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Spirit of Enterprise – Biz Interview:

Dr Lai Kok Fung, Co-founder and Chief Executive Officer, BuzzCity

2009 Spirit of Enterprise Honouree

Established in 1999 and headquartered in Singapore, BuzzCity is a mobile media company that develops and markets mobile services and entertainment to a global audience. Its mobile internet advertising network delivers banner advertisements for mobile content providers, brands and advertising agencies to millions of online consumers.

Dr Lai Kok Fung, Co-founder and Chief Executive Officer of BuzzCity, led the company in its earlier years through significant market challenges such as tough competition and regulatory hurdles to its current position as a major market player.

In an interview with Biz Daily, Dr Lai shares how the company leverages on its unique strengths to manage diverse markets and achieve sustainable competitive advantage.

While BuzzCity faced some bumpy periods in its earlier years, what do you consider to be the turning point when you felt that your business would be sustainable despite challenging market conditions?

Mobile internet usage started to pick up sometime in 2007 outside of Singapore. Under our previous cost per acquisition business model, we allowed websites to publicise mobile services and we got paid when someone subscribed to those services. Later, we converted to a cost per click model for mobile internet and within a couple of months after the conversion, our initial partners started investing in this area.

We were quite clear about the potential growth of such a model because by 2007, we had been in business for several years and had some idea of what the reception would be like if we introduced a new product. And six to 12 months later, we began to see traffic and revenue increasing quite quickly for the mobile advertising business.

On your blog, you mentioned that you faced some problems when first entering the China market due to questionable practices by many Chinese competitors. Yet, the China market is too big to ignore. What is your approach to this market?

I see the world as comprising four big markets, namely the US, China, Japan and the rest of the world. Typically, you have to focus on one of these markets only. So for example, you either become a company that focuses exclusively on China, or you don’t. We decided that we could not focus on China and the rest of the world at the same time because the business eco-system in China is very different. We felt we could operate better by reaching out to the rest of the world instead of focusing only on the US, China or Japan.

BuzzCity is also headquartered in Singapore in the middle of Southeast Asia where the market is fragmented and hence a different approach is needed to manage it. And I think we have the unique approach and skills to do so. This gives us an edge over competitors used to homogenous markets when they come here.  Contrast this with us going to China and competing with local Chinese entrepreneurs who are used to the market there. We might speak Mandarin almost as well as they do, but we are still not native Chinese and are not sure how to be really successful in that market.

The experience we have acquired in how to manage diverse markets in Singapore, Indonesia, and Thailand can be transplanted into areas such as South Africa, Nigeria, Kenya, Argentina and Brazil. This means stitching together diverse small- to medium-sized markets and managing them as if they were one, which is where our strength lies.

We also give advertisers the scale and reach to target the type of users they are reaching out to.

Do you think advertisers are leveraging more on mobile advertising now given the currently strong consumer demand for mobile content?

I believe they are. Last year, the internet surpassed printed newspapers in the US to become the second-largest medium (after television) for advertising. Web advertising has even overtaken television ads in the UK. However, this took several years to reach that level. I think mobile advertising will take a relatively shorter time, though certainly not within one year.

More eyeballs are now looking at screens of mobile phones because these devices are getting cheaper and better, and pay-per-use data rates are also very low in some markets.

Carriers in markets penetrated by smartphones might also offer “all-you-can-eat” packages with affordable rates. This can encourage users to spend more time on mobile devices and mobile ad spending will follow sooner or later.

What are currently the biggest obstacles to the growth of Singapore’s mobile advertising market and how do you plan to overcome them?

Singapore’s media landscape is such that you can go to one newspaper or television channel and reach everyone in the country. There isn’t any significant push or pull factor that drives advertisers to seek alternative media channels.

This is different from Malaysia or Indonesia where the population is much larger and the media landscape is more diverse. So advertisers seeking to reach a big group of people in those countries cannot just go to one media. Instead, they have to be very innovative in “stitching up” various media channels. When mobile usage increases in those markets, another media channel is created and sometimes mobile becomes one of the most convenient channels for reaching the targeted internet audience.

I don’t see how the mobile advertising market in Singapore will grow unless the few dominant media companies lose readership, which would drive advertisers to look for alternative media channels.

But if smaller publications are able to attract groups of regular readers away from the mainstream media with innovative and good content, and these readers are fragmented enough, we will be able to aggregate these to grow our mobile advertising business.

However, I do not expect any mobile advertising business for the dominant media to grow because they reach out to the same group of users who might already see the ads on television or newspapers. And mainstream media are unlikely to offer lower rates on mobile ads that would cannibalise their TV or paper ad dollars.

How do you work with your partners to overcome technical issues affecting the delivery of mobile ads on different device platforms?

Device fragmentation is an issue and we are managing this big spread of markets, where some for example use more BlackBerry phones or the Android platform. Our job is to help advertisers navigate this landscape. Most of what we see is that if they want high volume, they will have to advertise through the mobile web rather than mobile applications, because the web is more or less standardised even if you have a different device and there’s a browser to manage that. But if they need to go deeper into certain devices and know their target audience very well, they might target such users as well. So how we work with advertisers depends on their target audience.

Our ‘planner.buzzcity.com’ site provides advertisers with data about how various devices and handset makers are distributed among the different markets. So our system simplifies the campaign process for advertisers.

How does BuzzCity leverage on cloud computing?

We serve about 10 billion ads a month or 300 million a day. We have the technical infrastructure such that most of these ads are served from a core data centre based in Singapore. We leverage on cloud computing to manage areas in Singapore where connectivity is too slow or to support peak ad request periods that the data centre is unable to fully handle by itself. Cloud computing also allows us to serve overseas users.

What will particularly support your marketing efforts in the diverse markets you serve?

If prices of mobile devices and data rates drop further, that will be good for us because there will be a bigger online audience being served, which will drive up demand for mobile ads.

Have you considered a listing on the Singapore Exchange? Why or why not?

The past thinking that not being listed means you’re not successful is no longer true today as many companies also do not think of listing as long as they manage the business well. I don’t see listing as the only way out for us or our final destination. When it makes sense for us to raise money from the public market, we will consider that option.

If we decide to list, we would probably not consider listing on the Singapore Exchange because local investors might not be sophisticated enough to understand the dynamics of our business. An internet mobile ad business involves low capex (capital expenditure) investment and as the business scales up, profitability can soar to very high levels as the cost of producing additional ‘products’ is almost zero. Such a business has quite different valuation dynamics that might not be well understood by local investors who are used to the traditional high capex business model. We are not like traditional businesses that sell their products at as high as possible a price to maximise profit margins. As our cost of producing one additional impression is almost zero, we can sell at lower prices and still make a significant profit margin. There’s no point for us to set prices that are too high and uncompetitive.