Strategy: how Axel Springer calculated and then bought its way to European digital dominance
I wonder if the European digital economy will follow ‘Lineker’s Law’: 22 startups try to become the winner who takes all, and in the end the Germans win. It looks a bit like it, when you look at Axel Springers rise to digital dominance in the last half decade. From virtually zero – “a mere internet midget” according to the Financial Times Deutschland, Axel Springer strategized, calculated and shopped itself to the very top of the European digital ranking for publishing houses.
2012 was the first year that Axel Springer derived more revenue from its digital properties than from its national newspapers – and those print publications are not the least (Springer’s tabloid Bild, still printed on 3 million copies, can move public opinion all by itself). In Q1 of 2013, Springer’s Digital Media division again reaffirmed its position as the group’s strongest operating segment by increasing its revenues a whopping 20.9 percent compared to the first quarter of 2012.
So naturally, after my talk with Schibsted, I also wanted to hear about how Axel Springer is reshaping itself into a digital company. Schibsted decided very early on to put a lot of firepower behind classifieds, adopting the motto “the internet is made for classifieds, and classifieds are made for the internet”.
Schibsted innovates radically, following Clay Christensen’s advice on how to disrupt yourself almost to the letter. Spin out, spin in, allow spun out brands to compete at lower prices with its own parent brands, the works.
Springer, according to Ulrich Schmitz, of the company’s Electronic Media Division, was slower on the uptake. It came late to the game, in 2005 to be precise, a time when Schibsted had already perfected its classifieds business model, launching free classifieds sites in Spain and France. Sites that would go on to crush the competition and become blockbuster properties. Springer, by comparison, wasn’t nearly making a euro from digital back in 2005.
Schmitz: “We started our digital growth initiative in 2005. At that time, we had almost zero euro in digital revenues. We had some activities with content sites, but almost no pure online businesses.” This is how the press wrote about Springer’s digital strategy in the year 2000:
Springer did already have an investment in Stepstone at the time, Schmitz says, the Norwegian startup that had outraced Schibsted in the jobs classifieds. “To be honest, we were convinced that online classifieds would become a huge business, but we started on a small scale.”
In its initial digital growth push, Springer was not looking for startups, or trying to launch its own new brands, like Schibsted, says Schmitz. “We decided on a policy of investing in new business models if they seemed to be sustainable. We invested mostly in companies with a clear track record and huge growth potential.”
“Classifieds was one area. Another was performance marketing. We were an early investor in Zanox, an affiliate marketing startup, and Idealo, a price comparison site which is now the market leader in Germany. A third market was what we call content sites with a strong community around it – like aufeminin.com, a newcomer in the content market that wasn’t related to our existing brands.”
The strategy was to opt for bigger investments in companies that were already substantial, like Zanox, which was “a big investment at the time”. Schmitz: “We really opted for big tickets, late stage investments. We still do. We wanted and still want companies that are either already market leaders or on a clear path to become market leader, or at least with a decent potential to become number one.”
By big tickets, Schmitz does mean big tickets: it paid approximately € 625 million for SeLoger.com (which is French for something like “to settle into one’s home”), the market leader in real estate listings in France. As recently as 2012, it paid € 127.5 million for the Belgian market leader in real estate classifieds, Immoweb. “It’s the same league,” says Schmitz. “When you have a look at our investments of the last year, we’re trying to build up a substantial portfolio of market leaders.”
The strategy seems to have worked pretty well: this is how Springer stacks up against the other European players (2012):
If Schibsted is more of a betting company – making very clear choices and executing radically on them, Springer has a more cautious approach.
Says Schmitz: “We never made a bet. It was always very calculated. What we do is to try to develop the portfolio as organically as possible: we buy substantial businesses and generally invest in line with our core competences: classifieds, content of course, and marketing. All the companies we acquired have seen growth after our investment – which might be a difference to other media companies.”
How about e-commerce, I ask. Other publishers are risking themselves into e-commerce, lured by the fast growth of e-commerces, and the huge revenues – even though the profits are low. “Well, we have Idealo. Price comparison is very close to an e-commerce, but we don’t have an inventory risk there: we don’t have the goods on stock. We’ll want to keep it that way.”
