nowEurope

I was in Prague earlier this month conducting a partner search for a social networking company. While I cannot comment on the specifics of that business, I can pass on a few observations about the Central European Internet market.

The online populations of Hungary, Czechia, Slovakia and Austria are relatively small. They are linguistically and culturally isolated. Even the Austrians, who share a common language with Germany and part of Switzerland, prefer to use Austrian websites. This limits the scale of any online business that addresses a single Central European market.

However, it would be a mistake to conclude that there aren’t any decent opportunities in these markets.

In May this year, Central Europe Media Enterprises purchased a Czech blog portal, Blog.cz for approximately $13 million. At time of sale, the site claimed 400,000 registered blogs and 2.5 million unique monthly users, according to the CME press release.

Here in Hungary, T-Online purchased iWiW, the leading Hungarian social networking site, for a reported price of €4 million in April 2006. Back then, iWiW was pulling in 400,000 visitors per day. According to WebAudit.hu, the site’s traffic has more than doubled, to nearly 900,000 unique visitors per day.

Local audiences are still small, but falling bandwidth prices are making the Internet more widely available. Each day roughly 1.2 million users log on in Hungary and Austria, along with 1.9 million Czechs, according to eMarketer. In 2008, Hungary’s Internet penetration is expected to pass the 50% mark.

Meanwhile, Hungary’s online ad market increased 30-40% in 2007, to an estimated total of €50-55 million. Online’s share of the country’s total ad budget could reach 9-9.5% in 2008, according to RealDeal.hu. On a per capita basis, Hungarian and Czech ad spending is approaching UK levels [eMarketer].

The caveat to this seeming opportunity is that the Central European media industries are very concentrated. The majority of ad money passes through a handful of major players in each market. Independent website operators that aren’t part of the game may find it difficult to break in.

In terms of social networking, Central Europe is still has room to grow. While nearly a quarter of Americans connect online through social sites, according to eMarketer, the figure in the Czech lands is more like one in eight. Hungary is region’s most networked country, with 18.6% of Magyars subscribed to a friend-matching website.

What opportunities do you see?