Turkish Online Advertising Gap

AdsQuintura blog reports today that the Russian online ad market size has reached almost $1.4b in 2011.  This represents a 56% jump YoY.  These are fantastic numbers for the market.  No wonder the country has produced two massive internet companies Yandex and Mail.ru, that have primarily ad-based revenues.

In comparison, the online ad market in Turkey is estimated to be around $400m in 2011 (The IAB figures for 2010 were 271m Euros).  Furthermore, my personal estimate is that at least $250 of this is Google, which leaves a paltry $150m for any local company that is going after ad dollars.

This is a problem that impacts the ultimate quality of original Turkish content, which is monetized at lower rates than other geographies.  It certainly explains the dearth of online content businesses that have reached any significant scale (the Nokta sites, Eksi Sozluk, Mackolik and SporX are the exceptions here).  And finally, it points to a huge opportunity as one would expect this gap to close.

As one of our investment themes, we will be watching solutions that enable more effective monetization of content, beyond ad networks, and lean producers of high-quality content that can attract online ad dollars. 

Sequels and Startup Clones

I was just browsing Google Zeitgeist 2011, and noticed that 7 out of top 10 movie searches in Turkey were sequels.  I thought, "ah, shame on the Turks, for not rewarding originality".  Then I made my way to the list top grossing movies globally, and immediately apologized from my fellow Turks: All but two of the global list are sequels. In fact, the top seven are all sequels!

Thinking of this phenomenon reminded to a popular topic in internet ventures.  In our industry, adaptation of successful, proven business models, in new markets or verticals is often scorned.  Entrepreneurs are chastised for their lack of originality and innovation.

I think there's a key difference between sequels and internet clones.  Film is a creative industry.  Formulaic churning of unoriginal content in a creative industry may very well be a strategic business choice by content companies, and while it may make business sense, it certainly erodes value from the "creative" industry.

In my opinion, internet businesses have no obligation to be creative.  Their objective is value creation: preferably, defensible, sustainable, "thick" value.  There may be a thousand eBay clones around the world, but if each marketplace is reducing commercial friction among buyers and sellers, then each of the one thousand  clones is creating value.

Anyway, food for thought…

Here's the sappy Google Zeitgeist clip:


Local Marketplaces and Network Effects


I am sensing a tipping point in the usage of LinkedIn among Turkish professionals.  My invitation volume from Turks has increased by at least an order of magnitude since the beginning of the year.  While I have historically been very promiscuous with my LinkedIn connection acceptances, I am now changing my behavior and have modified my privacy settings to make it more difficult to friend me.

I have been watching the ratio of Facebook and LinkedIn users closely.  Today Facebook stands at 800m users and Linkedin at 116m.  That ratio suggests that with ~30m Turkish users on Facebook, Linkedin should enjoy a crowd of 4m.  I don't know what that number is but Google AdPlanner suggests traffic numbers at less than 1% of global traffic.  That tells me the traffic and attention upside on LinkedIn for Turkey remains enormous.  

Combine that with the facts that LinkedIn is enjoying the recent growth I mentioned (albeit anecdotally) in the first paragraph and it is already ranked 61 on Alexa Turkey, and one would expect LinkedIn to break into the top 25 properties by Turkish traffic fairly soon. Game over. LinkedIn has won.

Cember.net was the first company to try to capture the Turkish professional networking opportunity.  After the Xing acquisition, the mindshare that it enjoys has all but disappeared.  That was followed with a few attempts to provide similar utility to Turkish professionals, but no one was able to reach critical mass.  Now LinkedIn has arrived and the window of opportunity has been shut.

This should be a lesson to ventures in areas with significant global network effect.  In local markets, there will exist a window of opportunity to build a marketplace and get to critical mass, at which point you can exit the local venture before the global players prioritize your market.  If you are too slow, you will not be able to realize value before the global network effect kicks in.

Turkey’s Bright Internet Future


Last week Sina Afra had a good post on why Turkey has turned into a hot internet market, as a follow on to Robin Wauters's post on Trendyol's new round in Techcrunch.

All of this attention is obviously triggered by the tremendous year Turkish internet industry has had.  We have enjoyed a landmark period where we've seen two large exits in the $200m range to global strategic buyrs (GittiGidiyor-eBay and Markafoni-Naspers), and numerous investment rounds from top VCs like Tiger Global, Kleiner Perkins, Intel Capital, ePlanetEarlybird and Hummingbird.

