Earlier this year, in April 2008, Yahoo! Inc announced that it had acquired the full assets of a Budapest company, Tensa Kft, which operates the Web Analytics service Indextools. Yahoo! is now conducting a major upgrade of the company’s technical infrastructure in order relaunch Indextools as a free service bundled to its Yahoo! Advertising network – in a fashion similar to Google Analytics. (Disclosure: I worked as Marketing Director at Indextools in 2004 and 2005.)
I wish that I could point to this deal as part of a trend, but it is not. Few Central European Internet businesses can compete head to head with VC-funded US companies, as Indextools successfully did. However, Indextools does offer an useful case study of how CEE businesses can maximize their local advantages while minimizing their weaknesses, in order to win business on global markets.
Minimize your weaknesses
Early stage Central European startups generally don’t get funded. That was especially true directly following the dotcom crash. The first version of Indextools was a free web counter launched in 2000 by two friends, Marton Szoke and Peter Galantha. They shared their first office with Marton’s mother and father who sold Mitubishi manufacturing robots from a warehouse facility in the grey, proletarian outskirts of Budapest.
In 2001, when the two launched a paid version of Indextools, practically the only people making money were pornographers and spammers. Persistently, and over time, Szoke grew his business larger – but strictly out of cash flow. By the time Yahoo! purchased Indextools in early 2008, the company still occupied the same office in outer Budapest, although Szoke’s parents had moved out by then.
The most two most important places that Szoke found to cut costs were Sales and Marketing. He did this by outsourcing those functions to others. Szoke’s strategy was to build a network of resellers, web agencies and designers who offered Indextools’ web analytics as an add-on service to their customers. The Indextools Partner Program was the motor of that company’s growth, generating more than two thirds of all revenues during some periods.
Indextools’ low cost base also meant the company could compete on price. In the US, some corporate clients were paying tens of thousands of dollars each month for Web Analytics services. Indextools could offer the same features as its VC funded US rivals, but at a fraction of the prices they charged. In order to win this business, Indextools needed a physical presence in the United States, including a sales team. In 2005, the company opened a New York office.
Even so, Budapest remained the center of gravity. The Partner Program continued to generate the majority of revenues. When Yahoo! purchased the company the first thing they did was fire the sales and marketing team. The Yahoo! Analytics team will continue to operate in a warehouse facility in outer Pest. In the end, what remains of Indextools is the strongest part of the business – the development team.
In order to compete on global markets, CEE companies need to minimize their weaknesses and maximize their advantages. Marton Szoke overcame a lack of investment capital by keeping costs low and outsourcing his sales and marketing. The second part of the story is how Indextools maximized its advantages.
