Powwownow powers into web conferencing with freemium acquisition

20 July 2010, Telegraph

Andy Pearce, the co-founder of the low-cost conference call business that’s seeking to commercialise collaboration software firm Yuuguu, thinks the power of ‘free’ is overstated.
 

Andy Pearce, the joint chief executive of Richmond-based conference calling business Powwownow, has been eyeing up potential acquisitions for some time.

While his business, founded in 2004, has been well served by its low-cost, easy to use conference calling proposition, which last year saw it grow its turnover to £5m and its market share by 3pc, Pearce and his business partner Paul Lees are aware that the conference call market will eventually level-off.
 
With the need to diversify identified, video conferencing and shared desktop functionality have been on the company’s shopping list since Business Club last spoke to the company in November.

It’s taken longer than Pearce would have liked, but last week Powwownow announced the acquisition of 70pc of free web conferencing business Yuuguu for an undisclosed sum. “It was very tough,” Pearce admits. “It took us six months to get to a deal.”

Yuuguu, founded by Anish Kapoor in 2007, had received venture funding from Rising Stars and Liverpool Seed Fund and signed up 300,000 users, but failed to commercialise its online service, which offers desktop sharing and instant messaging

“Yuuguu gives us the opportunity to offer unified communications, which are offered by the Ciscos and Microsofts of this world, to small businesses, at a much better price.

“The challenge is in how we monitise a totally free service, start getting some cash out of those 300,000 users and make it wash its own face because at the moment it’s loss making.”

Pearce thought the impressive user figures and relatively paltry revenues would make Yuuguu an attractive target in terms of price, but doing the deal proved a protracted process because the interested parties couldn’t agree on the right metric.

“Because it’s got 300,000 users, are you saying I should pay a certain amount per user? Or am I paying a multiplication of revenue? Or just buying the software?” says Pearce.

“To start off with, everyone wanted big money out of us, but when you look at the revenues and what’s been invested, you’ve got to make an honest decision on what the company is worth,” says Pearce. The price that was eventually agreed was sweetened for the sellers with an incentive to help make the deal work; Powwownow took 70pc of the business, leaving the venture capitalists and the original management team with a stake “on the basis that it’s going to be successful”.

Powwownow is on target to achieve revenues of £7.5m this year, but doesn’t expect Yuuguu to start making a significant contribution for as long as 36 months. Exactly how it will be commercialised is still being discussed, but Pearce doesn’t think its ‘freemium’ – offering a basic service for free and charging only for premium elements – business model holds much water.

“I don’t believe there’s a model now for free business to business (B2B) applications.”

Free can be fine as a short term marketing ploy, he says, but “once you give it away for free it’s very difficult to get yourself out of that situation”.

“More free web conferencing companies are going bust. Businesses are used to paying for things. Let them try it for free, but then charge them.”

Based on the price of the competition, he feels that simplifying web conferencing and reducing the cost should be a compelling enough offering for small business customers.

“Businesses are used to paying for things. A WebEx service – which admittedly provides a good look and feel and a lot of functionality – costs £30 a month. To have our product for a year costs £150, it’s a massive saving.”

The company, which operates in 15 countries and makes 35pc of its revenues outside of the UK, is also hoping to exploit Yuuguu’s many US-based users to help it grow more quickly in the States. It will add video conferencing next, although Pearce hasn’t decided whether this will be through acquisition or building its own service.

“If it’s a company in a similar situation to Yuuguu and won’t cost too much, [we might buy], but to write something for ourselves won’t be that difficult. But it will take longer and if we buy it off the shelf we can probably embed it quite quickly.”