So part one has been quite successful for these two European players: pivot from print only to digital too. The question now is: will they make the transition to global players too? Publishers have a tendency to remain very close to their home markets. We see France, Spain, Belgium, Central and Eastern Europe in the list of countries where Springer did acquisitions. But what about Latin America? Asia? And, why not: the US? How difficult will that be?
Schmitz: “I don’t think that it will be necessarily difficult. But I do agree that it will be a challenge. Digital businesses are international businesses, and you have to have a clear look to which country you want to launch in.”
“But we have some good examples already in the portfolio: Stepstone is already very international. It is part of the strategy to internationalise. That’s also what makes the business today so radically different from how it used to be. Classifieds were a national or even a local business. Now they’re at least national or international. And I think there’s still a lot of space to expand.”
Avito.ru recently merged with two competitors – usually a sign that the market is maturing? “We think it still grows. I think there should be room for more profitability. When you have a huge market share, you grow with the digitziation of the population. It depends on the market how much growth there is. We still see growth, and more importantly: we see it as a stable business.
Which may be why Axel Springer is now turning its attention to early stage investments too – a new approach for the company. In February, it announced the “Axel Springer Plug and Play” accelerator, to be started in Berlin, in cooperation with the California based Plug & Play.
“We laid a good foundation with late stage investments to expand our business and we will continue to focus on this area. But we now also want to get closer to emerging businesses. It’s important to understand what’s next and that means you have to get closer to startups, and do business in the startup area: to invest in them, but also to cooperate and to open the doors in both directions.”
“And we are quite well positioned for this too – we have a constant deal flow: we get roughly a 1000 offers a year, many of them early stage. But still, for many startups Axel Springer was a company to approach later in the game, and we wanted to get in touch earlier. It’s a completely different business, but I would say this working with emerging businesses is important to us now.”
And Springer is prepared to go a bit further outside its comfort zone here, says Schmitz. “We have fixed the center of focus for Axel Springer Plug and Play on the same areas that I described before: classifieds, marketing, community and content. But I think we’re willing to take a slightly higher risk here. It’s nice when it’s media related, but we’re fine if the link with media is somewhat fuzzier.”
So, say I’m a startup. What do I bring to Axel Springer? Schmitz has clearly heard this question before: “You should bring technology, or at least knowledge about technology, and you should bring business understanding. I see very few – too few – people working with content, which is admittedly hard to monetize. But mobile, there is a lot of room for new businesses. We recently did an investment in a company working on location based services. It’s been a buzzword for the last fifteen years, but I do expect the real business to come now. What I’ve seen so far, it’s only just beginning.”
Springers first call for applications was still running at the time of the interview, but Schmitz did see a few trends already: “I think we see a lot of people working on a serious business model. And I think that’s the right direction. We see more people working on technology – going further than “let’s put this and this together and see what it does”. These founders put a lot of thought into their business, and I hope this will be the future of the business.”
How about the quote I saw in Forbes some time ago, that Germans were so risk averse “that most of them don’t even have a credit card”. Schmitz: “I don’t see this when I look around in the startup community. It might be that Silicon Valley based startups think bigger, but they also have a bigger market than German startups, of course.”
Which begs the question: considering what we said earlier about Springer being mostly a European company, how good a partner is Axel Springer for a European startup? Can it take my startup global? Schmitz: “Our reach is mainly European. We understand Europe very well, and the differences in all the European countries. That’s a huge asset. Localization is more than translating the language. We can see that very clearly in the real estate sites that we operate: the UK market is radically different from the French or the Belgian market.”
And the last question: what about all the heat in the startup market – all the accelerators, corporate venturing initiatives, incubators, in house accelerators: are they making life harder or more expensive on Springer?
Schmitz: “No. It has always been hard to find the right startups. And there’s no rules as to how you can get to them. On the contrary, I think we need those initiatives. I’m glad that we’re beginning to see more of them, that it’s becoming part of an ecosystem. A normal ecosystem needs competition. We speak with all the others, and I expect us all to foster the startup community. All the accelerators: they’re convincing more potential founders to start a business, and that’s fine. That’s what we need.”
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