile?
Do you see Microstrategy as one of your main competitors in this space?
Naveen Jain: Microstrategy is not our competitor. They are a consulting company helping corporations provide information on PCs and cellular phones.
We are a service company that provides commerce, communication and information services to wireless carriers across the world.
Which nations represent the most lucrative markets for Infospace's services? Have you specifically targeted any of these markets -besides the US-?
Naveen Jain: We will generate approx 40% our revenue this year from wireless services in the US, Europe and Japan.
We've seen a frenzied spate of deals lately between Web content providers (Yahoo, AOL, etc.) and telecom carriers (Sprint, AT&T, etc.). And the carriers seem to be rolling out their wireless Web networks all at once. What's going on? Also, who do you think has the edge in building “portals” for wireless devices—Web gateways like Yahoo or the carriers?
Naveen Jain: Everyone seem to be announcing a lot of things but you have to focus on substance and not the press releases. Ask them who their customer is and who is using the service today. Our services are already launched or will be launched shortly by most major carriers across the world.
As I said in a previous reply that wireless carriers do not want to see themselves marginalized and be turned in to a dumb pipe by partnering with Yahoo etc. Some of them used the press releases to create the buzz but have no intention of working with branded portals in the long term.
WE are wrapping up today's dialogue. Sorry we couldn't get to everyone's questions!
Thanks to everyone for joining today’s lively dialogue. And thanks especially to Naveen Jain for taking time to answer all your questions. I hope you join us again in two weeks, when our topic will be how the Internet is transforming business. The guest will be Arthur Sculley, author of “B2B Exchanges.”
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