August 28, 2008

A NEW CHAPTER IN THE BUZZCITY CHRONICLES


By Lai Kok Fung, BuzzCity CEO

Today, I am extremely excited to announce that MIH/Naspers has invested US$10 million in BuzzCity. They are buying a 25% stake in the company. This investment closes one chapter in our company's history and opens another.


THE BACK STORY

We first started talking to MIH (the investment arm of Naspers) about two years ago. BuzzCity's primary growth driver then was paid mobile services, not mobile advertising as it is now. But Naspers, an international media company based in South Africa, didn't find this business strategy exciting enough.

By the end of 2007, our mobile ad business was showing tremendous growth (see Note 1 below), so I contacted MIH again. Now that our business model had become ad-driven, we spoke a language that media companies understand. It didn't take long for MIH to make up its mind. By the beginning of 2008, MIH signaled it wanted in.

SO HOW WILL WE USE THE MONEY?First, I'd like to highlight that BuzzCity’s business is financially viable with earnings that adequately meet our operating expenses. This investment will enable BuzzCity to expand more aggressively than it would have otherwise. We'll put more people on the ground to talk with advertisers and publishers. We can build more localised versions of myGamma. And best of all, we now have the luxury of taking a longer term view. We don't need to be overly obsessed with short term returns in each new market. We can take time to build the brand by investing in marketing and public relations so that more potential business partners know about BuzzCity and the opportunities that exist in mobile social networking and mobile advertising. I expect BuzzCity will expand in Africa, Middle East and Latin America, and strengthen our operations across Asia, Europe and the US.

STRATEGIC BENEFITS
This investment means a lot more to BuzzCity, though, than an infusion of funds. It may sound cliched, but we really are gaining a strategic partner. In particular, there are two benefits that are readily apparent:

One, MIH has a presence and experience in many of the markets where we want to expand. These markets are experiencing explosive mobile Internet growth. But some of these markets are also characterized by difficult and sometimes opaque operating environments. We can tap MIH’s offices and personnel in these countries. This means we may share space with a company in the MIH Group in some countries, rather than open a new office. It also means there are professionals who can offer advice on how best to navigate the local markets.

Two, there are business synergies with a number of companies in the MIH Group, which includes Tencent in China, Mail.ru in Russia, Sanook in Thailand and MXit in South Africa. Some are leading Internet companies, others offer innovative mobile services in the area of instant messaging, billing and content aggregation. Since our offerings are complementary, it makes sense for our companies to go to market together. In the very near future, we expect to create combined offerings that will help BuzzCity attract more advertisers and publishers. In turn, BuzzCity can help MIH portfolio companies mobilize and distribute their existing media properties through our mobile community and monetize the resulting traffic through our mobile ad network.

(We were recently misquoted by a blogger – who was then quoted by other bloggers -- as having said that BuzzCity was in talks with an Indian entity about a strategic partnership. While this was not accurate, MIH/Naspers has equity interest in Indian companies like ACL-Wireless and Ibibo.)


CLOSING ONE DOOR, OPENING ANOTHER
Since MIH confirmed its interest in BuzzCity at the beginning of the year, it's taken a number of months to finalise the investment because BuzzCity is simultaneously restructuring its shareholdings. This required multiple negotiations as three of our initial venture investors – 3i, BancBoston and SPH Multimedia – are taking this opportunity to cash in their chips. (SPH Multimedia is keeping a small stake.) The industry jargon is "selective capital reduction" which simply means that BuzzCity is using a portion of the new round of investments to buy out the other shareholders. 3i, BancBoston and SPH Multimedia have been great partners and I would like to thank them for their support over the last eight years.

In addition, we have taken the important step to convert all existing preferred shares into ordinary shares. As is the case with many start-up companies, our early-round institutional investors purchased stock that carried special rights. Now, all shareholders hold common stock. This simplifies corporate governance and future financing.

I am really excited about the future. MIH's investment is a vote of confidence in BuzzCity's strategy to connect the "UNWIRED". With this new round of financing, I feel like BuzzCity is graduating from our adolescent years and that we are now ready to make an even bigger splash in the world of mobile communities and advertising. Stay tuned, or better yet, come join us on this exciting ride!

Note: A word about advertising. BuzzCity served 445 million ads in December 2007, a ten-fold jump from January. Today, the picture is even stronger. The number of page views served on the myGamma Mobile Ad Network rose 300 percent from August 2007 to August 2008. The index is growing 50 percent on average every quarter.