The interest is certainly not limited to the names mentioned above.  I have probably had more conversations with global VCs about Turkey in the last 6 months than the last 6 years combined.

Sina does a good job going through some of the reasons why Turkey is so hot.  He focuses on:

  • Large internet population: estimated at 35m, 5th in Europe
  • High growth e-commerce penetration, with huge upside remaining
  • High engagement, evidenced by the huge Turkish population on Facebook
  • Favorable demographics – 70% of online population <34 years of age
  • Strong payments and logistics infrastructure, critical for e-commerce

I fully agree with all of Sina's points, and I won't spend more time on these.  Turkey's getting all kinds of investor attention in every asset class and I think the country's merits on the macro level are evident to most.

However, I do want to point out some additional key actors who have contributed to the growth of the internet sector in Turkey.

First is talent.  There is an increasing number of young, smart, well-educated entrepreneurs launching technology ventures in Turkey.  For the best and the brightest,with plenty options in traditional careers, launching or joining a startup is much more of a viable career path today.  SocialWire (aka Iletken), Peak Games, Gezlong, and KonutKredisi.com.tr are a few examples that quickly come to mind.

Second is the growing diaspora of Turkish entrepreneurs, investors and professionals around the world, interested in and supporting the Turkish internet sector.  They understand the dynamics and the promise of theTurkish market and their influence, experiences and conections have been helpful to many Turkish ventures.

Third is the Turkish interent user. When you observe the meteoric growth of Turkish ventures like Grupanya, Markafoni, Trendyol, YemekSepeti and Nokta, you realize that the Turkish internet user is hungry for high-quality offerings, both in media and services. If a venture is able to offer first rate service, the uptake is extremely fast.  Sometimes the recipients of this attention are global players, but local ventures almost always get a first shot at attention.

I continue to believe we are in the early chapters of the Turkish internet story.  I look forward to helping build the next generation of Turkish internet winners.

UPDATE: With this post, I realized I'd missed Ari's post on the same topic last week.

Turkish Broadband Growth

Broadband First, apologies for a quite period on this blog. I have been buried in some new initiatives, which I will share soon.

However, this piece of news that crossed my screen today (via webrazzi) tipped me over to break the silence: 

The Turkish broadband market has reached almost 7.5m subscribers in 1Q2010 and has grown at an amazing 21% rate YoY.  (Source: BTK)


I don't have the time to look it up, but this must be the fastest growth in Europe.  It certainly is the most encouraging news relating to my investment thesis on Turkish internet, since the comScore online engagement news about a year ago.


Clay Shirky does not write very frequently, but when he does, it's often worth paying attention to.  His latest post is no exception.

Sriky is pointing out the changes in the media business and the inability of old media to comprehend them.  He summarizes his point in a fun way:

To pick a couple of examples more or less at random, last year Barry
Diller of IAC said, of content available on the web, “It is not free,
and is not going to be,” Steve Brill of Journalism Online said that
users “just need to get back into the habit of doing so [paying for
content] online”, and Rupert Murdoch of News Corp said “Web users will
have to pay for what they watch and use.”

Diller, Brill, and Murdoch seem be stating a simple fact—we will
have to pay them—but this fact is not in fact a fact. Instead, it is a
choice, one its proponents often decline to spell out in full, because,
spelled out in full, it would read something like this:

“Web users will have to pay for what they watch and use, or else we
will have to stop making content in the costly and complex way we have
grown accustomed to making it. And we don’t know how to do that.”

What Clay Shirky is identifying for the media industry, can be attributed to the Turkish business environment in the broadest sense.  It even includes businesses who were born to the connected economy.

My investments are built on one simple thesis:  That Turkey has lagged
comparable markets in the transition of economic activity to the
connected platforms.  I think there's enormous profit potential in this
situation, if the right exposure is attained.  And part of it comes
from the behavior of incumbents in the Turkish economy. I will be thinking more about specific examples and try to document them in this blog.

S&P Upgrades Turkey

S&P has upgraded Turkey's sovereign credit rating today.  I think i's well-deserved and long overdue, given the level of resiliency Turkey's shown through the global credit crisis.  It's also a bit ironic that the move coincided with recent troubles all over the EU, particularly Greece and Portugal (via Marketwatch).

