Kate Bulkley, Media Analyst.

The bubble that didn't burst

By Kate Bulkley

The Guardian

Monday August 18, 2003

The middle of the dotcom crash may not have seemed the ideal time for another internet startup - but two years later, listings service Espotting is worth over 100 million. Kate Bulkley on a rare internet success story

Stories of profligate internet companies crashing after the dotcom bust are legion. Tales of those that were created in the immediate aftermath of dot-mania and have not only survived but prospered are rare indeed. Espotting, however, is just such a case. As Concorde rides and the champagne lifestyle of the young bosses of the dotcom-crashers came to an end, ex-schoolmates Daniel Ishag and Sebastian Bishop set up a paid listings internet search company in one room of Ishag's flat in South Kensington.

Amid the turmoil of the online world at that time, the two young entrepreneurs struck gold. This was confirmed when, two and a half years after Espotting's low-key start, it was acquired in June this year by US paid-for search company FindWhat.com in a share-and-cash deal valued at $163m. The company has now moved out of Ishag's flat into an open-plan office in the trendy Brick Lane area of east London.

Ishag and Bishop are opposites, and they like it that way. Ishag is the hyperactive one, too busy to sit down for too long. He is also the money man, a natural trader, the guy who came up with the idea for the business and who can charm money out of any investor's pocket. Bishop is taller than Ishag, more thoughtful, talks in considered tones and has been in love with the advertising business since his schooldays.

One thing the two friends do have in common is that on leaving school at 18, they both headed for the world of work instead of university. Bishop moved full time into the ad-agency world at Publicis in France, and later at Rainey Kelly Campbell Roalfe/Young & Rubicam. Ishag, meanwhile, did a series of jobs in a variety of industries with an itinerary of far-flung places, including Indonesia and China, until he settled in Geneva at Hirsch & Cie, a boutique bank co-founded by his brother, where he advised technology companies. Both are natty dressers and have interesting social networks in the UK and continental Europe, which has at times been useful.

It was after completing a few online business-to-business deals at his brother's bank that Ishag thought an online advertising company could work, especially one that was based on the technology used by search engines like Google. Ishag knew that, with his banking brother's help, he could raise the money for the new business, but realised he knew nothing about advertising. "I was a suit and that's what I knew, and that alone wouldn't have worked," he recalls.

A skiing vacation in Europe with Bishop was the venue for a decision by the old roommates to join forces and launch Espotting together. In February 2000 the company was born, and the website came online six months later. At the time, it seemed in many ways to be the worst possible time to start any online business, let alone one centred on advertising. However, the timing proved to be perfect; and the two men respect each other's personalities, getting along so well that they even share an office. "It is very rare that Dan and I tread on each other's toes," says Bishop, whose skills are marketing, advertisers, and website design.

Faith and family were among the keys to its success. The seed money was delivered by Ishag and his brother. Ishag and Bishop then raised cash from 40 friends and family members, investing from 10,000 to 50,000. The duo were determined to repay their investors' faith.

Institutional investment came a year after their site launched. The founders won't say how much money has been invested, but it was likely less than $25m. "They funded this business as they went along and in a very hostile funding environment. I have to give them credit for that," says Bertrand Lipworth, a venture capitalist and personal investor in Espotting.

The faith in the business has been shared by the rest of the Espotting team, who have sometimes gone weeks without salary, yet stayed the course largely because of an unusual esprit de corps built around the original 10 employees (all of whom still work at the company) as well as plenty of fellow ex-Highgate school chums.

After the startup money was raised, Ishag concentrated on business development, although in the early days he worked the phones alongside the rest of the original sales team. "I remember we would call 60 advertisers a day each," says Ishag. "The first 2,000 or so advertisers were brought in this way." There were some tough early times, such as the day Bishop had to visit 20 people at Orange before the mobile-phone company placed its first advertising order in August 2000. "We educated a lot of customers and ad agencies about this business," recalls Bishop. In June, at the time of the deal with FindWhat, Espotting boasted 16,000 advertisers and had operations in 10 European countries.

One of the things that clinched the company's success is the speed at which Espotting was able to roll out its European offices and meet with key local players, in many cases faster than its biggest competitor, the paid-listing company Overture. Espotting owes part of its success to having the right connections. The Italian Espotting office, for example, is headed by Bishop's friend Rocco Benetton, part of the fashion-house family.

Another key is that the paid-for search ad system is performance-related. Customers only pay the search company if they get a "qualified lead", that is, a click from the ad to their own site.

"For tough chief financial officers of companies that were running out of advertising budgets, paid-for listing was the perfect advertising medium because they only pay us when we deliver them business," says Bishop.

It's a business that has certainly proved its worth. Paid-for search is as successful as anything on the web. The deal between FindWhat and Espotting was followed in July by the $1.6bn purchase of independent paid-for search provider Overture by super-portal Yahoo.

FindWhat's acquisition of Espot ting is good for both parties. Neither previously had a presence on the other side of the Atlantic, and both are independent, ie they provide paid-for listings to other sites rather than run their own search site, as Google does. Their ongoing strategies are also pretty close - to chase money from mid-tier online operations such as travel, food and destination sites, roll out turnkey paid-for listings services to big portal sites, launch new products and, in time, create a presence in Asia.

To do all that well will require more of the teamwork that has been Espotting's signature since the start. As part of the deal with FindWhat, all 178 Espotting employees will receive shares or share options. Ishag will become vice-chairman of the combined company, while Bishop will be chief commercial officer. Both will be on the board.

"Technically, this is an acquisition but we call it a merger because we want every single part of Espotting to stay intact and to continue to grow," says FindWhat's CEO, Craig Pisaris-Henderson, who has known Bishop and Ishag since 2000. The financial clout of FindWhat will help the merged company to take the next steps and quell any market concerns about Espotting's longer-term financial stability. "Amateur hour is now over in terms of financial questions or corporate procedures," says Pisaris-Henderson. "What these guys have shown is the tenacity to build the business and the intelligence to bring in the right people in the key positions. Now it is time to take it to another level."

FindWhat's stock price has risen since the deal with Espotting was announced from $13.50 to around $20, but the market is also aware that the newly enlarged company, which is now the largest independent paid-for listings firm, is now a prime target to be swallowed up itself. Portals such as MSN or AOL may want to do what Yahoo has done with Overture and buy in their own paid-for listings provider.

Pisaris-Henderson thinks that adding Bishop and Ishag's European nous will be an excellent addition to the merged company. He says the three of them are already finishing each other's sentences and that they all have the same vision about how to grow. But Pisaris-Henderson, who is 33, admits that the two Europeans are way ahead of him in one particular area. "They are a lot cooler than me. We call it SOA - standard operating attire - and it's about the way they dress, which is really cool," says FindWhat's CEO, feigning a slight sigh of regret.


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