We have not seen any bank failures, significant stimulus moves by the state, or any large company busts.   Turkey's held up remarkably well and that performance supports my overall bullish stance on my country.

Value of the Identity Layer – Payments Edition

Social-brand-identity Dave McClure has a fun recent post/rant on business models.  In it, he makes a simplification:

Well because as we transition to a Startup Ecosystem driven by direct
payment & subscription business models, i want to make it clear how IMPORTANT it is to make sure users don't forget their passwords.  If they forget their password, and/or can't recover it, then guess what MoFo — YOU DON'T GET PAID.

While I agree with his point, he then goes on to assert that the frequent-use models don't have this problem and therefore should win the transactions/subscriptions business models, which is where I start to get question marks.  He provides examples from his tenure at PayPal and concludes that since Facebook and Google are the most frequently used properties, this is their game to use.

I also agree with the last point.  However, I think it's a gross simplification to tie the causality to frequent use.  It's the identity layer that counts.  Not the frequency.  I play some casual games daily.  but they don't know about me nearly as much as Google or Facebook does.  It's that intimate knowledge of who I am that counts!

TBI Research is pointing out the revenue potential demonstrated by some recent data at Facebook through payments.  It's not surprising that the results are positive.  Payments are directly tied to identity.  PayPal is under huge threat here.  In fact, once the payment structures start to slip, eBay will be under threat as well. 

The identity layer is enormously valuable. The biggest contenders for it are Google (because of Gmail) and Facebook.  The identity layer will allow these companies, as well as those who will be able to grab a piece of it, to challenge some very large internet commerce areas.  Payments are a great candidate.  Others will be classifieds & listings, and loyalty programs.

I think there still is an opportunity in the Turkish identity layer, despite Facebook's domination here.  Not sure how one should play it but I continue to think about it.

NuBridge Venture Summit – A Turkish Internet Milestone

Newbridge I blogged about the NuBridge Venture Summit (and the preceding NuBridge Angel Summit, which took place last week and was extremely successful) last week.  However, as we are about to kick off this event, I believe it's such an important event for the Turkish internet industry, that I wanted to blog about it again, this time in a dedicated post.

PamirgelenbeThe organizer of the event, Pamir Gelenbe, is London-based VC with Turkish roots.  He approached me with the idea that a TechTour-style mini-conference would make sense for the Turkish market, while we collaborated on the European Tech Tour's Web & Mobility Summit back in November.  I thought it was a great idea and said that we'd support the event.

 In the following months Pamir worked hard at putting together an event that now has such a spectacular line up of participants that my expectations are far exceeded.

The event's format is primarily short presentations by leading Turkish internet companies, interspersed with panel discussions by entrepreneurs and venture capitalists.  There will be networking opportunities that will allow participants to connect and hopefully, a few funding deals will emerge from the event.

As with all events of this type, the critical success factor is who the attendees are.  On that front, Pamir has done an excellent job and has lined up the following participants, each of whom play an important role in global venture capital:

  • 3TS
  • Accel
  • Acton Capital
  • BakerMcKenzie
  • Big Bang Ventures
  • Endeavour Vision
  • General Atlantic
  • Golden Horn Ventures
  • Holtzbrinck
  • Index Ventures
  • Sardis Capital
  • TA Asociates
  • Tiger Global
  • Tomorrow Focus AG
  • Ventech
  • Wellington Partners

For the event to accomplish its mission, an investor list of this caliber would have to be met with a local internet company line-up of equal strength.  On that end, the event boasts a who's who of Turkish internet sector:

  • Airties
  • befunky
  • Bilyoner.com
  • Cimri.com
  • Digitouch
  • Dogan Online
  • Doktorsitesi
  • Ebi
  • e-kolay
  • enuygun
  • Euromessage
  • Gamesultan
  • Gelirortaklari
  • grou.ps
  • Hepsiburada.com
  • Hitay
  • limango
  • Magnet
  • Mynet
  • Nokta
  • Sanalika
  • Sporx
  • Tasit
  • Vatan Bilgisayar
  • Yemeksepeti.com
  • Yogurt

I am very confident that this event will be looked upon as a unique milestone in the development of the Turkish internet industry.  We are very proud to have our portfolio companies (befunky, grou.ps and Yogurt for GHV and YemekSepeti.com for me) presenting, and to have had the opportunity to support this event as a sponsor.